Member Article

The SFC has adopted a split approach in dealing with UCITS III funds. For funds which will adopt enhanced use of derivatives and make changes to their investment policies or objectives in migrating to UCITS III, the SFC requires: • a notice to existing holders explaining the proposed changes and confirmation from the fund or its manager that the home regulator has approved the final version of this notice. The notice should contain a description of the key differences between UCITS I and UCITS III and any applicable additional risk disclosures relating to use of financial derivatives instruments (FDI). It should state the fund’s risk management and control policies are available to Hong Kong investors on request. • a revised offering document describing the new policies and evidence of the approval of the home regulator’s approval of these changes. • a letter from the manager confirming any waivers granted or special conditions imposed by the home regulator (including a nil statement, if applicable). • information relating to the risk management and control systems as submitted to the home regulator and confirmation that the risk management and control systems are appropriate given with the fund’s risk profile. For funds converting to UCITS III which will not use the enhanced powers under UCITS III, there is a simpler procedure. Disclosure will be needed in the Hong Kong offering documents that the fund will continue to operate in accordance with Chapter 7 of the SFC Code or the UCITS I regulations and a notice to existing investors in Hong Kong will be required. If such a UCITS III fund subsequently adopts the expanded UCITS III investment powers / enhanced use of FDI, at least one month’s prior notice to Hong Kong investors will be required and the additional information mentioned above for UCITS III conversion above will be needed. The SFC has set out sample wording for the notices to investors highlighting the differences between UCITS I and UCITS III and draft wording for declarations to be given to the SFC and disclosures to be included in the Hong Kong offering documents.