The following updates are examinable from 30 January 2021



Update to “asset management”:

  • Asset management covers the management of CISs, as well as the activities of private equity (PE) firms and family offices

Material added covering private equity firms and family offices:

Private Equity (PE) Firms

  • When considering whether a PE firm requires a Type 6 license, the firm will need to consider the nature and scope of its discretionary investment authority in respect of the funds managed
  • Where a firm has sufficient authority to make investment decisions throughout the life cycle of a fund, it may be regarded as carrying on asset management and will require to be licensed
  • If a firm is involved in fund marketing activities, it may need to be licensed for Type 1 (Dealing in securities)

Family Offices

  • A family office that provides services to third parties would need to be licensed to engage in asset management if it has full discretionary investment authority over the investment of assets
  • Where a family office is structured so that the assets under management are being held under a trust arrangement managed by a trustee, then it may take advantage of the intra-group carve-out from the licensing regime

Material added covering open-ended fund companies:

  • It is intended that the OFC regime will allow an overseas corporate fund to re-domicile to Hong Kong

Material added covering open-ended fund companies:

Margin Requirements for Non-centrally Cleared OTCD Transactions


  • As part of the post-2008 financial crisis reforms to the OTC derivative market, minimum standards for margin requirements for NCC OTCDs have been established jointly by the Bank of International Settlements and IOSCO
  • Objectives of the requirements are to reduce systemic risk and promote central clearing
  • The Code of Conduct provides for the collection of initial margin (IM) and variation margin (VM)
  • IM and VM refer to collateral that has to be posted by one party to the other to protect the receiving party from the giving party defaulting
  • IM reflects the potential future exposure at the time of entering into the OTCD transaction, whereas VM reflects the current exposure incurred as the mark-to-market value changes over time
  • IM and VM are normally posted and collected by both parties, protecting each party from the possibility of default

Scope of Application

Persons subject to the requirements

  • The requirements apply to any licensed person who is a contracting party to an NCC OTCD transaction with a “covered entity”. They do NOT apply to registered institutions
  • “Covered entity” refers to entities that, during the 12-month period from 1 September to 31 August the following year, is either:
    • A financial counterparty (itself or with its group companies) with an average aggregate notional amount of NCC OTCD exceeding HK$15 billion; or
    • A significant non-financial counterparty (itself or with its group companies) with an average aggregate notional amount of NCC OTCD exceeding HK$60 billion
  • The following are specifically excluded from the definition of covered entity:
    • Governments
    • Central banks
    • Non-commercial government agencies
    • Multilateral development banks specified by the HKMA
    • Bank of International Settlements

Instruments subject to the requirements

  • IM/VM requirements apply to all NCC OTCD transactions, however they do not apply for certain physically settled FX transactions, certain commodity forward transactions and certain currency contracts

Exceptions to the margin requirements

  • The margin requirements may not apply in three circumstances:
  1. Where there is reasonable doubt about the enforceability of a netting agreement in respect of IM or VM or collateral protection arrangements
  2. Intragroup transactions where risk is managed on a consolidated basis
  3. The licensed person has notified the SFC that it will perform substituted compliance – licensed person will adhere to margin requirements of another jurisdiction

Initial Margin Requirements

  • IM must be exchanged where both the licensed person and the counterparty have an average aggregate notional amount of NCC OTCDs in excess of HK$375 billion (this will go down to HK$60 billion from 1 September 2022)
  • IM does not need to be exchanged where the licensed person has no counterparty risk or where the counterparty is a significant non-financial counterparty using NCC OTCDs for hedging purposes
  • IM does not need to be collected where the amount due is HK$375 million or less
  • IM received by a licensed person should be protected by using a third-party custodian and should be treated as client assets
  • IM requirements will start from 1 September 2021; VM requirements took effect from 1 September 2020

Assets Eligible as IM and VM

  • Assets accepted as collateral: cash, marketable debt securities, gold and listed share
  • Assets not acceptable as collateral:
    • Securities issued by a company in the same consolidated group as the licensed person
    • Securities significantly correlated with the counterparty’s creditworthiness or the OTCD’s value
    • Securities that are not of investment grade



No updates



Material added regarding acceptable jurisdictions for overseas-based management companies:

  • Acceptable overseas jurisdictions include Australia, France, Germany, Ireland, Luxembourg, Malaysia, Netherlands, Switzerland, Taiwan, UK and USA

Material added regarding custody arrangements for OFCs:

Custody Arrangements

  • Rather than meeting the requirements of the CUTMF, the custodian may instead be licensed or registered for Type 1 (Dealing in Securities), provided that:
    • Its paid-up capital is not less than HK$10 million
    • Its liquid capital is not less than HK$3million
    • The OFC is a client of the custodian’s Type 1 regulated activity
    • It has at least one responsible/executive officer responsible for the overall management and supervision of its custodial function
    • The custodian is independent of the investment manager
  • The custodian must keep accounting and other records for at least seven years



One update to enforcement actions


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