Recent Updates to HKSI Paper 12 Version 3.7 Manual – Asset Management

The following updates are examinable from 1 November 2024

TOPIC 1 – OVERVIEW OF THE ASSET MANAGEMENT INDUSTRY

• Material added regarding potential for future growth of asset management in Hong Kong:
  • The Qualified Domestic Limited Partner (QDLP) and the Qualified Domestic Investment Enterprise (QDIE) schemes developed by local governments in China allow foreign asset managers to raise RMB funds for overseas investment
  • The Qualified Foreign Investors (QFI) scheme, a consolidation of the Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors schemes, allows foreign access to domestic China securities and futures, as well as margin trading and securities lending
  • The Qualified Foreign Limited Partnership (QFLP) scheme, developed by several municipal governments in Mainland China, provides foreign PE fund managers and institutional investors with more favourable foreign exchange settlement treatment
  • The launch of Northbound trading on Swap Connect in 2023 allows investors to trade interest rate swap products in Mainland China

  Material added covering the introduction of Regulated Activity Type 13:

  • The SFC introduced regulated activity Type 13 – Providing Depositary Services for Relevant CISs, effective October 2024
  • The depositary (trustee/custodian) performs the following core functions for SFC-authorised CISs in Hong Kong:
    • Custody and safekeeping of relevant CIS property
    • Oversight of CIS operations to ensure compliance with constitutive documents

  Material added concerning virtual asset trading platforms:

  Virtual Asset Trading Platforms (VATPs)

  • Provide virtual asset trading services using an automated trading engine
  • Provide custody services for managed funds that directly invest in virtual assets
  • Required to be licensed and regulated by the SFC

TOPIC 2 – CLIENT OBJECTIVES AND THE PRODUCTS AVAILABLE

• Material added relating to Virtual Assets:

Virtual Assets

• Virtual assets are digital representations of value that can be transferred, stored and traded electronically, as well as used for different purposes including payment, investment, gaming and governance
• In the virtual asset market, there is a wide range of available products, with most trades supported by distributed ledger technology (DTL) – such as blockchain
• DLT enables direct transactions between individual buyers and sellers without the need for financial intermediaries – eg banks & securities firms
• There are a number of ways to classify virtual assets: security tokens, utility tokens, asset-backed tokens, cryptocurrencis and hybrid tokens
• Security tokens are considered “securities” as defined in the SFO, therefore offering and trading security tokens are subject to the SFO and relevant securities regulations
• Trading of non-security tokens requires compliance with the AML/CFT requirements
• SFC has identified significant risks associated with virtual asset investing such as cybersecurity, safe custody of assets and conflicts of interest
• Under SFC regulations, offering and trading of security tokens are limited to professional investors and should comply with the SFO
• The first virtual asset fund tracking the price of Bitcoin was launched for professional investors in April 2020
• Since 2021, China has banned all onshore businesses related to non-official cryptocurrency
• SFC needs to authorise virtual asset funds that are for public offering in Hong Kong, including:
  • Unlisted virtual asset funds
  • Virtual asset spot ETFs
  • Virtual asset futures ETFs
• SFC authorisation is required for virtual asset ETFs to be listed on the SEHK
• SFC has set out requirements for tokenisation of SFC-authorised investment products

• Material added relating to open- and closed-ended funds:

Open-ended vs Closed-ended Funds

TOPIC 3 – BASIC THEORETICAL ASPECTS OF PORTFOLIO MNAGEMENT

• No additions or changes

TOPIC 4 – THE INVESTMENT MANAGEMENT PROCESS

• Minor changes