Mutual Recognition of Funds (MRF) between Luxembourg and Hong Kong

Mutual Recognition of Funds (MRF) between Luxembourg and Hong Kong

1. The Securities and Futures Commission (SFC) and the Commission de Surveillance du Secteur Financier (CSSF) signed a Memorandum of Understanding concerning Mutual Recognition of Covered Funds and Covered Management Companies and related cooperation (Memorandum) on 15 January 2019.
   
   
2. In this circular, Luxembourg funds that are eligible for SFC authorisation or have received SFC authorisation under the MRF are denoted as “Luxembourg Covered Funds” while Luxembourg management companies that are eligible to manage Luxembourg Covered Funds are denoted as “Luxembourg Covered Management Companies”.
   
   General principles
   
   
3. MRF operates on the principles that, in respect of a Luxembourg Covered Fund that has been authorised by the CSSF and is seeking or has received authorisation for offering to the public in Hong Kong:
   
   a. the Luxembourg Covered Fund shall meet the eligibility requirements in accordance with this circular and comply with all of the applicable requirements set out in this circular (see below);
   
   b. the Luxembourg Covered Fund shall remain authorised by the CSSF and be allowed to be offered, marketed and distributed to the retail investors in Luxembourg;
   
   c. the Luxembourg Covered Fund shall operate and be managed in accordance with the relevant laws and regulations in Luxembourg and its constitutive documents;
   
   d. the sale and distribution of the Luxembourg Covered Fund in Hong Kong shall comply with the applicable laws and regulations in Hong Kong;
   
   e. where relevant, the Luxembourg Covered Fund and the Luxembourg Covered Management Company shall comply with the additional rules released by the SFC governing the authorisation, post-authorisation and ongoing compliance in the context of the offering, marketing and distribution of the Luxembourg Covered Fund to the public in Hong Kong;
   
   f. the Luxembourg Covered Management Company of the Luxembourg Covered Fund shall ensure investors in both Luxembourg and Hong Kong receive fair treatment, including in respect of investor protection, exercise of rights, compensation and disclosure of information; and
   
   g. ongoing disclosure of information on the Luxembourg Covered Fund shall be made available to investors in Luxembourg and Hong Kong at the same time (so far as is reasonably practicable given the different time zones of the jurisdictions).
   
   
4. In general, funds that are seeking SFC authorisation or have received SFC authorisation for offering to the public in Hong Kong pursuant to Section 104 of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (SFO) must comply with the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products (SFC Handbook) and the circulars, guidelines and other requirements as may be issued by the SFC from time to time (together with the SFO, the relevant Hong Kong laws and regulations). On the basis of the principles set out above, if a Luxembourg Covered Fund complies with the relevant Luxembourg laws and regulations and the conditions as set out in this circular, it is generally deemed to have complied in substance with the relevant Hong Kong laws and regulations and will enjoy a streamlined process of authorisation for offering to the public in Hong Kong.
   
   
5. In view of the differences between Hong Kong’s and Luxembourg’s regulatory regimes, to ensure proper investor protection and consistency with the existing Hong Kong regime for authorised retail funds, this circular sets out the additional requirements with which a Luxembourg Covered Fund must comply when applying for SFC authorisation pursuant to Section 104 of the SFO for offering to the public in Hong Kong under the Memorandum, as well as other requirements which a Luxembourg Covered Management Company and a Luxembourg Covered Fund must observe after obtaining SFC authorisation. The CSSF will issue a separate circular regarding the authorisation of eligible Hong Kong funds for public offering in Luxembourg.
   
   
6. The existing Acceptable Inspection Regimes on managers and Recognised Jurisdiction Schemes on funds, and the streamlined measures currently adopted by the SFC in processing the authorization of undertakings for collective investment in transferable securities (UCITS)¹ funds as set out in the “Application of the Code on Unit Trusts and Mutual Funds on UCITS funds” dated 17 December 2018 (as may be amended from time to time) will continue to apply in respect of Luxembourg UCITS that are not eligible under the MRF.
   
   Eligibility requirements and types of eligible funds
   
   
7. The eligibility requirements (Eligibility Requirements) are set out in Annex B to this circular.
   
   
8. The SFC and CSSF may consider extending the MRF to include other types of funds in future in accordance with the Memorandum.
   
   
9. All Luxembourg Covered Funds must comply with the requirements set out under the “Requirements applicable to all Luxembourg Covered Funds” section below.
   
   Requirements applicable to all Luxembourg Covered Funds
   
   
10. To ensure proper investor protection and consistency with the existing Hong Kong regime for authorised retail funds, all Luxembourg Covered Funds are required to comply with requirements set out in paragraphs 11 – 32 below, as well as the relevant requirements as set out in Annex A.
    
    Representatives in Hong Kong
    
    
11. Each Luxembourg Covered Fund must appoint a firm in Hong Kong as its representative in compliance with Chapter 9 and 11.1(b) of the Code on Unit Trusts and Mutual Funds (UT Code).
    
    Operational and ongoing requirements
    
    Home jurisdiction supervision
12. The Luxembourg Covered Fund must, on an ongoing basis, remain authorised by the CSSF for offering to the public in Luxembourg. The Luxembourg Covered Management Company of the Luxembourg Covered Fund must also remain authorised by the CSSF to manage UCITS in accordance with the law of 17 December 2010 relating to undertakings for collective investment (as amended) (Law of 2010). Both the Luxembourg Covered Fund and its Luxembourg Covered Management Company must be subject to ongoing regulation and supervision by the CSSF.
    
    Changes to Luxembourg Covered Funds
13. Changes to a Luxembourg Covered Fund must be made in accordance with the applicable Luxembourg and Hong Kong laws and regulations and the provisions of its constitutive documents.
    
    
14. Any proposed changes to a Luxembourg Covered Fund that fall within 11.1 of the UT Code and revisions made to its offering documents relating to such changes must be submitted by its Luxembourg Covered Management Company for approval by the SFC in accordance with the relevant requirements set out in Annex A. These changes may only take effect upon approval by the SFC and compliance with any relevant notice requirement.
    
    
15. Any proposed changes to a Luxembourg Covered Fund that do not require SFC’s prior approval pursuant to 11.1 of the UT Code and revisions made to its offering documents relating to such changes must be filed with the SFC and comply with the relevant requirements set out in Annex A.
    
    
16. Investors in Luxembourg and Hong Kong must be notified at the same time (so far as is reasonably practicable given the different time zones of the jurisdictions) about any changes to the Luxembourg Covered Fund by the Luxembourg Covered Management Company. Equal treatment should be given to investors in both jurisdictions in terms of the form which that notice takes².
    
    
17. For avoidance of doubt, changes that render the Luxembourg Covered Fund ineligible under this MRF (for example – the fund changes strategy and this fund no longer meets the eligible fund type definition) and revisions made to its offering documents relating to such changes must require SFC’s prior approval. The Luxembourg Covered Management Company must notify such change to the CSSF and to the SFC as soon as possible.
    
    Breach
18. In the event of a breach of Luxembourg domestic laws or the requirements set out or referred to in this circular, which is notifiable to the CSSF and which could affect Hong Kong investors in a Luxembourg Covered Fund, the Luxembourg Covered Management Company must endeavour to notify the CSSF and the SFC at the same time and rectify the breach promptly. The Luxembourg Covered Management Company will notify the SFC once the breach has been rectified.
    
    
19. Following SFC authorisation of a Luxembourg Covered Fund under Section 104 of the SFO, if a Luxembourg Covered Fund ceases to meet the requirements as set out in this circular, its Luxembourg Covered Management Company must notify the SFC immediately. The Luxembourg Covered Fund must not continue to be offered to the public in Hong Kong and must not accept subscriptions from new investors in Hong Kong, without SFC’s prior approval.
    
    Withdrawal of authorisation
20. Following SFC authorisation of a Luxembourg Covered Fund, if its Luxembourg Covered Management Company no longer wishes to maintain the authorisation of the fund, it should apply for withdrawal of authorisation of the fund from the SFC and provide notice to Hong Kong investors of its intention not to maintain such authorisation in accordance with the relevant Hong Kong laws and regulations.
    
    
21. The SFC may at any time review a Luxembourg Covered Fund’s authorisation and may modify, add to or withdraw any of the conditions of such authorisation, or withdraw the authorisation, as it considers appropriate.
    
    Sale/distribution, offering documents, ongoing disclosure and advertisements
    
    Sale/distribution
22. The sale and distribution of a Luxembourg Covered Fund in Hong Kong must be conducted by intermediaries properly licensed by or registered with the SFC and must comply with the relevant Hong Kong laws and regulations relating to the sale and distribution of funds.
    
    Offering documents
23. The disclosure of information relating to a Luxembourg Covered Fund must be complete, accurate, fair, clear, and effective. It must be capable of being easily understood by investors.
    
    
24. The offering documents of a Luxembourg Covered Fund must be up-to-date and contain information necessary for investors to be able to make an informed judgement of the investment proposed to them.
    
    
25. A Luxembourg Covered Fund may use the prospectus approved by the CSSF. Unless otherwise provided for in this circular, matters such as the type of documents, content, format, frequency of update and the updating procedures must comply with the applicable Luxembourg laws and regulations and the provisions of its constitutive documents. The CSSF-approved prospectus may be supplemented by a Hong Kong covering document to comply with the disclosure requirements set out in Annex A³. The prospectus should also disclose any other information which may have a material impact on investors in Hong Kong.
    
    
26. The Luxembourg Covered Management Company of a Luxembourg Covered Fund must take reasonable steps and measures to ensure that any updated offering documents are made available to investors in Luxembourg and Hong Kong at the same time (so far as is reasonably practicable given the different time zones of the jurisdictions).
    
    Ongoing disclosure
27. The Luxembourg Covered Management Company of a Luxembourg Covered Fund must take reasonable steps and measures to ensure that the ongoing disclosure of information of the Luxembourg Covered Fund (including periodic financial reports, notices and announcements) is despatched and made available to investors in Luxembourg and Hong Kong at the same time (so far as is reasonably practicable given the different time zones of the jurisdictions) and, in the case of suspension of dealings, immediately notify the SFC. A Luxembourg Covered Fund must comply with the requirements set out in Annex A and, on an ongoing basis, disclose any other information which may have a material impact on investors in Hong Kong.
    
    
28. Subject to paragraph 30, a Luxembourg Covered Fund may use its Luxembourg financial reports as the basis for distribution in Hong Kong, provided that the reports are supplemented by the additional information and meet the other requirements set out in Annex A.
    
    Language
29. The offering documents and notices to Hong Kong investors of a Luxembourg Covered Fund must be provided in English and Chinese.
    
    
30. The constitutive documents and financial reports of a Luxembourg Covered Fund must be made available to Hong Kong investors in either English or Chinese. The language in which these documents are made available to Hong Kong investors should be clearly disclosed in the offering documents.
    
    Advertising
31. All advertisements in relation to a Luxembourg Covered Fund offered in Hong Kong must comply with the relevant Hong Kong laws and regulations, in particular, the Advertising Guidelines Applicable to Collective Investment Schemes Authorised under the Product Codes⁴.
    
    Fees
32. The Luxembourg Covered Management Company must ensure that any SFC invoiced periodic fees in respect of the Luxembourg Covered Fund are paid.
    
    Application process
    
    
33. Applications of Luxembourg Covered Funds seeking authorisation under the MRF received by the SFC will be processed under the revamped fund authorisation process (Revamped Process) as set out in SFC’s circular entitled “Circular to management companies of SFC-authorized unit trusts and mutual funds – Formal adoption of revamped fund authorization process” dated 22 April 2016 (as amended on 2 December 2016).
    
    
34. To start an application, the following documents (Application Documents) shall be submitted to the SFC:
    
    a. a duly signed and completed Application Form;
    
    b. a duly signed and completed Information Checklist⁵;
    
    c. advanced draft of the Luxembourg Covered Fund’s offering document in English (including the product key facts statement(s)) and where applicable, marked up against the latest version filed with the SFC;
    
    d. constitutive documents of the Luxembourg Covered Fund(s) in either English or Chinese;
    
    e. documents (including any confirmations and/or undertakings) required to be submitted under or pursuant to the Information Checklist; and
    
    f. a cheque made payable to “Securities and Futures Commission” in the amount of the applicable application fee (see Q.3 of the FAQs on Application Procedures for Authorization of Unit Trusts and Mutual Funds under the Revamped Process⁶).
    
    
35. Upon receipt of the Application Documents, the SFC will have five business days to assess that all Application Documents have been duly and properly submitted.
    
    
36. Applicants shall request the CSSF to provide directly to the SFC a certificate confirming that the Eligibility Requirements listed in Annex B to this circular are met. The SFC will not take up the application if no such certificate is received from the CSSF.
    
    
37. Under the Revamped Process, applications of the Luxembourg Covered Funds will be classified into “Standard Applications” stream and “Non-standard Applications” stream in accordance with the criteria as set out in Q.5A of the FAQs on Application Procedures for Authorization of Unit Trusts and Mutual Funds under the Revamped Process⁷.
    
    
38. Standard Applications will be fast tracked with an aim that SFC’s authorisation (if granted) will be given on average between 1 to 2 months from the take-up date of the applications. Non-standard Applications will be processed under an enhanced process with an aim that SFC’s authorisation (if granted) will be given on average within 2 to 3 months from the take-up date of the applications.
    
    
39. If, for any reason, 6 months have elapsed from the take-up date of the applications and no authorisation has been granted by the SFC, the applications (whether it is a Standard Application or a Non-standard Application) will lapse subject to the SFC’s right to grant an extension at its sole discretion.
    
    
40. Once the SFC authorizes the application, it will notify the CSSF.
    
    
41. The SFC encourages applicants to consult the Investment Products Division early for any clarification as to how the relevant requirements may apply and be complied with in light of their specific circumstances.
    
    
42. The SFC may issue other circulars, frequently asked questions and other documents from time to time to provide practical guidance to the industry. Please refer to the SFC’s website.

Investment Products Division
Securities and Futures Commission