On 16 November 2017, the Securities and Futures Commission (SFC) published the conclusions of its consultation on Proposals to Enhance Asset Management Regulation and Point-of-sale Transparency, which included proposed amendments to (a) the Fund Manager Code of Conduct (FMCC) and (b) the Code of Conduct for Persons Licensed by or Registered with the SFC.
The SFC has agreed to a twelve month transition period before the revised FMCC takes effect on 17 November 2018.
Changes to the FMCC will have a significant impact on SFC-licensed fund managers. Our previous briefing is available here. In this briefing, we highlight the key implications of the revised FMCC for private funds and how we can help fund managers with the FMCC changes.
The revised FMCC will also impact discretionary investment management services that fund managers provide to clients, including client agreements and internal policies and procedures.
What you need to do
Although the effective date of 17 November 2018 for the FMCC changes is some way off, fund managers should begin the process of reviewing the impact of these FMCC changes on internal policies and procedures, fund documentation and relationships with investors and key service providers (e.g. custodian). In particular, for each fund:
The manager needs to assess whether it is responsible for the overall operation of the fund (ROOF) which entails considering whether in substance it is responsible for the day-to-day operation and management of the fund. This assessment is important because additional obligations (in particular in relation to monitoring of leverage, liquidity, and the performance of custodians) are imposed on managers who are ROOF, as opposed to delegated managers whose activities are strictly limited to management of a portfolio.
The manager needs to review its fund documentation (e.g. offering and constitutive documents of the fund) as changes are likely to be required to meet the requirements under the revised FMCC. The revised FMCC requires fund managers to provide certain information to fund investors. Although it is not mandated under the revised FMCC that such information is to be provided via disclosures in the fund’s offering documents, the manager should consider whether it is preferable to disclose such information in the fund’s offering documents instead of providing the same separately. Much of the information will already be covered by current offering documents, but some revision and enhancement will inevitably be required.
The manager needs to consider whether it has in place the relevant policies and procedures required under the revised FMCC and if so, whether such policies and procedures need to be updated to meet the requirements under the revised FMCC.
The manager should also review marketing materials of the funds (if any) and ensure compliance with paragraph 7.2 of the revised FMCC.
For more see Conventus Law.