On 18 May 2018, the Hong Kong Securities and Futures Commission (SFC) published the conclusions to its consultation on the detailed legal and regulatory requirements applicable to the upcoming open-ended fund company (OFC) regime. 

The detailed requirements are set out in the Securities and Futures (Open-ended Fund Companies) Rules (OFC Rules) and the Code on Open-ended Fund Companies (OFC Code), which supplement the basic OFC framework to be introduced via amendments to the Securities and Futures Ordinance

The OFC regime will enable investment funds to be established in corporate form in addition to the current unit trust form. Subject to the legislative process, the regime is expected to commence on 30 July 2018. A profits tax exemption for onshore privately offered OFCs is expected to come into effect on the same day. 

Background on the OFC framework and the consultation and legislative history can be found in our e-bulletins of March 2016 and July 2017.

Proposed OFC Rules and OFC Code

The OFC Rules set out detailed statutory requirements concerning company formation and maintenance, the key operators of the OFC, the functions of the Companies Registry, the segregated liability feature for umbrella and sub-funds structures and cross-investments of sub-funds of OFCs, disqualification of directors, arrangements and compromises, winding-up and dissolution, and offences. 

The OFC Code contains a set of general principles which all OFCs and their key operators are expected to comply with in the management and operation of OFCs. It also elaborates on various requirements applicable to OFCs seeking the SFC’s registration, as well as requirements relating to the board of directors, investment manager, custodian, custody of assets, corporate administrative matters, auditor, financial reports, termination and cancellation of registration. There are also specific requirements applicable to private OFCs.

Amendments to OFC Rules and OFC Code following consultation

The OFC Rules and the OFC Code will be implemented with certain modifications and clarifications in light of the comments received during the consultation. Marked-up versions of the OFC Rules and the OFC Code showing the amendments made following the consultation are appended to the conclusions paper. The following are some of the key amendments: 

Instrument of incorporation: The OFC Rules and OFC Code have been revised to remove the requirement to seek the SFC’s approval for alterations to a private OFC’s instrument of incorporation for material scheme changes. It has been replaced by a post-change filing with the SFC in respect of the alterations. Material changes to the instrument of incorporation will only require shareholders’ approval. On the other hand, the SFC notes that public OFCs are required to comply with the requirements under the SFC Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products when effecting changes to their constitutive documents. 

Scheme changes: To enable private OFCs to customise their investment policy and operations from time to time to meet the demands of private investors, the OFC Code has been revised to allow scheme changes by private OFCs to be effected in accordance with the offering documents and/or the instrument of incorporation. Reasonable prior notice to shareholders is required for material scheme changes. 

Director’s eligibility: In respect of the eligibility requirements for the directors of an OFC, the SFC has amended the language in the OFC Code from “relevant industry qualifications and/or experience” to “relevant qualifications and/or experience”. The SFC clarified that the directors should have the technical knowledge and ability to perform their duties and satisfactory expertise in the business being conducted. Their relevant qualifications and experience have to be assessed based on the fund’s specific nature, investment objectives and policy. 

Streamlined termination: The requirement in the OFC Code for an auditor’s opinion to be attached to the solvency statement in an application to the SFC for a streamlined termination of an OFC has been removed. This is to better reflect an auditor’s role and the position under the Companies Ordinance. 

Ultra virus provision: The proposed OFC Rules contained a provision pursuant to which transactions outside the scope of the OFC’s object to operate as a collective investment scheme would be ultra vires. Such provision has been removed. Instead, a provision has been added to the OFC Code to make it clear that an OFC must not be a business undertaking for general commercial or industrial purpose.


The OFC regime is intended to bring diversity to Hong Kong’s fund domiciliation platform, thereby attracting more funds to domicile in Hong Kong. Investment funds which intend to adopt the OFC structure and their key operators should familiarise themselves with the applicable laws and regulations in preparation for the commencement of the regime on 30 July 2018. The SFC has indicated that it will provide guidance to the industry on the implementation of the regime. 

As mentioned above, amendments to the Inland Revenue Ordinance are expected to come into effect at the same time as the OFC regime, which will extend profits tax exemption to private OFCs, the central management and control of which are exercised in Hong Kong.

For more see Conventus Law.