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Hong Kong Mutual Recognition of Funds (MRF) - regulation memo
Hong Kong Mutual Recognition of Funds (MRF) - regulation memo
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Hong Kong Mutual Recognition of Funds (MRF) - regulation memo

20/11/2020


The Mutual Recognition of Funds (MRF) is an initiative driven by the Hong Kong Securities and Futures Commission (SFC) to promote the city as an international asset management centre.

About the MRF

The SFC has entered into MRF arrangements with China and overseas financial regulators to enable eligible funds authorised by or registered with financial regulators in those jurisdictions to enjoy a streamlined process for the purpose of authorisation for offering to the public in Hong Kong and vice versa. The MRF is a bilateral regulatory framework which allows mutual funds of two markets to be distributed in each market.

A Memoranda of Understanding (MoU) has been signed between Hong Kong (HK) and the following European countries: Switzerland, France, the UK, Luxembourg and the Netherlands; and the following APAC countries: China, Australia, Malaysia, Taiwan and Thailand.

Through the scheme, fund managers in HK can gain access to a large pool of international investors. Inversely, investors from France, Switzerland, the UK, Luxembourg, and the Netherlands can increase their exposure to Hong Kong markets benefitting from the expertise of local fund managers. For European asset managers, the MRF complements the UCITs framework.

Scope

Each MRF scheme specifies the type of funds that can be passported from one country to another, fund manager’s eligibility, investment restrictions, ongoing disclosure requirements, application process, etc. In general, the funds to be passported to a other country (host jurisdiction) must be authorised for retail distribution in the home country (home jurisdiction).

SFC provides the list of Circular on each MRF in their website https://www.sfc.hk/web/EN/regulatory-functions/products/list-of-publicly-offered-investment-products/mutual-recognition-of-funds-arrangements.html  

Industry implications

Hong Kong

Fund managers are responsible for product governance covering the entire chain from inception to post sales. They must have a detailed fair valuation policy and procedures in place. Guidance on suspension of dealing as well as disclosures on ongoing charges and past performance, as well as payment of dividends out of capital, must be published.

The role of the trustee is particularly crucial. A trustee needs to oversee a range of services including asset safekeeping, verifying NAV calculations, compliance with investment and borrowing limitations, keeping a register of unitholders and issuing an annual report.

BNP Paribas Securities Services’ view

Maximising opportunities from regulatory breakthroughs like the Hong Kong Mutual Recognition of Funds with the participating countries requires moving swiftly in jurisdictions that may not be familiar to the fund manager. It therefore requires comprehensive, seamless and trustworthy support.

BNP Paribas Securities Services can provide services in these MRF covered markets. For example, in Switzerland BNP Paribas Sercurities Services acts as a fund representative and local paying agent, as well as a contact point for FINMA and monitor of distributors; in Hong Kong through experienced fiduciary and fund administration services; in France, as the leading bank in Europe with overall capacity to support cross-border distribution services.

Key dates

December 2016 - MoU signed with Switzerland

July 2017 - MoU signed with France

October 2018 – MoU with United Kingdom

Jan 2019 – MoU with Luxembourg

May 2019 – MoU with the Neterlands

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