Pursuant to the Gazette published on 27 July 2018, the Securities and Futures (Amendment) Ordinance 2016 enacted to amend the Securities and Futures Ordinance (SFO) comes into effect on 30 July 2018, along with subsidiary legislations[1] issued in May 2018 including the Securities and Futures (Open-ended Fund Companies) Rules (OFC Rules), and also the non-statutory Code on Open-ended Fund Companies (OFC Code) promulgated by the Securities and Futures Commission (SFC) along with its consultation conclusions on the OFC Rules.

The legal framework has now been finally and fully put in place to offer the open-ended fund company (OFC) as an alternative fund vehicle for Hong Kong domiciled funds, with the policy objective to bolster Hong Kong as a full-service asset management hub.

In this legal update, we set out our take on the new available fund vehicle and its likely impact on the funds market, together with an overview of the key requirements:

[1] (i) the Securities and Futures (Amendment) Ordinance 2016 (Commencement) Notice (the Commencement Notice); (ii) the Securities and Futures (Open-ended Fund Companies) Rules (the OFC Rules); and (iii) the Securities and Futures (Open-ended Fund Companies) (Fees) Regulation (the Fees Regulation).

Since China became a member of the World Trade Organisation in December 2001 and began developing links to the world economy, the liberalisation of the China financial sectors has been key, as well as the orderly relaxation of foreign exchange and capital controls.  While the opening up of banking industry, securities companies, fund management company and insurance sectors have been carefully paced over the past decade, recent announcements of China’s commitment on further opening up are bringing about the most rapid and widest opportunities for foreign participation.

For banking sector:

• From 30 June 2018, the limit on foreign ownership in commercial banks is removed, and equal treatment shall be given for foreign-invested banks and domestic banks. In addition, foreign banks shall be permitted to open both subsidiary and branches in China. The limit on foreign ownership in asset management companies is removed, and equal treatment shall be given for foreign-invested and domestic entities (this refers to the institutions for the management of non-performing loans and distressed assets in China banking sector).
• From 31 December 2018, the business scope of foreign-invested banks shall be substantially expanded, and there shall be no foreign ownership limit in financial assets investment companies or wealth management companies newly established by commercial banks.  Foreign investments shall be encouraged in other banking & finance institutions, including trust companies, financial leasing companies, auto-finance, currency brokerage and consumer finance.

For securities, futures and fund management industries:

• Targeted to be in place by 30 June 2018, the limit on foreign ownership in securities companies, futures companies as well as fund management companies shall be raised to 51%, and shall be completely removed after 3 years. Sino-foreign joint venture securities companies shall no longer be subject to the requirement of having at least one Chinese securities firm as a domestic shareholder.
• Targeted to be in place by 31 December 2018, the restrictions on the scope of business of sion-foreign joint venture securities firms shall be removed, and there shall be level-playing field for foreign-invested and domestic institutions.  This is a significant development long waited by foreign investment banks and securities brokerage firms for the potential prospects of full participation in China securities and capital markets.

For insurance sectors:

• Targeted to be in place by 30 June 2018, the foreign investment limit on investment in life insurance companies shall be raised to 51%.  The restrictions on the business scope of foreign-invested insurance brokerage firms shall be removed, to create level-playing field for foreign-invested and domestic firms.  Eligible foreign investors shall be permitted to operate insurance appraisal business or insurance agency business in Mainland China.
• Targeted to be in place by 31 December 2018, foreign insurance companies shall no longer be required to establish a representative office in China before setting up foreign-invested insurance companies.

Cross-border markets access is also significantly expanded, with the permitted daily quota of the Mainland-Hong Kong Stock Connect quadrupled from 1 May 2018. London-Shanghai Connect is to be established within 2018.   In addition, the macro-prudential management of the “qualified domestic institutional investors” (QDII) framework for outbound investment in international markets shall be further developed. While details on this are still not available, this carries the potential that QDII and quota restrictions would be relaxed and more quota available soon.

With the wealth of experience of our lawyers on Mainland China financial sectors and cross-markets investments, we look forward to advising on the opportunities on offer, together with our network of China law firm partners.

For print version of this update:

《2018 年公司（修订）条例》（以下称《修订条例》） 将于 2018 年 3 月 1 日起生效。在新规定下所有香港公司须以中文或英文备存重要控制人登记册，以供执法人员在提出要求后查阅。公司注册处为此发出《公司备存重要控制人登记册指引》（以下称《指引》），就重要控制人登记册新规定(以下称《新规定》) 提供其运作的详细指引。

所有在香港成立及注册之公司(除在香港交易所上市的公司外) 均须备存重要控制人登记册, 而该登记册须包含以下资料：(i) 公司重要控制人的所需详情，及(ii)公司指定代表的名字及联系方式。并非在香港成立的公司（包括根据香港法例第622章 《公司条例》在香港注册的非香港公司）无需备存重要控制人登记册。

本最新法律资料旨在介绍一些关键新规定及列出香港公司需采取的一些关键行动(指引刊载了更详尽的运作细节)：