Hong Kong and Singapore retail fund rules: SFC and MAS codes

Unit trusts and mutual funds follow the UT Code, OFCs and REITs their own codes. A scheme seeking waivers gives detailed reasons. KFS means the Product Key Facts Statement. The advertisement rule applies to issue in Hong Kong. An exempt advertisement must still meet the Advertising Guidelines (UT Code 11.11). The offering document states that authorisation is not a recommendation or endorsement (UT Code 11.14).

The Code covers schemes commonly regarded as mutual funds, in any form. It also covers unit trusts it contemplates (UT Code 3.2). The Code's explanatory notes state the section 104 power. They add that offering an unauthorised scheme to the Hong Kong public may be an offence under section 103 (UT Code, explanatory notes). Withdrawal of authorisation needs the SFC's prior approval. Subject to paragraph 11.5, holders should get at least three months' notice, and the notice is submitted to the SFC for prior approval (11.4).

The SFC considers places other than Hong Kong on their merits, and may accept a books-and-records inspection undertaking (UT Code 5.1). The trustee or custodian is acceptable to the SFC and independent of the manager. Where the manager is neither incorporated nor has a place of business in Hong Kong, the scheme appoints a Hong Kong Representative (9.1). The manager capital test is HK$10 million of paid-up capital and non-distributable reserves. The manager also has a positive net asset position (5.2). Key personnel of the manager and any investment delegate are expected to have five years' public-fund experience. It is gained with reputable institutions, in similar investments (5.5).

An eligible trustee or custodian may be a bank incorporated outside Hong Kong under ongoing prudential supervision, or an overseas-authorised trustee supervised by an authority acceptable to the SFC. Or it may be a Type 13 depositary. Other trustees hold HK$10 million capital, unless a qualifying parent commitment applies. A Type 13 depositary meets its statutory financial resources rules instead (4.2 and 4.4). A Representative that is not licensed or registered under the SFO is a registered trust company affiliated with an authorised financial institution and acceptable to the SFC (9.4).

A trustee and manager in one group can be treated as independent. Conditions include that neither is the other's subsidiary, no one sits on both boards, and both undertake to act independently (UT Code 4.8). For a well-established fund management group, the public-funds experience may be shown on a group-wide basis. That means a group with at least five years managing public funds, good regulatory records, and the resources and oversight systems needed. Each key person is still expected to have five years' investment experience (5.5, notes 1 and 2). The trustee and custodian chapter carries an October 2024 date (UT Code, chapter 4).

The single-entity limit combines investments, underlying derivative exposure and net OTC counterparty exposure. The 20% cash limit applies to deposits with one entity or group. The OTC counterparty limit is subject to 7.1 and 7.1A. Derivatives used for hedging do not count towards the 50% net derivative limit, if no residual derivative exposure remains (7.26, note 3).

A scheme may not hold more than 10% of any single entity's ordinary shares (UT Code 7.2). Holdings of unauthorised, non-eligible underlying schemes are capped at 10% in aggregate. Each eligible underlying scheme is capped at 30%, unless the SFC has authorised it and its name and key investment information are disclosed (7.11 and 7.11A). Back-to-back loans do not count as borrowing (7.21). The 20% cash limit has three exceptions. One is cash before launch and for a reasonable period until initial proceeds are invested. Another is pre-merger or termination proceeds, where spreading is not in investors' interests. The last is subscriptions pending investment and cash for redemptions or payments, where spreading is unduly burdensome and investors are not harmed (7.1B, note 2).

The KFS forms part of the offering document, unless overriding home-jurisdiction law leads the SFC to allow otherwise for a foreign scheme (UT Code 6.2A). The annual report is published and distributed within four months of the year end. At launch or termination, the SFC may accept a report covering an extended period (11.8). A notice to holders for a change not needing prior approval is subject to 11.4 and 11.5. The aggregate test covers smaller simultaneous or recurring errors reaching 0.5% of NAV per unit or NAV.

A fee increase up to a disclosed maximum needs no SFC approval. Holders still get at least one month's prior notice (UT Code 11.1A, note 3). A shorter notice period may be allowed where a change is of demonstrable benefit to holders (11.2, notes). For a non-Hong Kong scheme, a meeting for a special resolution needs at least 21 days' notice, and for an ordinary resolution 14 days (11.2, note 4). Prices or NAV are published free of charge every dealing day (11.7).

Public OFCs and their operators also meet the SFC Products Handbook (OFC Code 1.7).

A REIT keeps an open market, normally meaning at least 25% of units in public hands. After a general offer under the Takeovers Code, the SFC may allow a temporary fall for a reasonable period (REIT Code 7.1, note 1). Development, with uncompleted units bought, is capped at 10% of gross asset value (7.2A). It may rise to 25% with holders' consent, if the constitutive documents permit it and the trustee does not object (7.2AA). Borrowing is up to 50% (7.9).

A REIT holds each property, other than a non-qualified minority-owned property, for at least two years. An earlier sale needs the rationale communicated to holders and their special resolution (REIT Code 7.8). Development and certain other investments together may not exceed 25% of gross asset value (7.2C). A REIT seeking authorisation may start with a 25% development cap if its constitutive documents permit it and the offering document discloses it (7.2AA, note). The REIT Code is the October 2024 eighth edition (REIT Code, cover). The OFC Code text used here is the September 2020 edition (OFC Code, cover).

A private placement is exempt only if it meets every section 302C condition. A scheme constituted in Singapore applies for authorisation under section 286. One constituted outside applies for recognition under section 287, at MAS's discretion. For authorisation, a listed REIT's manager holds a REIT management licence; other managers a fund management licence or an exemption under section 99(1)(a) to (d). A unit trust needs an approved trustee. A VCC needs a custodian that is an approved trustee, and three directors, one independent. For recognition, unless MAS says otherwise, the manager is licensed or regulated where its principal place of business is, and is fit and proper. A Singapore representative is appointed.

A listed trust investing mainly in real estate needs a manager licensed for REIT management. Any other authorised scheme's manager holds a fund management licence, or is exempt under section 99(1)(a) to (d). It is also fit and proper (SFA s.286(3)). An approved trustee for an authorised unit trust is a public company meeting MAS's financial and other criteria (s.289). The private placement exemption has several conditions: at most 50 persons in 12 months, no advertising, and limits on selling expenses. There must be no registered prospectus, unless it has expired or set notices were given. Closely related offers are aggregated, under counting rules (s.302C). An offer in breach of section 285 is an offence, with a fine up to S$150,000, two years' imprisonment, or both. If it continues after conviction, a further fine of up to S$15,000 a day applies (s.285(2)). For a recognised scheme, the manager and its related corporations should manage at least S$500 million of discretionary funds in Singapore. This does not apply if units are approved for quotation on an approved exchange and will trade there (CIS Code 8.1).

The 10% aggregate limit covers specified unlisted shares, commodity-backed undated debt, and certain commodity-investing schemes (App 1, 2.13).

MAS issues the CIS Code under section 321, as section 284 of the SFA provides. The group limit covers securities, money market instruments, deposits and OTC counterparty exposure to one group. Temporary borrowing should last no more than one month, and should not exceed 10% when incurred (7.4).

The Code sets non-statutory best practice that operators are expected to observe. A breach is not itself a criminal offence. But MAS may consider a breach by the responsible person in deciding whether to revoke or suspend authorisation or recognition. It may also refuse new schemes that person proposes (CIS Code, preamble).

A standard scheme should stay within 10% of NAV in one entity's securities and money market instruments. The 5% limit applies to bonds and other securitised debt of an unrated or sub-BBB issuer. For an unrated issuer, the manager may use a guaranteeing parent's rating, or an internal rating the trustee or VCC directors accept as comparable (App 1, 2.8 and 2.9). Group exposure should not exceed 20%, with stated exceptions. An index fund meeting Appendix 5 may reach 25%, where a benchmark constituent's limit exceeds 10%. Subscription monies pending the start of investment are excluded. So are liquidation proceeds before termination or maturity, where spreading them is not in participants' interests (2.2 and 2.3). Global derivative exposure should not exceed 100% at all times. Temporary borrowing comes only from licensed banks, finance companies or merchant banks, or equivalent foreign deposit-takers (7.1 to 7.3).

The single entity limit may rise to 35% where the issuer or guarantor is a government, government agency or supranational rated at least BBB. It does not apply at AA or above. Except for fixed-maturity schemes, a 20% single-issue cap applies in both cases (CIS Code App 1, 2.4 and 2.6). A scheme may invest up to 100% in another scheme only if that scheme meets paragraph 1.4(a) or (b). Under the guidance to paragraph 1.4(a), it should not invest in a hedge fund or fund of hedge funds, even one complying with Appendix 3 (1.4; 2.11). A scheme should not lend money directly, grant guarantees, underwrite, or short sell. A short sale arising from derivatives used under Appendix 1 sections 4 and 5 is allowed (4.2). Under the guidance, cash may not be offset against borrowings (App 1, 7.4).

Dealing should be under the constituent document and prospectus, on at least one dealing day a month (CIS Code 6.1). Suspension should end as soon as practicable after the exceptional circumstances end.

Under the CIS Code, the trustee should send semi-annual accounts and reports within two months of the period end. Annual accounts, the auditor's report and the annual report follow within three months of the year end (CIS Code 2.3). The manager, or the VCC where applicable, should tell MAS and existing participants of a significant change at least one month before it takes effect. If that cannot be determined so early, it should tell them as soon as practicable (3.2(d) and 3.2(e)).

A redemption request is received on day T if complete by the close of dealing (3.2(a)). Suspension is only in exceptional circumstances and in participants' best interest. Participants and MAS should be told immediately, with reasons. It should end as soon as practicable, and within 21 days. An extension needs the trustee or VCC directors satisfied, then weekly review with documented reasons (6.2).

Significant changes include any increase in manager or trustee pay. They also include an increase in other substantial fees payable by the scheme, meaning 0.1% of NAV or more, or in fees payable by participants. That does not apply if the trustee certifies the increase is not material (CIS Code 3.2(d)). Where section 296 requires a prospectus or profile statement, the offer is also accompanied by a product highlights sheet lodged with MAS, unless exempt under section 296A. Its content is prescribed by regulations (SFA s.296 and 296A). A supplementary or replacement document may be lodged on the grounds in section 298. That is possible until the offer closes or 12 months from registration, whichever is earlier (s.298). The trustee should be independent of the manager. It may not be, where a person holds 20% or more of the shares of both the trustee and the manager or a related corporation (CIS Code 2.1). The CIS Code text used here was last revised on 2 July 2026 (CIS Code, preamble).