The SFC Code on Open-ended Fund Companies (OFC Code)
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The OFC Code sets the SFC's requirements for an open-ended fund company (OFC), Hong Kong's corporate fund vehicle with variable capital and limited liability. It serves both public and private funds. Section I of the Code binds every OFC, and Section II applies only to private OFCs (paragraph 1.7). A public OFC must also be authorised under the UT Code and follow the rest of the SFC Products Handbook.
Scope and the core mechanism
Part IVA of the Securities and Futures Ordinance (SFO) creates the vehicle. The SFC registers a proposed company as an OFC under section 112D, and may attach conditions (1.2). The Code sits alongside the SFO and the Securities and Futures (Open-ended Fund Companies) Rules, defined in paragraph 2.14. According to the SFC's OFC page, the regime came into effect on 30 July 2018.
The public and private split is set by definition. A public OFC is one that seeks or holds SFC authorisation under section 104 of the SFO. Every other OFC is private (2.16, 2.18). The SFC's OFC page explains that a private OFC needs SFC registration but no authorisation, while a public OFC needs both. In either case the proposed company is registered and then incorporated as an OFC (2.17). The Code's provisions apply to each sub-fund of an umbrella OFC as if it were an OFC, to the extent applicable (1.8).
The OFC has three key operators: its directors, an investment manager and a custodian (2.11). Seven general principles in Chapter 3 bind all three, covering fair dealing, asset protection, conflicts, disclosure and compliance. A breach of the Code does not by itself expose a person to proceedings. Under paragraph 1.6, however, the SFC may weigh it against a licensee's fitness and properness and the OFC's continued registration.
Key provisions
| Provision | What it says | The practical point |
|---|---|---|
| Offering document (4.2) | It states whether the OFC is public or private. It also carries the prescribed SFC statement prominently. An umbrella OFC adds a warning on segregated liability under section 112S. | The warning says foreign courts' treatment of segregated liability is not yet known. It is mandatory wording, not optional risk text. |
| Name (4.4) | The name must not be misleading or duplicate another OFC. It must end with "Open-ended Fund Company" or "OFC". | A name implying assurance not justified by the fund's features can be refused under 4.5(c). |
| Board (5.2, 5.6) | At least two individual directors, including at least one independent director. The independent director may not be a director or employee of the custodian. | The OFC should arrange, as far as reasonably practicable, for replacements. The note to 5.6 gives a long enough termination notice period as an example. |
| Investment management (5.3, 6.2A, 6.4) | The board delegates investment management, valuation and pricing to the investment manager under a written agreement. The manager must be licensed or registered for Type 9 regulated activity. | In performing the OFC's investment management functions, the manager follows the Fund Manager Code of Conduct and the listed conduct and AML guidelines, as part of its Type 9 business. Records are kept for at least seven years (6.2C). |
| Custodian eligibility (7.1) | A public OFC's custodian meets the UT Code tests. A private OFC may instead use a Type 1 intermediary that meets all of criteria A to E in 7.1(b)(ii). It must be allowed to hold client assets, and a licensed corporation keeps HK$10 million paid-up capital and HK$3 million liquid capital. | The OFC must stay its Type 1 client. It needs a responsible or executive officer overseeing custody and must be functionally independent of the manager. |
| Custody duties (7.3) | Hold all scheme property that can be held, record what cannot and verify ownership. Segregate it from the custodian's own assets and, unless an omnibus account with safeguards is used, from other clients and the manager. | The custodian may not reuse OFC property without the OFC's prior consent (7.3(e)). |
| Meetings (8.2) | Two shareholders form a quorum. Where the instrument of incorporation provides for annual general meetings, notice is at least 21 days. | Public OFCs also follow the quorum rules in the UT Code. |
| Accounts and reports (9.2, 9.6, 9.8, 9.9) | Accounts follow HKFRS or IFRS, or other standards the SFC accepts case by case. Annual reports are due within four months of year end. Interim reports, if any, are due within two months. Each is filed with the SFC within the same period. | An umbrella OFC reports at umbrella level and for each sub-fund. |
| Termination (10.3 to 10.5, 10.7) | A voluntary termination proposal includes a board solvency statement that the OFC can meet its liabilities within 12 months of the confirmation. It must relate to the OFC's affairs within the five weeks before submission. | From the notice to shareholders, the OFC stops marketing and accepts no subscriptions from new investors. Its powers continue only for business essential to closing down. |
| Private OFC scope and changes (11.4, 12.1) | A private OFC may not be a business undertaking for general commercial or industrial purposes. Material changes to its instrument of incorporation need shareholder approval. | Paragraphs 11.1 to 11.3 are marked deleted, so Section II sets no asset-class limits on a private OFC. |
| Private OFC operations (13.2 to 13.4) | Property is valued regularly in good faith, and dealing is at forward prices. The offering document is filed with the SFC, and a revised one within seven days of issue. | Where 10% or more of gross asset value sits in non-financial or less common assets, the note to 13.3 expects specific risk disclosure. |
Amendment history
| Date | Instrument | What changed |
|---|---|---|
| 30 Jul 2018 | OFC regime | The OFC regime under Part IVA of the SFO came into effect. |
| 11 Sep 2020 | OFC Code, September 2020 | The current version. In this text, the private OFC investment-scope paragraphs 11.1 to 11.3 are marked deleted. |
| 1 Nov 2021 | Re-domiciliation mechanism | A statutory route for overseas corporate funds to re-domicile as OFCs came into operation. The codes page lists no later version of the Code. |
What it works with
A public OFC sits under two codes: this one for registration and the UT Code for authorisation and product rules. The custodian tests for a public OFC are the UT Code's trustee/custodian tests, through paragraph 7.1(a). Hong Kong REITs use a trust, not an OFC: REIT Code 3.1 defines a REIT as a scheme constituted as a trust (summary). The SFC's OFC page also describes a government grant scheme for newly incorporated or re-domiciled OFCs, open to applications from 10 May 2024 until 9 May 2027.
A comparable regional corporate fund vehicle is Singapore's Variable Capital Company. For an authorised scheme that is a VCC, Chapter 2A of the MAS Code on Collective Investment Schemes sets conduct requirements for its directors and custodian (summary). In Europe, the Irish ICAV Act 2015 creates a comparable limited-liability corporate fund vehicle (summary). For how Hong Kong compares with other private-fund domiciles, see the private fund domicile comparison.
In practice: a private OFC can use a Type 1 broker as custodian, but the OFC must remain that firm's Type 1 client at all times. If the relationship is ending, the custodian informs the SFC and arranges transfer to an SFC-approved replacement as soon as practicable. The note to 7.1(b)(ii)C lets it keep acting for up to six months meanwhile.
To verify
- Changes in the 2020 version: what the September 2020 text changed from the 2018 original, including the deletion of 11.1 to 11.3. The SFC's consultation conclusions on the 2020 amendments, listed from its OFC page, should settle it.
- OFC Rules citation: the chapter number and current text of the Securities and Futures (Open-ended Fund Companies) Rules on Hong Kong e-Legislation.
- Re-domiciliation provisions: the SFO sections that brought in the 1 November 2021 re-domiciliation route, on e-Legislation.
- Type 13 custodians: whether a public OFC custodian may be a Type 13 depositary since the 2 October 2024 UT Code revision. Paragraph 7.1(a) applies the UT Code tests.
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