Hong Kong’s securities regulator has begun accepting licence and registration applications from trustees and custodians of public funds under a new regime.

Starting from October 2 2024, depositaries of authorized collective investment schemes ( CISs ), unless exempted, must be registered with and licensed by the Securities and Futures Commission ( SFC ) for Type 13 regulated activity ( RA 13 ) under the Securities and Futures Ordinance ( SFO ).

The SFC’s online submissions platform is accepting applications until November 30 2023.

The RA 13 regulatory framework was proposed in 2019 to enhance the regulation of how depositaries safeguard scheme assets and oversee scheme operations for Hong Kong public funds, which until now was not directly regulated by the SFC, according to law firm Deacons. The move is part of efforts to develop Hong Kong as an international full-service asset management centre.

The amendments to subsidiary legislation and SFC codes and guidelines were finalized and RA 13 was included in the SFO on May 17 2023.

Relevant CISs include unit trusts, mutual fund companies, real estate investment trusts, and pooled retirement funds authorised under Section 104 of the SFO and open-ended fund companies registered and authorized under the SFO, according to law firm Charltons.

Under a CIS, investors pool their assets in a fund, which is professionally managed by an independent manager. RA 13 refers to “providing depositary services for relevant CISs”.

Top of custodial chain

Upon commencement of the new regime, any depositary of an SFC-authorized CIS which is at the top of the custodial chain is required to be licensed or registered for RA 13 in order to provide relevant services in Hong Kong.

It does not cover a registered mandatory provident fund scheme or a constituent fund of such scheme, or an approved pooled investment fund, which is not offered to retail investors.

As RA 13 captures only top-level depositaries operating in Hong Kong, services provided by entities acting as their delegates or sub-delegates do not fall within the licensing scope, regardless of whether the entities operate within or outside Hong Kong.

Individual practitioners providing depositary services on behalf of an existing depositary are exempt from taking the local regulatory framework paper for RA 13. This exemption applies as long as their licence applications, sponsored by an existing depositary, are submitted to the SFC before October 2 2024.

Practitioners seeking to be executive officers or responsible individuals should also file their applications or submissions with the Hong Kong Monetary Authority before October 2 2024.