Overview of relevant regulation
Asia’s largest fund markets, Hong Kong and Singapore, have started consulting on their own framework for fund regulation with a special focus on liquidity and best execution. In November 2017, the Hong Kong Securities and Futures Commission (SFC) revised its Fund Manager Code of Conduct (FMCC) to include additional guidance on liquidity risk management, best execution and fair valuation, based on a December 2016 consultation on these topics.
The revisions to the FMCC were a result of 38 responses by asset managers in a December 2016 consultation that, by and largely , agreed with the SFC’s proposals. The revisions aimed at greater transparency of fund operations and on the use of management fees, while specifying responsibility and accountability for compliance with the rules. The SFC also changed rules around securities lending and repurchase agreements, the custody of fund assets, liquidity risk management and leverage disclosures. The new rules also have specific principles around best execution and fair valuation.
On liquidity risk management and best execution, the regulator released separate guidance in the form of consultations. Fair valuation principles are expected to align with those of the International Organization of Securities Commissions (IOSCO) on the same topic.
The revisions to the FMCC will come into effect on 17 November 2018. However, these apply to both authorized and unauthorized open and closed-ended collective investment schemes. Previously, a lot of the supervisory regime only applied to authorized schemes.
On 26 October 2017, the Monetary Authority of Singapore (MAS) proposed its Liquidity Risk Management (LRM) rules for fund management companies via consultation paper P019-2017. The paper proposed guidelines to create a set of sound practices for liquidity risk management for collective investment schemes, and addressed liquidity mismatch risks between a fund’s liquidity and redemption policies. As with the Hong Kong FMCC, the guidelines are aligned with the recommendations of the Financial Stability Board (FSB) and IOSCO, and apply to MAS-licensed firms managing open-ended investment funds.