Securities regulator launches consultation on proposed amendments to the Professional Investor Rules
Authors: Emma de Ronde, James Parker and Nicholas Wilson
On March 1, 2017, the SFC commenced a consultation into proposals to update the Professional Investor Rules to incorporate modifications previously approved under section 134 of the SFO. The proposed amendments will, if enacted, expand the definition of corporate professional investors, allow aggregation of certain assets, and allow the use of alternative forms of evidence to determine whether a person qualifies as a professional investor. The consultation period will close on April 3, 2017.
The Securities and Futures Commission (the SFC) has launched a public consultation process in respect of proposed amendments to the Securities and Futures (Professional Investor) Rules (Chapter 571D of the Laws of Hong Kong) (the Professional Investor Rules). The public consultation process was launched on March 1, 2017.
The principal changes proposed in respect of the Professional Investor Rules are as follows.
Expanding the definition of corporations which qualify as professional investors
The SFC proposes to expand the types of investment holding companies that will qualify as professional investors pursuant to the Professional Investor Rules. In particular, if the amendments are enacted as proposed, an investment holding company which is wholly-owned by one or more professional investors or which wholly-owns a corporation that meets the asset or portfolio thresholds set out in the Professional Investor Rules, would also qualify as a professional investor pursuant to the Professional Investor Rules.
The SFC considers that this expansion of the categories of corporates which will qualify as professional investors will facilitate and encourage the participation of corporates in private placement activities.
Allowing aggregation of certain assets
The SFC proposes that licensed corporations/registered institutions (collectively, intermediaries) be permitted to include joint accounts/partly owned portfolios in assessing whether an individual meets the prescribed portfolio thresholds to qualify as a professional investor.
If the amendments are enacted as proposed, an intermediary could take into consideration the following in ascertaining whether an individual meets the relevant portfolio threshold to qualify as a professional investor
- The portfolio or a share of the portfolio of any corporation whose principal business is to hold investments, which is wholly or partially-owned by the individual.
- A share of the portfolio held in an account jointly-owned by the individual with other individuals, corporations and partnerships, who are not associates of the individual.
Allowing alternative forms of evidence
The SFC also proposes to refine the types of evidence an intermediary can take into account to determine whether a person meets the relevant assets or portfolio thresholds to qualify as a professional investor. In particular, it is proposed that intermediaries be permitted to rely on the following additional forms of evidence
- Public filings made pursuant to legal or regulatory requirements in or outside of Hong Kong.
- Certificates issued by custodians.
- Certificates issued by auditors or certified public accountants in respect of corporations, trust corporations and partnerships.
In the past, some intermediaries have sought, and the SFC has approved, modifications to the Professional Investor Rules in order to cater to the practicalities of businesses. The suggested amendments to the Professional Investor Rules seek to formalise the existing modifications previously granted to specific intermediaries under section 134 of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (the SFO) so that they are applicable to all market participants, thereby promoting transparency and market consistency.
The SFC has clarified that this consultation will not result in a further review of the professional investor regime in the Code of Conduct for Persons Licensed by or Registered with the SFC. The professional investor regime was the subject of a previous consultation process with consultation conclusions published in September 2014 and amendments which took effect on March 25, 2016.
Interested parties are invited to submit their comments on the proposed amendments to the Professional Investor Rules to the SFC by April 3, 2017.
The SFC will publish its consultation conclusions following the end of the consultation period. The SFC’s consultation conclusions will set out the changes that will be made to the Professional Investor Rules and the timing for these changes to come into effect, subject to negative vetting by the Legislative Council of Hong Kong.
The consultation paper and further details can be found on the SFC’s website.