The highly anticipated and controversial Securities and
Futures and Companies Legislation (Structured Products Amendment)
Bill 2010 was passed on 4 May 2011.
The amended legislation will be gazetted and come into effect on
13 May 2011. This alert describes the key impacts of which you need
to be aware.
All financial institutions should immediately assess their
implementation plans to ensure full compliance with the Bill.
Structured products will now be regulated
Stop selling under the safe harbours of the Companies
The offer of any unlisted product with a derivative element to
the retail public (eg an equity-linked note) needs Securities and
Futures Commission (SFC) approval.
Previous 'safe harbours' that applied to product offers
under the Securities and Futures Ordinance will no longer apply.
That is - no more private placements under the ³ HK$500,000 or
£ 50 investor safe harbours, unless the product is a plain
vanilla share or debenture regulated under the Companies
However, some relief is available. For example, interest rate
and currency-linked products issued by banks will be exempt (but
they will need an "Important Fact Statement").
Structured products needing SFC approval are already subject to
the new SFC Handbook, which came into force on 25 June 2010. See
June 2010 alert for further details.
Impacts for issuers, distributors and others
Do you need a licence? Do you meet the SFC Handbook
Issuers, guarantors and arrangers of retail structured products
offered to the public now need to meet the new requirements set out
the SFC Handbook, as described in our
June 2010 alert.
What about licensing?
The proposed new SFC approval requirement for unlisted
structured products offered to the public will also broaden the
scope of regulated activities under Schedule 5 to the SFO, which
are subject to licensing requirements.
Derivatives that are currently not "securities" for
the purposes of the SFO (eg a vanilla OTC interest rate derivative)
and therefore outside regulated activities such as Type 1 (dealing
in securities), Type 4 (advising on securities) and Type 8
(securities margin financing), will be deemed
"securities" under the new regime if they are offered to
the public and require SFC approval.
There is a grace period for 6 months for licensing. >This
sounds like a long time, but it is not - the licensing process
usually takes four months after submission.
Are you ready?
We are working with several banks and other financial
institutions on implementing the proposals. There is very limited
time to prepare - if you have any questions, please contact us.
The SFC's press release dated 5 May 2011 is also available
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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