ExclusiveUK, Hong Kong regulators line up 2,500 funds for cross-border selling

Some 2,500 UK and Hong Kong retail funds could become available for cross-border sale in the two markets after regulators signed an agreement last week to offer more choice to both communities of investors, according to British Financial Conduct Authority (FCA) executive director Megan Butler. The agreement is seen as the latest UK move to prepare for its post Brexit era by establishing more global alliances to maintain its heavyweight status as a leading fund centre. Hong Kong has already signed similar agreements with the mainland, Malaysia, Switzerland and France. “This is the first time the UK has signed such a cross-border fund sales agreement,” Butler told South China Morning Post in an exclusive interview during her visit in Hong Kong last week for the 9th annual Pan Asian Regulatory Summit. “Hong Kong is a natural choice as our first partner, as regulations and rules are so similar in the two markets. “The agreement will boost the fund industries of both, and benefit investors by offering more choice,” she said. The agreement covers around 2,500 retail funds investing in stocks, bonds, index funds and others. Funds must be already approved by Hong Kong’s Securities and Finance Commission (SFC) and the UK equivalent, the FCA, for cross border sale in the two markets. Hong Kong funds could apply to the FCA to be sold in the UK via a simple procedure, while UK funds can also be sold in Hong Kong under approval by the SFC. China stock market rises most in 2 years as pension funds granted entry Butler said the agreement is the first of its type to be signed by the FCA, and approval process could be as quick as two months. A previous agreement made in 2015 allowed 50 mainland funds to be sold in Hong Kong, and 15 Hong Kong funds to be offered to mainland buyers. Hong Kong is a natural choice as our first partner, as regulations and rules are so similar in the two markets. The agreement will boost the fund industries of both Megan Butler, Financial Conduct Authority Butler, who is also the FCA’s director of supervision – investment, wholesale and specialist, said she was confident the UK-Hong Kong fund agreement will work well. “Hong Kong has a lot of leading British financial firms with a strong presence in the city and they can help distribute the UK funds,” she said. Currently UK-registered funds fall under the control of the Undertakings for the Collective Investment of Transferable Securities (UCITS) – a European Commission regulatory framework covering the management and sale of mutual funds across the area. After Brexit, however, all UK funds will no longer be categorised as UCITS funds. Stewart Aldcroft, chairman of Cititrust Limited, says UK funds will find selling in Hong Kong tough. “More than 1,200 Luxembourg- or Dublin-domiciled UCITS funds are currently offered for sale in Hong Kong. So any UK onshore funds sold through the new scheme will face a lot of competition,” Aldcroft said. He believes smaller UK fund houses could, however, be interested in upping the ante in Hong Kong as a result, as will Hong Kong fund managers selling to Britain, such as Value Partners, BEA Union Investment Management, Zeal, Income Partners. UK private equity firm Actis targets sharp rise in Asian investors “UK insurance companies, pension funds and some institutional investors may have some interest in Hong Kong-domiciled funds,” he added, while suggesting the FCA could next target Japan, Australia, New Zealand in its efforts to form alliances. “Expanding the mutual recognition of funds framework is consistent with our strategic goal of positioning Hong Kong as an international asset management centre,” said Ashley Alder, the SFC’s chief executive in a statement. Sally Wong, chief executive of Hong Kong Investment Funds Association, added that establishing distribution channels would be key to the success of the new UK-Hong Kong fund agreement. “Distribution dynamics differ by market; you have to identify partners and be able to get onto the shelf space,” she said. While no French or Swiss funds are yet to be sold under their cross border fund sales agreements already in place, Wong said some fund houses from both have shown interest in selling their products in Hong Kong. “We have provided some input to the French fund association which is preparing a fact sheet for its members,” Wong added.