Regulatory tips for Q1 of 2025 – what should asset managers look out for?
- Enhanced scrutiny for private funds: In light of the circular of the Securities and Futures Commission (SFC) highlighting deficiencies and substandard conduct in the management of private funds and discretionary accounts, one can expect the SFC will continue to scrutinise the operations and/or products/services of private fund managers through on-site inspections or thematic reviews.
Senior management oversight, management of conflict of interests, investor disclosures, liquidity risk management and valuation methodologies will remain the regulator’s top priority concerns. The SFC have reminded senior management that they will be held accountable for any material breaches or non-compliance identified in the future.
Private fund managers should undertake a comprehensive review of their asset management activities both at the manager and product level, to identify any gaps and take remedial measures. - Internal controls for new services offering: New business opportunities may arise out of recent initiatives such as fast-tracked simple fund authorisation, enhanced mutual recognition of funds scheme and proposed tax concessions for carried interest.
In addition to ensuring that new business and service offerings can be undertaken based on a fund manager’s existing license status, fund managers should also consider if any additional internal control protocols are required, including new key business line core functions, reporting lines, segregation of duties and resources allocation. Notification obligations to the SFC may also arise in respect of significant changes in business nature and types of services provided. - Use of technology: In light of the SFC’s circular on generative AI language models and with FinTech’s increasing influence, we anticipate that cybersecurity and data privacy will remain a key area of regulatory focus.
As outsourcing increases, fund managers should ensure that they have adequate controls in place to satisfy their obligations to exercise reasonable care in the selection, appointment and monitoring of third-party service providers (including the relevant contractual terms governing such engagement), and should consider adopting the IOSCO principles regarding the outsourcing of financial services as applicable.
For further information, please contact:
Lilian Lai, Deacons
lilian.lai@deacons.com
