10 September 2021
The Securities and Futures Commission (the “SFC”) launched a new initiative to warn the public against unauthorised investment arrangements which are suspected to be collective investment schemes (“CIS”).
The definition of a CIS encompasses a broad range of instruments, and is defined under Part 1 of Schedule 1 of the Securities and Futures Ordinance (“SFO”). A CIS generally has the following four elements:-
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it involves arrangements in respect of any property;
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investors do not have day-to-day control over the management of the property even if they have the right to be consulted or to give directions about the management of the property;
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the property is managed as a whole by or on behalf of the person operating the arrangements, and/or the contributions of the investors and the profits or income from which payments are made to them are pooled; and
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the purpose or effect of the arrangements is for the investors to participate in or receive: (i) profits, income or other returns from the acquisition, holding, management or disposal of the property, or (ii) payments or other returns from: the acquisition, holding or disposal of, the exercise of any right in, the redemption of, or the expiry of, any interest in the property.
To provide flexibility to address changing market conditions and the development of new investment products, the Financial Secretary is empowered under Section 393 of the SFO to prescribe by notice in the Gazette whether certain products are or art not to be regarded as a CIS.
A CIS may not be offered to the public in Hong Kong without the SFC’s authorisation under Section 104 of the SFO. In general, a CIS may be sold by an intermediary licensed or registered with the SFC. Unauthorised CIS may generally be sold to professional investors only.
It is also offence under Section 103 of the SFO to issue an advertisement, invitation or document which is or contains an invitation to the public to invest in a CIS unless such issuance is authorised by the SFC, or an exemption applies.
Investors are thus urged to be extremely careful if they plan to invest in any unauthorised investment scheme. In order to aid investors’ decision making, investment arrangements which have come to the SFC’s attention and display certain characteristics of a CIS will be included on a new Suspected Unauthorised CIS Alert List (non-exhaustive). These arrangements may involve overseas real estate or non-conventional assets and investments such as digital tokens and initial coin offerings (ICOs).
In addition to the above, the SFC also maintains a search list of investment products authorised by the SFC for public offering which also includes a list of authorised CIS, and a public register of licensed persons and registered institutions.
For further information, please contact:
Charing Yu, Hauzen LLP
charingyu@hauzen.hk
