Responding to enquiries concerning the
regulation of collective investment schemes, the Hong Kong Securities and Futures
Commission outlined the relevant provisions in the Securities and Futures
Ordinance (SFO) governing the offer and promotion of collective investment
schemes, and reminded those intending to market a collective investment scheme
that breaching the provisions may constitute a criminal offense.
Under the SFO, generally a collective
investment scheme has four relevant elements. First, it must involve an
arrangement in respect of property. Second, participants cannot 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. Third,
the property is managed as a whole by or on behalf of the person operating the
arrangements, and/or the contributions of the participants and the profits or
income from which payments are made to them are pooled. Fourth, the purpose of
the arrangement is for participants to participate in or receive profits,
income or other returns from the acquisition or management of the property.
A collective investment scheme may cover
any property, including real estate, whether located in Hong
Kong or overseas. It is an offense under the SFO to issue any
marketing material which contains an offer to the Hong
Kong public to acquire an interest or participate in a collective
investment scheme unless it has been authorized by the SFC or an exemption applies.
In addition, promoting a collective investment scheme may, in addition,
constitute a business in a regulated activity which requires a license from the
SFC, failing which may lead to an offense under the SFO.
Finally, and more generally, the
Commission cautioned any person who wishes to offer or promote any investment
arrangement to Hong Kong investors to be aware
of the restrictions under the SFO, and seek professional advice if in doubt to
ensure compliance with the law. At the same time, investors in doubt about the
nature and regulatory status of any investment arrangement are also advised to
seek professional advice prior to making an investment.