Investment products, collective investment schemes and offering rules
Domain 8 tests the offer perimeter: when an investment may be marketed to the public, what SFC authorisation means, and how collective investment schemes are regulated.
The s.103 prohibition
No person may issue an advertisement, invitation or document containing an invitation to acquire an interest in a security or a collective investment scheme, or to participate in a structured product, unless the offer is authorised by the SFC or falls within an exemption. Non-compliance is an offence.
Schedule 5 exemptions
Exemptions include offers to professional investors (individuals with a portfolio of at least HK$8 million; corporations with HK$40 million); offers to no more than 50 persons; and offers where the minimum consideration payable by each person is at least HK$500,000. Offering documents for exempt offers still cannot be false or misleading.
What a CIS is
A collective investment scheme has four elements: contributions pooled and profits or income shared; property managed as a whole; investors do not have day-to-day control. SFC authorisation of a CIS involves the management company holding Type 9, a trustee or custodian meeting the eligibility tests, compliance with the Code on Unit Trusts and Mutual Funds - including the 10% single-issuer limit and the 30% group limit - and a disclosure-heavy offering document.
Meaning of authorisation
Authorisation is not a guarantee and is not an endorsement. It means the SFC has reviewed the product against the applicable code. Advertising remains subject to the advertising guidelines, and the sales process is still governed by the Code of Conduct.
Non-authorised schemes
Schemes not authorised may be sold only under an exemption, typically to professional investors, and the firm must still assess suitability. The SFC's guidance on complex products requires heightened disclosure.
Worked example
A firm wants to distribute a Cayman fund to Hong Kong retail clients. The fund must be authorised under s.104, typically through a Hong Kong-authorised umbrella with an eligible trustee and a Type 9 manager. If the firm instead markets to 30 investors committing HK$1 million each, the 50-person and HK$500,000 exemptions may apply, but each sale still needs a suitability assessment.
Traps
Thinking authorisation signals safety; ignoring that the 50-person limit counts offerees, not buyers; forgetting structured products need authorisation; assuming professional investors escape suitability.