HONG KONG SAR – Media Awareness – September 29, 2023 – Hong Kong is among jurisdictions globally introducing new rules and guidance in areas such as ESG reporting and strengthening investor protections, according to a new report from KPMG. Such regulatory improvements will help strengthen Hong Kong’s status as an asset management hub. However, at the same time, city asset managers will need to consider how to manage this divergent landscape, as regulators globally take different approaches to addressing common challenges and priorities.
The 13thth edition of KPMG’s annual flagship report,
Managing divergence: report on the evolution of asset management regulations 2023draws on information from more than 11,000 publications authored by regulators in more than 30 jurisdictions and consolidates the insights and knowledge of KPMG specialists around the world on common regulatory themes, challenges and market opportunities in asset management regulation.
Andrew Weir, Global Head of Asset Management, KPMG, states: “Given the cross-border nature of the asset management industry, effective management of regulatory divergences will only become more important over time. To effectively respond to these challenges, asset managers need robust and flexible business models with solid governance. smart risk management frameworks, cutting-edge technology, good oversight of service providers and appropriate distribution strategies. Companies must manage their own costs and ensure that costs and fees borne by investors are transparent and justifiable.
There has been a notable increase in regulatory efforts around the world to protect retail investors. In addition to traditional themes such as product governance, there is a focus on value for money and transparency, which is reflected in new fair value considerations and disclosure requirements.
In some jurisdictions, funds must have approved depository institutions, which act independently of the fund management, to better protect investors. Hong Kong, for example, plans to introduce a new “Type 13” regulated activity covering fund depository services, from October 2024.
“Hong Kong asset managers should review their firm’s strategy, culture and purpose to ensure it continues to serve the best interests of their clients in an increasingly focussed global regulatory environment. protecting customers and improving access to information,” said
Vivian Chui, Head of Securities and Asset Management, Hong Kong, KPMG China.
Regulators around the world continue to create new fund vehicles, or modify existing products, to provide flexibility and compete for market share. China has continued to open its markets to foreign investors by expanding the scope of existing regimes. New fully foreign fund management companies have been licensed and given the green light in 2023, demonstrating the further opening-up of China’s asset management industry. Following the opening of China’s bond markets to qualified foreign institutional investors (QFIIs), in autumn 2022, the CSRC revised the provisions on the settlement of domestic securities transactions by QFIIs and conducted consultations on cross-border futures transactions. For private fund managers, new rules and guidelines published in May 2023 relaxed approval and licensing requirements for wholly foreign managers.
Jurisdictions are opening their markets to foreign investors. The authorities also aim to stimulate investment by professional investors and in infrastructure to contribute to economic recovery. The CSRC and SFC continue to strengthen ties between mainland China and Hong Kong, with the expansion of Stock Connect.
At the same time, integrating ESG risks into the risk management process is of vital importance for all financial companies. The SFC has supported a consultation launched by the Hong Kong Stock Exchange on proposed climate-related reporting requirements for Hong Kong-listed companies. Additionally, the SFC plans to review how Hong Kong fund managers use ESG ratings and data providers – this will result in guidance for the industry. Additionally, some cross-border collaboration on sustainable finance is evident, such as through the Green Finance Working Group that was established between the Monetary Authority of Singapore (MAS) and the People’s Bank of China to facilitate greater collaboration between the public and private sectors.
Distributed ledger technology (DLT) underpins cryptoassets, but is also used to good effect in market infrastructure initiatives, including tokenization and settlement of fund units. MAS is working with industry in Singapore to explore the potential of DLT and to facilitate the tokenization of financial assets and the real economy. In Hong Kong, tokenization of funds is currently not permitted, but the regulator is open to discussions.
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