SFC to proceed with enhancements to Hong Kong’s retail fund regime code
AI Analysis
The SFC will implement amendments to Hong Kong’s Code on Unit Trusts and Mutual Funds (UT Code) from 1 November 2026, following its consultation launched on 22 October 2025 and closed on 21 January 2026. The changes introduce VaR as an alternative to the existing net derivative exposure method, strengthen liquidity and money market fund safeguards, and streamline requirements for management companies and feeder funds; industry commentary indicates the framework is intended to align more closely with UCITS and other major fund regimes while supporting broader retail product strategies.
Key dates
- 2025-10-22
- The SFC published its consultation paper on proposed amendments to the UT Code.
- 2026-01-21
- The consultation period closed.
- 2026-10-16
- The revised UT Code and consequential revised PRF, MPF, ILAS and REIT codes are scheduled to be gazetted.
- 2026-11-01
- The revised UT Code and consequential revised PRF, MPF, ILAS and REIT codes become effective.
- 2027-11-01 Deadline
- The generally applicable 12-month transitional period for existing SFC-authorised funds is scheduled to end.
Suggested considerations
- Compliance teams may wish to map each SFC-authorised fund’s current derivative exposure methodology against the revised UT Code and assess whether adopting relative or absolute VaR would be operationally and commercially appropriate.
- Fund managers considering VaR may wish to validate reference-portfolio selection, VaR models, calibration, stress testing, back-testing, independent validation, governance approvals, limit monitoring and escalation procedures against the final revised UT Code and forthcoming SFC guidance.
- Managers may wish to review liquidity-risk frameworks, redemption terms, asset-liability liquidity matching, stress-testing scenarios, anti-dilution tools and disclosures, particularly for funds with exposure to less liquid assets.
- Money market fund managers may wish to test compliance with the 7.5% daily-liquid-assets and 15% weekly-liquid-assets thresholds and document monitoring of investor concentration, redemption behaviour, asset liquidity, days to trade, cost to trade and maturity profiles.
- Product, legal and disclosure teams may wish to update offering documents, constitutive documents, investment-management agreements, risk disclosures, derivatives policies and fund supplements where the revised requirements affect a fund’s strategy or operating model.
- Managers may wish to assess whether existing UCITS or other overseas risk-management documentation can be leveraged while confirming that Hong Kong-specific requirements and SFC-authorised-fund classifications are satisfied.
- Trustees, custodians and oversight committees may wish to confirm their revised oversight responsibilities, reporting arrangements and escalation processes before the transition period expires.
- Firms may wish to monitor the SFC’s forthcoming supplementary guidance, frequently asked questions and revised templates and incorporate them into implementation plans.
What changed
The revised UT Code will permit eligible retail funds to manage derivative exposure using either the existing net derivative exposure approach or a VaR approach. The proposed VaR framework uses a relative VaR limit of 200% of the VaR of a designated unleveraged reference portfolio or an absolute VaR limit of 20% of the fund’s NAV, together with associated governance, risk-management and monitoring requirements. The amendments will update liquidity risk-management requirements, including measures intended to align asset liquidity with redemption terms and the use of anti-dilution liquidity-management tools for open-ended funds investing mainly in less liquid assets. Money market fund safeguards will be strengthened; the framework requires at least 7.5% of NAV in daily liquid assets and at l
Compliance impact
This is a binding final-rule change with broad implications for SFC-authorised retail funds, although the SFC is providing a generally applicable 12-month transition period. The regulator describes the measures as strengthening investor protection, liquidity resilience and alignment with international standards, while market commentary highlights implementation work around VaR governance, liquidit
Who is affected
Related regulations
References
AI-generated analysis. May contain errors or omissions — verify with the original SFC source before acting. Full disclaimer.
What the SFC said
No description available.
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