The open-ended fund company (“OFC”) regime was introduced in July 2018 to enhance the market infrastructure to further develop Hong Kong as a full-service international asset management centre and render it a preferred fund domicile.

Since the implementation of the OFC regime, the Securities and Futures Commission (“SFC”) received feedback from the industry that there may be practical issues in adopting the OFC structure.

In light of the industry feedback, the SFC subsequently published a number of consultation conclusions on the proposed enhancements to the OFC regime. 1 On 23 December 2020, the SFC released its consultation conclusions (“SFC Conclusions”) on the customer due diligence (“CDD”) requirements for OFC consultations and updated its frequently asked questions (“FAQ”) relating to OFCs to clarify custodial requirements.

A six-month transition period has been implemented for the new CDD requirements in order to complete the relevant amendments to the Securities and Futures Ordinance (Cap. 571) (“SFO”).


As per the SFC Conclusions, an OFC is required to appoint a responsible person, instead of maintaining a significant controllers’ register, in order to perform anti-money laundering and counter-financing of terrorism (“AML/CFT”) functions provided under Schedule 2 to the Anti-Money Laundering and CounterTerrorist Financing Ordinance (Cap. 615).

With these changes, the SFC harmonized the AML/CFT requirements across different investment vehicles. For instance, the AML/CFT functions imposed on limited partnership funds under the Limited Partnership Fund Ordinance (Cap. 637) are similar to the requirements imposed on OFCs


In addition to the SFC Conclusions, the SFC provided updates to its FAQs relating to OFCs in order to clarify the requirements for custodial arrangements. Thereto, the following FAQs are of specific interest:-

  • Question 6A: This FAQ sets out what documents are required for an application in which the proposed custodian for a private OFC is a licensed corporation or registered institution licensed or registered for Type 1 regulated activity (“RA1 Custodian”), which shall include evidence to demonstrate the RA1 Custodian’s compliance with eligibility requirements under 7.1(b) of the Code on Open-ended Fund Companies (“OFC Code”). For an RA1 Custodian, such evidence includes, for example: (1) a copy of a valid certificate showing its licensing/registration status; (2) the name and CE number of the responsible officer(s) or executive officer(s) responsible for the overall management and supervision of its custodial function; (3) an updated organisational chart; and (4) where the existing systems and controls of the RA1 Custodian for the safekeeping of client assets of its Type 1 registered activity business will not be used for safekeeping of the OFC’s scheme property, a custody operational flowchart together with the reason(s) for not using such existing systems and controls for safekeeping of the OFC’s scheme property.
  • Question 23: Section 112ZA(2) of the SFO requires that all the scheme property of an OFC must be entrusted to a custodian of the OFC for safekeeping. This does not preclude the appointment of multiple custodians, with each custodian required to comply with the requirements related to the safekeeping of the OFC’s scheme property under the SFO and the OFC Code.
  • Question 24: Subscription money received and held pending the allotment of shares in a private
    OFC is not considered property of the OFC, but instead is held on behalf of the subscribing investors until the subscription for shares is accepted. Therefore, custodians should keep
    subscription money in a separate designated collection account pending the allotment of the shares
    in the OFC.
  • Question 25: A private OFC custodian is required to maintain proper and up-to-date records of all scheme property of the OFC’s scheme property that it receives or holds on behalf of the OFC and others that cannot be held in custody. This FAQ provides additional guidance on the meaning of “accounting” records in light of paragraph 7 of Appendix A to the OFC Code. For example, the records should enable all movements of the OFC’s assets to be traced through the private OFC custodian’s systems with frequent reconciliations. This would likely include, but is not limited to, the keeping of records of items such as holdings, transaction settlement status, corporate actions, cash balances, accrued fees, receivables, payables, etc., to facilitate the private OFC custodian in reconciling the existence of scheme property.


We do believe that the new enhancements and relaxations to the OFC regime are an important step forward
in order to improve the competitiveness of OFCs as well as to render Hong Kong into a full-service asset
management centre.


This legal update is provided for information purposes only and does not constitute legal advice. Specific advice should be sought in relation to any particular situation. This legal update has been prepared based on the laws and regulations in force at the date of this legal update which may be subsequently amended, modified, re-enacted, restated or replaced.


TITUS is a modern and independent law firm in Hong Kong. We help global fund managers as well as start-up managers on investment fund legal services, in particular on:

  • Fund establishments in Hong Kong and offshore – across all the main asset classes, including retail and alternative investment fund structures;
  • Investment management – investment management arrangements and custody agreements; and
  • Fund-related M&A and corporate transactions and corporate finance work, including joint ventures, fund restructuring, secondary transactions and joint co-investment arrangements.


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1. See our legal update “New Enhancements under the OFC Regime” published on 6 October 2020. 2. See the Consultation Conclusions on Customer Due Diligence Requirements for Open-ended Fund Companies published by the SFC on 23 December 2020 by the SFC. 3. See the Frequently Asked Questions relating to Open-ended Fund Companies published by the SFC on 23 December 2020.