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Transcript
www.BlankRome.com November 2011 No. 4 Changes to Hong Kong’s Professional Investor Rules Recent changes to the Rules which are to be effected on 16 December 2011 (subject to negative vetting by the Legislative Council), aim to refine the evidential requirements for ascertaining whether a person meets the relevant assets or portfolio threshold so as to qualify as a professional investor. The proposed changes purport to align Hong Kong with other leading markets and extend greater flexibility to persons who fall within the exemption of a professional investor. Professional Investors Professional Investors (also known in market as “high net worth professional investors”), are defined as: • a trust corporation with not less than HK$40M worth of total assets; • an individual, (alone or joint account), with not less than HK$8M portfolio; • a corporation or partnership with either a portfolio of not less than HK$8M or HK$40M worth of total assets; or • a corporate investment vehicle owned by individual (alone or jointly) with not less than HK$8M portfolio. Those within the definition of Professional Investors (high net worth professional investors) are able to participate in investment opportunities that are not authorised by the Securities and Futures Commission (SFC), therefore market participants may utilize the Professional Investor exemption and treat these Professional Investors similarly to “institutional professional investors such as banks / regulated dealers”. Where a client of a licensed or registered person is a Professional Investor, the licensed or registered person will not be required to fulfil the requirements set out in paragraph15.5 of SFC Code of Conduct, particularly: • establishing client’s financial situation, investment experience and investment objectives; • entering into a written agreement and the provision of relevant risk disclosure statements; • to obtain from the client an authority in a written form prior to effecting transactions for the client without his specific authority; or • the need to explain the authority and/or the need to confirm the authority on an annual basis. However, Professional Investors are subject to more onerous accreditation standards (including demonstrating relevant knowledge and experience) than institutional professional investors under the SFC Code of Conduct. Evidential Requirements The Rules set out specific methods (evidential requirements) to ascertain the relevant assets or portfolio thresholds for the first three types of high net worth investors. These evidential requirements are: • For a trust corporation – (i) the most recent audited financial statement prepared in respect of the trust corporation and within 16 months before the relevant date; (ii) one or more audited financial statements, each being the most recent audited financial statement, prepared in respect of the trust or any of the trusts and within 16 months before the relevant date; or (iii) one or more custodian statements issued to the trust corporation in respect of the trust or any of the trusts and within 12 months before the relevant date. © 2011, Blank Rome Solicitors. Notice: The purpose of this Asia Update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel. Additional information on Blank Rome may be found on our website, www.blankrome.com. 5605-07 The Center • 99 Queen's Road Central • Hong Kong • +852 3528-8300 Blank Rome comprises multiple affiliated partnerships: a limited liability partnership with the full name Blank Rome LLP, qualified in Pennsylvania and maintaining offices throughout the U.S.; Blank Rome Government Relations LLC in Washington, DC; and a Hong Kong general partnership, Blank Rome Solicitors & Notaries, which practices in Hong Kong. Blank Rome maintains appropriate registrations in the jurisdictions in which its offices are located. A list of the partners in each entity is available for inspection at any Blank Rome office. ASIA UPDATE • For an individual – (i) a certificate issued by an auditor or a certified public accountant within 12 months before the relevant date; or (ii) one or more custodian statements issued to the individual (either alone or with his/her spouse or children) within 12 months before the relevant date. • For a corporation or partnership – (i) the most recent audited financial statement prepared in respect of the corporation or partnership and within 16 months before the relevant date; or (ii) one or more custodian statements issued to the corporation or partnership within 12 months before the relevant date. Key Changes The proposed changes to the Rules were proposed by the SFC and are to be implemented by 16 December 2011. The two key changes are: • no requirement for traditional evidential requirements (as set out in section 2 above), allowing financial institutions to use “any methods that are appropriate” to satisfy themselves that an investor meets the requisite asset or portfolio threshold. However, it should be noted that if a financial institution adopts the “any method that are appropriate” approach to ascertain a Professional Investors, they must show that the investor has the requisite assets or portfolio as at the date of the “relevant date” (as compared to the traditional evidential requirements which can be issued some time before the “relevant date”). • more investment vehicles can qualify as high net worth professional investors. Currently, they must be individuals who (alone or jointly) have a portfolio of at least HK$8 million. The proposed changes will allow corporate investment vehicles also to be owned by other types of high net worth professional investors. Comparative Table of the Key Changes to the Rules Prior to 16 December 2011 To be effected on 16 December 2011 (subject to “negative vetting” by Legislative Council E V I D E N T I A L R EQ U I R E M E N T S To meet the requisite asset or portfolio: • Custodian Statement • Audited Financial Statements • 3rd Party Certificate To meet the requisite asset or portfolio: Principles-based approach: “any methods that are appropriate” • Unaudited Financial Statements • Self-declarations • Internal Checks The above statements can be issued 12 months before the relevant date (the offer date) The above documents/information must be shown as at the relevant date Downsides: Can be used by a limited number of financial institutions if: • Information about the relevant investor’s assets / portfolio can be quickly assessed • The institutions are willing to rely on a self-declaration, which carries risks and can be difficult to obtain immediately pre-trade Recommendations: • Using a self-declaration coupled with slightly older evidence to offset the risks of relying on that self-declaration alone • Devise very practical mechanisms for obtaining this declaration quickly, i.e. electronic confirmations BLANK ROME SOLICITORS 2 ASIA UPDATE Comparative Table of the Key Changes to the Rules (continued) Prior to 16 December 2011 To be effected on 16 December 2011 (subject to “negative vetting” by Legislative Council M O R E I N V E ST M E N T V E H I C L E S C A N Q UA L I F Y Investment vehicle must be wholly owned by an individual who (alone or jointly) has a portfolio of at least HK$8 million Investment vehicle can be owned by other types: • Trust corporation with at least HK$40 million assets • Corporation with either a portfolio of at least HK$8 million or HK$40 million total assets • Partnership with a portfolio of at least HK$8 million or HK$40 million total assets Conclusion The aims of the changes are to achieve greater flexibility and to align Hong Kong with other leading markets, however, the changes create possible grey areas and gaps require particular attention. As the Rules will not prescribe fixed set of requirements for ascertaining whether a person meets the Professional Investor threshold, it appears that the new changes would be protective to the financial institutions as they only needs to satisfies themselves that the investor is a Professional Investor with the self-declaration provided. This could mean that when there is dispute as to the professionalism of the investor, the financial institution may use the self-declaration to rebut what the investor has demonstrated to them as Professional Investor. Otherwise, the protection enjoyed by the investors would be loosened if the financial institution through their internal check finds out that the investors fall into the definition of Professional Investor. With this hidden loophole, a floodgate of complaints may arise which would have negative impact on market as a whole. Furthermore, even though the SFC will rely on the financial institution’s professional judgment to decide and expects them to keep proper records of their assessment process so as to demonstrate that they have exercised professional judgment and have reached a reasonable conclusion, the standard of professional judgment or reasonable conclusion is vague and arguable due to the lack of prescriptive standard. The SFC will need time to set out examples so as to benchmark the standard which they can then make reference to when complaint is filed with the SFC. Blank Rome’s Asia Practice provides experienced legal representation for Asia-based clients doing business in the United States and for U.S. clients doing business in Asian countries. This includes counseling our U.S.-based clients on the legal issues involved with entering and developing new markets for their goods and services in Asia. Many attorneys in our Asia Practice group are fluent in Cantonese, Mandarin, and Shanghainese and have extensive knowledge of the cultural and legal systems that affect business and investment in Asia. We understand the unique needs of Asia-based clients and have a team of attorneys with strong, cooperative relationships with knowledgeable local law firms to provide a platform for efficient and comprehensive service. Blank Rome Asia Practice Members HONG KONG UNITED STATES Nigel J. Binnersley, Partner +852.3528.8388 Kristi Lynn Swartz, Partner +852.3528.8335 Ronald Sum, Partner +852.3528.8372 Conor T. Warde, Registered Foreign Lawyer +852.3528.8493 Grace Hou, Registered Foreign Lawyer +852.3528.8382 Vivian Ma, Trainee Solicitor +852.3528.8492 Daniel Lee, Associate Solicitor +852.3528.8385 Elaine Wong, Paralegal +852.3528.8404 Gilbert Pun, Paralegal +852.3528.8306 Psyche Chong, Paralegal +852.3528.8300 • • • • • • • • • • [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] SHANGHAI Henry M. Kuller, Partner Jeffrey A. Rinde, Partner William Zheng, Partner Scott C. Kline, Partner Fang Felton, Senior Legal Consultant Justine Wang, Legal Consultant +86.21.2089.3208 +86.21.2089.3205 +86.21.2089.3210 +86.21.2089.3203 +86.21.2089.3202 +86.21.2089.3205 • • • • • • [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] Barry H. Genkin, Asia Practice Chair Dawn M. Bernd-Schulz, Partner Alfred W. Zaher, Partner Ernest W. Chung, Partner Brad L. Shiffman, Partner Jeanne M. Grasso, Partner Richard DiStephano, Partner David A. Dorey, Partner Steven L. Caponi, Partner Christin R. Cerullo, Associate Timothy A. French, Associate Shawn Shiqing Li, Associate Eric C. Mendelson, Associate James J. Quinlan, Associate Kristina L. Trauger, Associate Huan Xiong, Associate BLANK ROME SOLICITORS 3 215.569.5514 202.772.5946 215.569.5364 212.885.5447 212.885.5442 202.772.5927 212.885.5372 302.425.6418 302.425.6408 215.569.5744 215.569.5394 215.988.6993 212.885.5159 215.569.5430 212.885.5339 212.885.5130 • • • • • • • • • • • • • • • • [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]