SFC Fund Manager Code of Conduct Compliance Checklist

The implementation deadline for the SFC (Securities & Futures Commission) Fund Manager Code of Conduct (FMCC) is now about one month away for fund managers with operations in Hong Kong. On 18 November 2018, this new set of rules will come into force, bringing additional governance, operational, and disclosure requirements.

For firms with an established risk-based culture, the move to compliance is a relatively straightforward transition, requiring minor updates and enhanced documentation. For other firms, the looming FMCC requires more extensive effort, but these challenges are not insurmountable.

As the FMCC countdown clock ticks ever closer to the deadline, the key compliance components that fund management firms should have in place before impact day include:

Gap Analysis – By now firms should have completed their gap analysis. If this initial step is still outstanding, it’s important to get started as soon as possible. More information on the FMCC can be found in this recorded webcast.

Risk management function – This capability is now required, although the structure of the function depends on the size of the firm. The function needs to cover overall risk management, market risk, liquidity risk, operational risk, and issuer and counterparty credit risk. It’s important to be sure the needed human resources are in place, or at least briefed on the new responsibilities

Risk governance and operational risk – The FMCC requires a more robust approach to risk governance and operational risk, so it’s important that the right policies and procedures have been created. For example, we recommend that firms have a documented and appropriate risk universe, as well as a risk assessment process. All new programs should be tailored to the individual firm’s operations and risk profile.

Internal control reviews – Firms should be able to conduct independent reviews of its management, internal controls, and operations – either through an internal team or by engaging external support.

Investment risk – The FMCC has a range of new rules that cover how firms manage their liquidity, their derivative portfolios, and their counterparties. Firms may need to have tailored policies and procedures in place to cover all of these topics. The rules also require firms to perform stress testing, and do require firms to have business continuity plans in place where they rely on vendors to provide certain services.

Valuation reviews – The new rules also require that the firm’s valuation policies and procedures are regularly and independently reviewed. Once again, firms need to either consider developing internal resources for this or engage an external provider.

Marketing documents – Review all existing client-facing documents to be sure they comply with new FMCC requirements regarding the disclosure of leverage, custody arrangements, and related risks.

Training – The changes that the FMCC will bring in for some firms will be considerable. It’s important that all staff are aware of these changes and are properly trained, especially where the changes directly impact their roles.

Technology – The FMCC requires firms to navigate through complex compliance and operational tasks and processes, and the use of technology can help you manage your regulatory requirements.

This list is not exhaustive – the requirements of the FMCC vary depending on the size of a firm and the nature of its business. Having an accurate gap analysis is critical, as is making sure best practice processes are established and robust policies, procedures, and training are tailored to the firm’s needs.

Derek McGibney, Director for Asia at Cordium, part of the ACA Compliance Group, will host a webcast on 25 October at 12pm HKT examining key challenges and considerations ahead of the FMCC coming into force.

 

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