Fund Manager Registered under SFC Type 9 Licence – obligations in Climate Risk Management and Internal Controls

Scope & two-tier approach. All in-scope managers must meet baseline requirements; “Large Fund Managers” (CIS AUM ≥ HK$8bn) must also meet enhanced standards. Large managers’ initial compliance dates were August/November 2022; all others November 2022.

Governance, Investment & Risk processes. Managers must assess relevance and materiality of climate risks and integrate them into investment and risk management proportionate to their role (full-mandate vs partial mandate/sub-advisory). If discretion is limited to a sleeve, obligations are proportionate to that sleeve; distributors/advisers without discretion are out of scope.

Entity-/fund-level disclosure. Managers responsible for the overall operation of a fund must make adequate climate-related disclosures (FMCC §6.2A) and review at least annually; immateriality or irrelevance assessments must be reasoned and disclosed (“comply or explain”).

Metrics (enhanced standard). Large managers should disclose Scope 1 & 2 GHG (with methodology, assumptions, coverage) and may add Scope 3 where available. They must, at minimum, follow the SFC’s portfolio carbon footprint formula; PCAF may be used for estimation where necessary.

Scenario analysis & tools. SFC materials outline governance, investment integration, risk management, and tools/metrics frameworks (incl. scenario analysis for Large Fund Managers).

Timeline stability. If a manager falls below the HK$8bn threshold for any three months in the reporting year, enhanced standards need not apply in the following year (encouraged on a voluntary basis).

Core duty. FMCC requires adequate risk management procedures to identify, measure, manage and monitor all risks relevant to each strategy; use stress-testing as appropriate and review policies with appropriate frequency. Appendix 2 lists suggested techniques (limits, measurement, monitoring, reporting).

Liquidity risk. Managers must maintain liquidity risk management frameworks and tools; investor protection is the primary consideration when using liquidity tools.

Leverage & financing activities. Managers responsible for the overall operation of a fund must disclose the expected maximum leverage (and basis of calculation) and maintain collateral valuation/haircut policies for securities lending/repo/reverse-repo, with annual disclosures of these policies.

Delegation & oversight. Even when functions are delegated (intragroup or third party), the manager must exercise due skill, care and diligence in selection and ongoing monitoring; responsibility cannot be abdicated.

Current supervisory focus. The SFC’s Oct 2024 circular highlighted recurring deficiencies in private funds/discretionary accounts and commenced thematic on-site inspections; managers should benchmark programmes against FMCC, the Code of Conduct and the Internal Control Guidelines to avoid disciplinary action.

Expectation. Where practicable, a fund manager should maintain an independent function to review and report on the adequacy, effectiveness and efficiency of management, operations and internal controls, with reporting to senior management and issues resolved in a timely manner. If size does not justify a dedicated function, roles may be performed or reviewed by external auditors.

Broader control framework. Managers should also refer to SFC’s Management, Supervision and Internal Control Guidelines (independent review function; audit-committee oversight where practicable).

Independent, robust valuation. Managers responsible for the overall operation (or delegated valuation) must ensure proper and independent valuation, consistent methodologies, exception handling (pricing overrides), frequency appropriate to assets/dealing, and due diligence/oversight of any third-party valuer.

Annual independent review. FMCC §5.3.7 requires the valuation policies, procedures and process to be reviewed at least annually by a competent and functionally-independent party (qualified third party or independent audit function), including testing of valuation procedures.

Side pockets (if used). Pre-disclose structure/limits/fees and maintain specific controls and valuation policies for side-pocketed assets.

Fund-level audit. Where responsible for the overall operation of a fund, the manager must ensure an independent audit of the fund’s financial statements, prepare an annual report, and make it available to investors; this applies even to private funds, regardless of domicile.

Firm-level audit & filings. Licensed corporations must submit audited accounts and prescribed documents (incl. BRMQ and, as applicable, FRR returns) per the SFO/FRR timelines; the revised BRMQ (Dec 2024) is filed via WINGS for FYE on/after 31 Dec 2024.

Governance set-up. Map Boards/MICs and management roles to SFC expectations; document relevance/materiality assessments and oversight arrangements referenced in FMCC/FAQs.

Integration & tools. Build playbooks for investment/risk integration, scenario analysis (enhanced), metrics/targets, and data controls (e.g., PCAF-based estimation, third-party data due diligence).

Disclosure. Draft entity- and fund-level disclosures (website/offering documents), set annual review cadence, and implement “comply or explain” language where data gaps exist.

Frameworks & testing. Design risk governance, limits/metrics, stress tests, liquidity tools, repo/securities-lending collateral policies, and delegation oversight; align to FMCC §3.11–3.14 and Appendix 2.

Independent review. Provide internal audit or external review of controls where a standalone function isn’t feasible; track remediation to meet SFC inspection expectations post-2024 circular.

Policies & independence. Draft/refresh valuation policies (listed/unlisted, overrides, fair value hierarchy, frequency, pricing sources).

Annual independent review. Perform/coordinate the functionally independent yearly review with procedure testing, and oversee third-party valuer due diligence.

Firm audit & returns. Arrange statutory audit and help prepare BRMQ/FRR submissions via WINGS within deadlines.

Fund audits. Provide fund-level audit solutions (HK/Cayman/BVI etc.) where you are responsible for overall operation—meeting FMCC §5.2.2.