Fund Manager Registered under SFC type 9 License - obligations in Climate Risk Management and Internal Controls

In recent years, the Securities and Futures Commission (the “SFC”) has made certain amendments on the Fund Manager Code of Conduct (the “FMCC”) in order to enhance the governance of Fund Managers. Those amendments covered non-operational areas which required some other professional knowledge. We have summarised some latest requirements as follows:

Climate risk management

The SFC published its latest Consultation Conclusions on the proposed amendments to the FMCC in August 2021, which required the Fund Managers to take climate-related risks into consideration in their investment and risk management processes and make appropriate disclosures. Fund Managers are required to disclose and annually review the processes they use to take climate risks into consideration in their investment decisions and risk management processes. Large funds with AUM of HK$8 billion or above must comply with the baseline requirements by August 2022 and enhanced standard by November 2022, whereas all other in-scope Fund Managers must comply with the baseline requirements by November 2022.

Risk management

As an elaboration of the SFC’s requirements on risk management for both the Fund Managers and the funds that they manage, it is made clear that a Fund Manager should implement adequate risk management procedures to identify, measure, manage and monitor appropriately all risks relevant to each investment strategy, and to which each fund is or may be exposed.
The FMCC also provides suggested risk management control techniques and procedures for funds that a Fund Manager is expected to take into account.

Internal audit function

The revised FMCC retains an existing requirement that where practicable, a Fund Manager should maintain an independent function to review and report on the adequacy, effectiveness and efficiency of the Fund Manager’s management, operations and internal controls.

Where the size of the Fund Manager does not justify a separate internal audit function, the SFC allowed the relevant roles and responsibilities to be performed or reviewed by external independent auditor.

Fund portfolio valuation

Under the FMCC, a fund should have appropriate policies and procedures so that a proper and independent valuation of the fund assets can be performed. The Fund Manager should review the valuation policies and procedures on a periodic basis to ensure its appropriateness and effective implementation.

The valuation policies and procedures should be periodically reviewed (at least annually) by an independent professional.

Auditors and audited accounts

In addition to appointing an independent auditor to audit the financial statements of the Fund Manager itself, a Fund Manager who is responsible for the overall operation of a fund must also ensure that an audit of the financial statements of the fund is performed.

Under the amended FMCC, private equity funds will also need an audit, if such funds are managed by an SFC licensed entity, who is responsible for the overall operation of the fund.

How CityLinkers can help?

Climate risk management

To comply with the disclosure requirements, CityLinkers can assist Fund Managers on the following arears:

  • Setting up of governance structure
  • Factor in material climate-related risks into the investment process
  • Incorporate climate-related risks into portfolio risk
    management
  • Made appropriate disclosure

Risk management and internal audit function

CityLinkers can assist Fund Managers on the following arears:

  • Assisting the Fund Manager in developing and implementing
    effective internal control and risk assessment self-evaluation
  • Conduct annual internal control and risk assessment review
    and test of controls and report to the senior management to
    ensure compliance with relevant regulatory requirements

Fund portfolio valuation

CityLinkers can assist Fund Managers on the following arears:

  • Assisting the Fund Manager in developing and implementing
    effective valuation policies and procedures.
  • Conduct annual review and control testing on valuation
    policies and procedures.

Auditors and audited accounts

For the annual audit of the Fund Manager itself, CityLinkers can arrange statutory audit (including compliance report to SFC) or other compliance supporting services (e.g. review of FRR and BRMQ). CityLinkers can also provide audit services to those funds managed by the Fund Manager, including but not limited to HK LPF, BVI funds and Cayman Funds.

For further query, please contact us by +852 6816 8938 or by email. We will contact you shortly. All information will be handled in strictly confidential manner.