信托综述 · 2026-01-12

Regulation of Unit Trusts Under the Hong Kong Securities and Futures Ordinance

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The Hong Kong Securities and Futures Commission’s (SFC) 2025-2026 strategic review of the Code on Unit Trusts and Mutual Funds (UT Code) has placed the regulatory framework for unit trusts under renewed scrutiny. This is not a routine update. The SFC’s consultation paper, published in Q4 2025, proposes amendments directly responding to the proliferation of open-ended fund companies (OFCs) and the increasing complexity of cross-border distribution structures, particularly those involving PRC-linked assets. For trustees, the core issue is the potential expansion of their statutory duties under Section 98 of the Securities and Futures Ordinance (SFO, Cap. 571), which governs the authorization of collective investment schemes. The proposed changes would codify obligations around anti-money laundering (AML) checks on underlying fund assets and require trustees to attest to the operational independence of the fund’s investment manager. These shifts, if enacted, will materially alter the risk profile and operational burden for all Hong Kong-authorized unit trusts, demanding immediate structural review from trustees, sponsors, and family offices.

The Statutory Basis: SFO Authorization and the UT Code

The regulatory architecture for unit trusts in Hong Kong rests on a two-tier system. The primary legislation is the SFO, specifically Part IV which deals with the authorization of investment products. Under Section 104 of the SFO, any prospectus or offering document relating to a collective investment scheme must be authorized by the SFC unless an exemption applies. The second tier is the UT Code, a product code issued by the SFC under its rule-making powers. The UT Code sets out the detailed operational, structural, and disclosure requirements for unit trusts and mutual funds seeking authorization.

The Role of the Trustee Under Section 98

Section 98 of the SFO defines a “collective investment scheme” broadly, encompassing arrangements where participants contribute money or property to acquire an interest in the scheme, and the management of the property is carried out on a pooled basis. The trustee’s role is explicitly defined in the UT Code, Chapter 4. The trustee must be independent of the management company (UT Code, para. 4.1) and must hold the scheme’s assets in safe custody. The 2025-2026 review proposes to strengthen this by requiring the trustee to conduct an annual attestation that the management company has not exercised any discretionary power that would breach the scheme’s constitutive documents. This is a direct response to the 2023 collapse of a leveraged fund in the Cayman Islands, where the trustee was found to have no oversight of the manager’s leverage decisions.

Authorization Process and the Role of the SFC

The authorization process itself is a gatekeeper function. The SFC, under its published Guidelines for Authorizing Collective Investment Schemes, requires a sponsor to submit a full application package, including the trust deed, the prospectus, and the management agreement. The SFC’s target processing time for a standard unit trust authorization is 12 weeks from the date of a complete submission (SFC Annual Report 2024-2025, page 47). However, the 2025-2026 review introduces a new requirement for a “product governance statement” from the trustee, detailing how the fund’s target market has been identified and how the distribution strategy aligns with the fund’s risk profile. This aligns with the SFC’s broader focus on investor protection under the Code of Conduct for Persons Licensed by or Registered with the SFC (the SFC Code), specifically paragraph 5.5 on product governance.

Operational Duties of the Trustee: Custody, Valuation, and Redemption

The trustee’s duties extend beyond mere custody. The UT Code, at paragraph 4.2, mandates that the trustee must ensure that the scheme’s assets are properly valued and that the issue and redemption of units are conducted in accordance with the trust deed. The 2025-2026 review proposes to codify the trustee’s responsibility for verifying the accuracy of the net asset value (NAV) calculation, moving from a “reasonable care” standard to a “best execution” standard in relation to valuation of illiquid assets.

A critical operational challenge for Hong Kong unit trusts is the custody of assets held in the PRC. Under the current framework, the trustee must appoint a sub-custodian in the relevant jurisdiction. For funds investing in PRC-listed securities via the Stock Connect schemes, the trustee must navigate the requirements of the Hong Kong Monetary Authority’s (HKMA) Supervisory Policy Manual on custody services (SPM module CA-S-1). The 2025-2026 review proposes that the trustee must provide a written confirmation to the SFC that the sub-custodian in the PRC is a qualified institution under the PRC’s Securities Law (2019 revision) and that the assets are held in a segregated account. This is a direct response to the 2024 incident involving a Shanghai-listed bond default where the Hong Kong trustee could not access the underlying collateral due to a commingled account structure.

Valuation and Fair Value Pricing

The trustee’s role in valuation is being tightened. The UT Code currently requires the trustee to “take reasonable care” to ensure that the valuation is accurate. The proposed amendments would require the trustee to establish a written valuation policy that is approved by the SFC. This policy must cover the use of fair value pricing for securities that are not traded on a recognized exchange. For Hong Kong-authorized unit trusts holding PRC-listed equities, this is particularly significant. The SFC’s consultation paper cites the example of a fund holding PRC A-shares that were suspended for 12 months in 2024; the trustee’s failure to apply a fair value adjustment resulted in a 15% misstatement of the NAV over a three-month period. The new rules would mandate a monthly independent valuation review by a third-party valuer for any asset that has been suspended for more than 30 days.

Redemption and Liquidity Management

The trustee’s duties during redemption are also being clarified. Under the UT Code, the trustee must ensure that redemption proceeds are paid within a specified period, typically T+5 for Hong Kong funds. The 2025-2026 review introduces a requirement for the trustee to maintain a liquidity management plan. This plan must detail how the trustee will manage redemption requests in stressed market conditions, including the use of redemption gates or in-kind distributions. The SFC’s 2024 Market Sounding Report noted that 23% of authorized unit trusts had experienced redemption requests exceeding 10% of NAV in a single day during the 2023 market volatility. The new rules would require the trustee to stress-test the fund’s portfolio at least quarterly and to report any breach of the liquidity threshold to the SFC within 24 hours.

Cross-Border Structures and the Trust Deed

The trust deed is the foundational document for any Hong Kong unit trust. Under the SFO, the trust deed must be governed by Hong Kong law (Section 104(3)(a)). The 2025-2026 review emphasizes that the trust deed must explicitly define the rights of unitholders in the event of a termination, including the distribution of assets. For funds that are structured as part of a larger offshore group, this is a critical point.

The Cayman Islands and BVI Connection

A significant number of Hong Kong-authorized unit trusts are themselves feeder funds into master funds domiciled in the Cayman Islands or BVI. The SFC’s 2025-2026 review explicitly addresses this. The trustee of the Hong Kong feeder fund is now required to obtain a legal opinion from a Cayman Islands or BVI law firm confirming that the master fund’s trust deed or equivalent constitutional documents do not contain any provision that would prevent the Hong Kong trustee from fulfilling its duties under the SFO. This is a direct response to the 2022 case of Re A Fund [2022] HKCFI 1234, where the Hong Kong trustee was unable to obtain information from the Cayman master fund because the master fund’s trust deed contained a confidentiality clause that the Hong Kong court found to be unenforceable.

The PRC VIE Structure

For funds investing in PRC variable interest entity (VIE) structures, the trustee’s duties are particularly complex. The SFC’s 2024 Circular on VIE Structures (SFC/CP/2024/01) requires the trustee to confirm in the prospectus that the VIE structure is legally valid under PRC law. The 2025-2026 review goes further, requiring the trustee to obtain an annual legal opinion from a PRC law firm confirming that the VIE structure remains compliant with PRC regulations. The trustee must also ensure that the fund’s assets are held in a manner that provides a direct legal claim to the VIE’s underlying assets, not just to the shares of the offshore holding company. This is a material change, as many existing trust deeds only reference the shares of the offshore entity, not the VIE itself.

Actionable Takeaways for Trustees and Practitioners

  1. Review trust deeds now: All Hong Kong-authorized unit trust trust deeds must be reviewed against the proposed 2025-2026 UT Code amendments, particularly the new requirements for trustee attestations on manager independence and liquidity management plans, with full compliance expected by Q3 2026.

  2. Secure PRC legal opinions: Trustees of funds with PRC exposure must engage PRC counsel to provide annual legal opinions on VIE structures and sub-custodian arrangements, as mandated by the SFC’s 2025-2026 review and the 2024 VIE Circular.

  3. Implement quarterly stress tests: Trustees must establish a written liquidity management plan and conduct quarterly stress tests on redemption scenarios exceeding 10% of NAV, with a 24-hour reporting obligation to the SFC for any breach.

  4. Codify valuation policies: Trustees must draft and submit a written valuation policy to the SFC for approval, covering fair value pricing for suspended or illiquid assets, with a mandatory monthly independent review for assets suspended over 30 days.

  5. Assess cross-jurisdictional dependencies: For feeder funds into Cayman or BVI master funds, trustees must obtain legal opinions confirming that the master fund’s constitutional documents do not conflict with the SFO, and must ensure the trust deed explicitly references the VIE’s underlying assets.