The Government’s Financial Services and the Treasury Bureau (FSTB), the Stock Exchange of Hong Kong Limited (HKEX), the Securities and Futures Commission (SFC), and other market participants were briefed on a proposed Integrated Fund Platform (IFP) on December 4, 2023, by the Hong Kong Investment Funds Association (HKIFA). Aiming to increase fund distribution, improve market efficiency, and reduce transaction costs, the Chief Executive’s 2023 Policy Address includes the IFP (see §72(iii)).
An outline of the IFP’s suggested features
The whole retail fund value chain and distribution cycle in Hong Kong will be covered by the IFP. The SFC will serve as the regulator, while the FSTB as the policy bureau will assist the HKEX in developing and running it. The platform is expected to begin by the end of 2024, with a first phase that will exclusively function inside Hong Kong and concentrate on the B2B (business-to-business) front-to-back distribution lifecycle. The IFP may ultimately grow to include clients located in the Greater Bay Area and a B2C (business-to-consumer) model. Distributors are allowed to maintain their current distribution networks and might choose to join the IFP voluntarily.
The IFP will include order routing, product admission, and distribution capabilities, and it will be built upon an independent market infrastructure. Additionally, it will make clearing, settling, and paying for various transactions easier.
Three components make up the proposed IFP: an information portal, a business platform, and a communication hub.
(i) Central Hub for Communications
In order to improve market efficiency, the IFP will create a centralised network that will serve as an extra channel of communication. This network would allow users of various platforms to communicate with one another.
(ii) A Business Platform
The IFP will handle subscription, redemption, proceeds computation, and other fundamental activities. For example, equities brokers can contact with clients through the IFP and sell funds directly. The HKEX is actively exploring offering nominee services, particularly for smaller distributors, although it has not yet decided on the precise tasks to be offered.
(iii) Portal for Information
To encourage openness, the IFP will develop into a primary information hub that the general public may access. The HKEX hasn’t made a decision about the specific type and volume of information that will be made public, though.
What lies ahead and how to go
The HKEX is building a number of features into the platform to increase its competitiveness and decrease the entrance barrier in order to fulfil the IFP’s objective, which is to bring diversity and life to Hong Kong’s fund market.
First, by gathering master template agreements, the HKEX is investigating the viability of standardising the distribution procedure. This attempts to address a problem with the present regime: the length of time needed for discussions.
Second, the HKEX anticipates that the IFP will level the playing field for smaller distributors, who are frequently treated less favourably in the market than larger institutions (like banks and insurance companies) because their orders are typically smaller in size and value. This is because the IFP will be adding a new distribution channel.
Thirdly, the HKEX noted that most stock brokers only provide equities since they currently hold type 1 and/or type 4 SFC licences. Because of this, the HKEX is currently investigating enabling the brokers to disburse money or connect money from the IFP with settlement revenues from the cash market.
The HKEX clarified, however, that it does not plan to combine the accounts created under the IFP with the current equity-related accounts. Having said that, some expenses can be shared across organisations, such as the elimination of the need for repeating KYC procedures, which lowers the overall costs involved, even if the IFP would be run by a different business under the HKEX with a distinct ecosystem of accounts.
Fourthly, specified sets of information beyond net asset value and assets under management will be shown on the investor-friendly Information Portal interface. In order to make comprehensive and affordable investment selections easier, there are plans to provide a “smart sorting” feature for investors to evaluate various fund products.
- Published By Team Hongkong Journalist