Regulatory Change a Challenge for Hong Kong Fund Managers

Source: Regulation Asia Editors, Regulation Asia 2020-06-10

Overregulation is an issue for some fund managers in Hong Kong, but the industry is also calling for greater regulatory clarity around GBA initiatives and ESG standards.

Hong Kong fund managers have a positive outlook over the next five years, but sees regulatory change as likely having the biggest impact on the industry.

According to a joint report by KPMG and the HKIFA (Hong Kong Investment Funds Association), 53 percent of survey respondents from the fund management industry expect their total AUM to grow between 11% and 30% by 2025.

The respondents cited the opening up of mainland China’s asset management industry, the ongoing development of the Greater Bay Area (GBA), technology-driven change, and ESG investing as the main growth drivers.

Besides the development of the GBA, respondents also cited capital market development and renminbi liberalisation as some of the China-specific developments that will have the biggest impact on Hong Kong’s fund management industry.

With respect to industry challenges, regulatory change is expected to have the biggest impact on Hong Kong fund managers, with respondents citing the volume and complexity of regulation as a potential hindrance to growth, and a cost pressure.

At the same time, respondents highlighted the need for greater regulatory clarity with respect to the development of initiatives within the GBA, as well as industry-wide standards for ESG.

“Regulation around AML/KYC and common reporting all adds operating costs to the firms,” says KP Luk, Head of Fidelity International in Hong Kong. “Costs in relation to compliance are increasing, but at the same time revenues and profit margins are being squeezed, which is creating quite a challenge for the industry.”

While fund industry executives commended Hong Kong regulators for maintaining a sound financial regulatory regime, they some raised the issue of ‘goldplating’ – the practice of supplementing internationally-recognised regulations with additional, local requirements – which has ultimately hampered growth and efficiency in the industry.

As an example, some interviewees noted that changes to the prospectuses of UCITS funds require prior regulatory approval in Hong Kong, which slows down the process as fund managers are often left waiting for the regulator.

“Finding the right balance between investor protection and perceived overregulation will be key to further growing the market while safeguarding the interests of investors,” the report says.

The other major challenges to the fund industry highlighted in the report include fee pressures, the rise of the GBA as a financial centre, Hong Kong’s ageing population, and increasing connectivity – in that order.

The full report is available here.

Fund

investment

Compliance

KPMG

Regulatory Change a Challenge for Hong Kong Fund Managers

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