SFC Issues Codes on Investment-Linked Assurance and Pooled Retirement Funds (只 有 英 文 版 )

The Securities and Futures Commission today issues revised Codes on Investment-linked Assurance Schemes (ILAS) and Pooled Retirement Funds (PRF). The issuance of the two codes follows a public consultation and housekeeping review which began in August 1997. While standardizing current practice and interpretation, the codes also include new provisions designed to further strengthen the regulatory system for investment products.

As part of the review, the original Code on Investment-linked Assurance and Pooled Retirement Funds (ILAS/PRF Code) was divided into two codes to facilitate the authorization process for the two types of products. Each code now contains three parts which clearly set out general matters as well as requirements prior to, and following authorization. The codes also include new appendices containing information such as advertising guidelines and a compliance checklist.

Code on Pooled Retirement Funds

New provisions proposed in the review and incorporated in the PRF Code are as follows:

Investment restrictions

The new code contains a series of good practice guidelines, including a requirement that investment restrictions should, where applicable, be compatible with the Code on Unit Trusts and Mutual Funds (UT Code).

Guaranteed Funds

To improve disclosure and help potential investors make more informed choices, the principal brochure for guaranteed funds with discretionary benefits should contain a clear description of the methods of determining these benefits. Where applicable, the brochure should also include a statement that the company has the right to retain investment income of the fund in excess of that required to meet the guaranteed benefits.

Trustee Qualifications & Regulation

Until recently, most pooled retirement funds were regulated by insurance arrangements, so the original ILAS/PRF Code had no specific requirements in relation to trustees. As pooled retirement funds are now increasingly being governed by trust -- partly in anticipation of the Mandatory Provident Fund (MPF) - the new PRF Code contains specific provisions which address the establishment by insurance companies of special purpose trustees to handle funds sponsored by the insurance companies or their associates.

Questions about the role and regulation of trust companies have been increasing in recent years, both overseas and in Hong Kong. The new provisions for the regulation of trustees, which are similar to those in the UT Code, are in part a reflection of problems noted overseas, but were also adopted in view of the anticipated MPF, in which trustees are to play an important supervisory role.

Other Changes

Other changes include the need for an experienced management company where the fund is governed by trust, and provisions on cash rebates and soft dollar commissions. These requirements are generally in accordance with existing practice and parallel to the requirements in the UT Code.

Code on Investment-linked Assurance Schemes

The new ILAS Code reflects the rearrangement of existing requirements and the incorporation of current practices and precedents. It also includes provisions for better disclosure on guaranteed funds similar to those for pooled retirement funds.

Copies of the PRF and ILAS Codes are available at the SFC.

For further information, please contact Bill Weeks or Chan Chi-keung at 2840-9287.