Oversight: SFC revisits professional investors exemption

Introduction

In June the Securities and Futures Commission (SFC) published a Consultation on Proposed Amendments to Enforcement-related Provisions of the Securities and Futures Ordinance (Consultation). The Consultation, as the title suggests, is mainly directed at proposals in respect of improving – from the SFC’s perspective – enforcement provisions of the SFO such as injunctions and insider dealing which occurs outside Hong Kong. However in addition, Part 2 of the Consultation proposes revisions to key exemptions in the SFO with regard to investment advertisements, as a result of certain historic litigation. The Consultation ends on 12 August 2022.

On 20 March 2015, the Hong Kong Court of Final Appeal issued a judgment which overturned the part of the Court of First Instance's ruling in January 2014 which relates specifically to the application of the "professional investors" exemption under the SFO. The city's final appellate court clarified that, in order to rely on the exemption, issuers of advertisements relating to private funds are not required to make it explicit in any advertisement that the relevant fund is restricted to professional investors.

The Court of Final Appeal held in SFC v. Pacific Sun Advisors Ltd (FACC No. 11 of 2014) (Pacific Sun) that, on a proper construction, the exemption in Section 103(3)(k) of the SFO (PI Exemption) applies to an advertisement relating to any of the prescribed investment products including funds that, as a matter of fact, is, or is intended to be, disposed of only to professional investors, whether or not this fact is stated in the advertisement itself. For a more detailed summary of the background facts and the related hearings at the Magistrates' Courts, the Court of First Instance and the Court of Final Appeal, please refer to the Oversight of March 2015 and April 2015 on this case which affirmed the market’s understanding of the provision. The PI Exemption is important for both local and foreign fund managers in raising funds because it provides legal certainty.