Proposal to Expand the Definition of Professional Investors by SFC, Hong Kong

Till now Securities & Futures Commission allowed certain waivers to the definition of professional investor under Section 134 of the Securities & Futures Ordinance to whom some of the customer protection related provisions do not apply. Now, it is proposing to codify those waivers or modifications to the definition of professional investors. SFC is seeking public comments on its proposals which will expand the base of investors who can be grouped/classified as professional investors.

These proposals can be grouped under three main categories:

Aggregation of assets

Currently, an individual to be classified as a professional investor has to meet certain monetary thresholds, either personally or jointly with his or her spouse or children. The proposal is that the investments held by an individual in corporations and investments held jointly with unrelated parties should also be counted towards meeting the monetary limit. This will cover situations where an individual holds investments in some investment vehicles or joint portfolios with unrelated parties like partners, business associates etc.

Expansion of the definition of corporation

As per the existing definition for a corporation to qualify as a professional investor, the corporation should itself hold the portfolio which fulfills the monetary limit. Also, a corporation whose sole business is to hold investments and is a 100% subsidiary of certain other professional investors also qualifies as a professional investor. Now, it is proposed that a corporation whose principal business comprises holding investments and is a 100% subsidiary of certain other professional investors can also be classified as a professional investor. This means that a subsidiary which may engage in some other business along with holding of investments will be treated as professional investor. In addition, a corporation which holds 100% shares of another corporation which is classified as a professional investor by fulfilling the monetary criteria of portfolio or total assets shall also be classified as a professional investor.

Expansion of evidence required for meeting monetary limits

Currently, the evidence to support the fulfillment of the monetary limit can be either an auditor or CPA certificate or a custodian statement for individuals. For other categories of professional investors the relevant documents are most recent audited financial statements or custodian statements. It is proposed to allow two alternate form of evidence i.e. public filings made pursuant to legal or regulatory requirements in Hong Kong or a place outside Hong Kong for trust corporations, corporations and partnerships. Further, the status of trust corporations, corporations and partnerships can also be ascertained on the basis of certificates issued by auditors or certified public accountants.  

These proposals will generally be supported/accepted by the industry as the proposals support the existing industry practice.