{"id":982,"date":"2024-11-11T16:38:45","date_gmt":"2024-11-11T16:38:45","guid":{"rendered":"https:\/\/iqeq.com\/hk\/insights\/sfc-circular-on-deficiencies-and-substandard-conduct-in-management-of-private-funds-and-discretionary-accounts\/"},"modified":"2025-02-14T12:43:14","modified_gmt":"2025-02-14T12:43:14","slug":"sfc-circular-on-deficiencies-and-substandard-conduct-in-management-of-private-funds-and-discretionary-accounts","status":"publish","type":"post","link":"https:\/\/iqeq.com\/hk\/insights\/sfc-circular-on-deficiencies-and-substandard-conduct-in-management-of-private-funds-and-discretionary-accounts\/","title":{"rendered":"SFC Circular on deficiencies and substandard conduct in management of private funds and discretionary accounts"},"content":{"rendered":"<section class=\"text-block standard-spacing  \">    <div class=\"container fade-in\">\n        <p><em>By Philippa Allen, Managing Director, Regulatory Compliance, Asia<\/em><\/p>\n<p>On 9 October 2024, the Securities and Futures Commission of Hong Kong (SFC) issued a Circular summarising deficiencies and substandard conduct identified from its supervision of Type 9 managers of private funds and discretionary accounts. Beyond breaching the Code of Conduct (CoC), Fund Manager Code of Conduct (FMCC) and Internal Control Guidelines, such deficiencies pose significant risks to assets under the firms\u2019 management, jeopardising investor interests and undermining the integrity of the market in Hong Kong.<\/p>\n<p>The Circular applies to asset managers who manage private funds and discretionary accounts in the form of an investment mandate or a pre-defined model portfolio. In this article, we outline the context of the Circular before diving into the specific failings identified by the SFC, including example case studies for each and guidance on how to prevent them.<\/p>\n<h2>Compliance audit requirements<\/h2>\n<ol>\n<li>The board, Responsible Officers (ROs) and Managers-in-Charge (MICs) of asset managers bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and are expected to critically review the areas of concern set out in the Circular and Appendix<\/li>\n<li>Senior managers must strengthen their supervisory and compliance programmes, including their policies, procedures and controls to ensure compliance with applicable regulatory requirements<\/li>\n<li>Where practicable, an independent and objective audit should be conducted on asset managers\u2019 compliance with the existing obligations discussed in the Circular<\/li>\n<li>If asset managers become aware of a material breach, infringement or non-compliance with any regulatory requirements they must report to the SFC immediately, providing details and supporting documents required under 12.5 of the CoC<\/li>\n<li>Asset managers\u2019 initiative in self-reporting breaches of regulatory requirements identified are taken into consideration when the SFC decides on potential disciplinary action<\/li>\n<\/ol>\n<h2>Upcoming SFC thematic inspections<\/h2>\n<p>The SFC is determined to combat asset management misconduct and is commencing a thematic on-site inspection of asset managers managing private funds to detect any material breaches or non-compliance with applicable regulatory requirements.<\/p>\n<p>As the SFC has issued many circulars on controls for asset managers, it will step up its disciplinary actions and impose harsher penalties against similar or persistent misconduct to send a strong deterrent message.<\/p>\n<p>Below, we highlight the key failings identified in the latest SFC Circular.<\/p>\n<h2>Failure to manage conflicts of interest<\/h2>\n<p>The SFC identified widespread failures to prevent and manage potential or actual conflicts of interests arising from their transactions or practices including:<\/p>\n<ul>\n<li>Using fund assets to provide financing resulting in the continuous extensions of loans to loss-making related entities that could not fulfil repayment obligations, exposed the funds to significant credit risks and resulted in significant losses for the investors<\/li>\n<li>Providing financing to funds and not justifying fees higher than prevailing commercial rates<\/li>\n<li>Unfairly allocating trades in favour of the manager\u2019s key personnel<\/li>\n<li>Receiving monetary benefits from the funds\u2019 transactions<\/li>\n<li>Failing to act fairly in handling redemption payments to fund investors by giving priority to redemptions from its staff over those of other clients<\/li>\n<\/ul>\n<h3>Example case studies<\/h3>\n            <\/div>\n<\/section>\n\n<section class=\"accordion standard-spacing\">\n    <div class=\"container\">\n                    <div class=\"accordion\">\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager of fund investing in loans used assets to grant loans to listed Hong Kong parent<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Parent defaulted in repayments and financial situation deteriorated<\/li>\n<li>Profit warning and auditor concerns about inadequate cash positions to meet net current liabilities<\/li>\n<li>Manager allowed parent to draw down additional loans from fund<\/li>\n<li>No demand for repayment of overdue loans and interests which were 90% of NAV<\/li>\n<li>Fund suspended redemptions due to insufficient cash<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager used funds\u2019 assets to provide loans to holding company, affiliates, and connected parties<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Loans were material portion of NAV<\/li>\n<li>Loans granted with interest rates lower than prevailing market rates<\/li>\n<li>Fund had to borrow margin loan at higher interest rate to finance loan provided to holding company<\/li>\n<li>Some loans not collateralised or subject to guarantees<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager extended loans to several private funds and charged interest at higher rates than execution brokers on margin loans extended to funds<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Manager did not document how it determined these interest rates<\/li>\n<li>Manager did not take necessary measures to ensure interest charged not higher than prevailing commercial rates<\/li>\n<li>Manager did not implement safeguards implemented to avoid conflicts of interest arising from loans nor disclose conflicts to investors<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Fund had investment objective of capital appreciation through investing in wide range of instruments, but only invested in senior notes issued by subsidiary of listed company<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Manager did not show how market, concentration and credit risks were managed<\/li>\n<li>Group company of manager was financial advisor to issuer of senior notes and received fixed fee and variable fee of 1% on subscription amount of senior notes<\/li>\n<li>Group company received US$1.5 million fee<\/li>\n<li>Manager did not show how conflict was properly managed and disclosed to investors<\/li>\n<li>Issuer of senior notes defaulted less than a year after fund invested<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager did not specify intended allocation of trades when placing order for two funds<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Allocated trades with unrealised profits to fund where portfolio manager had substantial interest and trades with unrealised losses to another fund over seven-month period<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager acted as lead manager and joint bookrunner in offering of senior notes<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Manager invested in senior notes for fund and received US$120,000 for underwriting portion of notes purchased by fund<\/li>\n<li>Manager did not show that it had taken reasonable steps to prevent conflict arising from underwriting activities<\/li>\n<li>Manager did not disclose conflict to investors<\/li>\n<li>Senior notes subsequently went into default<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Fund had significant exposure to illiquid high-yield bonds<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Responsible officer (RO) redeemed his interest in fund due to negative news and poor financial condition of issuer<\/li>\n<li>RO deployed remaining liquidity of fund to satisfy own redemption payment<\/li>\n<li>Redemption suspended for other fund investors<\/li>\n<li>Manager did not provide investors with timely disclosure of material information with significant impact on NAV<\/li>\n<li>Manager did not prevent RO from front running other investors and benefiting from information asymmetry<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Fund had significant portion of assets in illiquid high-yield bonds<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Delayed redemption payments for certain investors due to liquidity concerns<\/li>\n<li>Gave priority to other investors, particularly staff, whose redemption payments were first settled in full<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                            <\/div>\n            <\/div>\n<\/section>\n\n<section class=\"text-block standard-spacing  \">    <div class=\"container fade-in\">\n        <h3>Meeting the requirements for managing conflicts of interest<\/h3>\n<p>Managers must take all reasonable steps to identify, prevent, manage and monitor actual or potential conflicts, which should be documented. Effective implementation must be demonstrable to the SFC.<\/p>\n<p>Where a material interest in a transaction gives rise to a conflict of interest, managers must prevent such conflicts by considering other counterparties when deciding on financing arrangements for the fund from itself or its affiliates and conducting objective assessments of all financing sources available and proceeding with the best available option.<\/p>\n<p>Where material conflicts of interest cannot be prevented, managers must consider whether it is in the best interest of the fund to conduct such transactions.<\/p>\n<p>Managers must ensure transactions are conducted in good faith at arm\u2019s length and on normal commercial terms.<\/p>\n<p>10.1 of the CoC and 1.5 of the FMCC require specific disclosures about any material interest or conflict to be made to investors including specific descriptions of the nature and source of conflicts, material interests of the manager and its connected persons, potential risks to investors and the steps taken to mitigate the risks. Key points to note:<\/p>\n<ul>\n<li>Generic and non-specific conflicts of interest disclosures in the fund\u2019s constitutive documents are insufficient where material conflicts are involved<\/li>\n<li>Where a manager plans to use a material portion of the fund\u2019s assets to provide loans to its affiliates, it is insufficient to provide generic disclosure in the constitutive documents that there may arise future instances where the interests of the fund conflict with interests of the manager and its affiliates. The manager must make specific disclosure to investors prior to the transaction about the loan arrangements, including details of the affiliated counterparty of the loan arrangements, the loan amount, material interests of the manager and its affiliate, risks of the material conflicts of interest and the loan, and how the conflicts will be managed and mitigated through a prescribed monitoring mechanism<\/li>\n<\/ul>\n<h2>Inadequate risk management and investment DD within mandate<\/h2>\n<p>The SFC identified managers who did not implement adequate risk management procedures or conduct appropriate investment due diligence to ensure transactions for clients were in line with their investment objectives and restrictions. There were also cases identified where the managers did not adequately address the risks associated with the transactions, which exposed investors to significant concentration, liquidity and credit risks, leading to substantial losses due to defaults by the issuers or borrowers.<\/p>\n<h3>Example case studies<\/h3>\n            <\/div>\n<\/section>\n\n<section class=\"accordion standard-spacing\">\n    <div class=\"container\">\n                    <div class=\"accordion\">\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager invested more than 40% and 25% of NAV of fund managed into two third-party funds<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Breached investment restriction in PPM that no more than 20% of NAV could be invested into other funds<\/li>\n<li>Fund had remaining lock-up of less than one year, but third-party funds had lock-up periods of three and seven years as mainly invested in bonds issued by private company or leveraged notes linked to such bonds<\/li>\n<li>Fund unable to meet redemption requests from investors<\/li>\n<li>Third-party funds had significant losses due to default of private company, leading to substantial loss to investors<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager had significant overdue redemption payables but continued to invest fund into illiquid stocks or private notes estimated to take six to 18 months to liquidate<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Aggravated fund\u2019s liquidity problem and delayed redemption payments to investors<\/li>\n<li>Manager did not show liquidity risk assessments performed before making investment decisions or that liquidity risk management was taken into consideration in investment decisions<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager used most of fund NAV to provide unsecured loans to private company<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Managed did not obtain any information about financial position of borrower before entering loan arrangements<\/li>\n<li>Private company delayed settling certain interest payments, but manager still renewed those loans<\/li>\n<li>Granted new loans to borrower for another two years<\/li>\n<li>Borrower defaulted on loan repayments after one year and was liquidated<\/li>\n<li>Fund suffered significant losses and was unable to meet redemption requests<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager purchased senior notes worth US$35 million issued by subsidiary of Mainland listed company<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Accounted for a material portion of NAV<\/li>\n<li>Investment analysis report to support purchase only had descriptions of general investment environment of offshore fixed income investments issued by Mainland companies denominated in USD<\/li>\n<li>No analysis on fundamentals of issuer of senior notes or holding company to assess risks of investment<\/li>\n<li>Issuer defaulted on notes with significant losses to investors<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Fund had investment objective to achieve attractive stable returns with capital preservation<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>20% of NAV invested in a bond and further 10% of NAV invested in another bond of same issuer, despite negative news about issuer\u2019s financial viability, liquidity, repayment ability and court orders for demands for payment<\/li>\n<li>Manager did not show that it had considered negative news when it increased exposure to bond issuer<\/li>\n<li>Manager did not show how significant exposure to single bond issuer was consistent with investment objective of capital preservation<\/li>\n<li>Manager used outdated credit rating report in assessing credit risk of bonds<\/li>\n<li>Concerns on issuer\u2019s debt repayment ability in latest available credit rating report when manager increased bond exposure<\/li>\n<li>One month after further investment, issuer defaulted on one of the bonds held by the fund and then defaulted on other bond resulting in significant losses to investors<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager of discretionary account invested 90% of AUM into debt and shares of unlisted company, using product due diligence form to score each investment<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Manager considered investments appropriate for discretionary account as calculated scores exceeded acceptance thresholds<\/li>\n<li>Product diligence form was designed for fund products<\/li>\n<li>Product scores of investments inflated as form contained items irrelevant to debt and shares of unlisted company, which led to arbitrary scoring<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                            <\/div>\n            <\/div>\n<\/section>\n\n<section class=\"text-block standard-spacing  \">    <div class=\"container fade-in\">\n        <h3>Meeting the requirements for risk management<\/h3>\n<p>Managers must implement adequate risk management procedures to identify, measure, manage and monitor appropriately all risks to which the fund or account is exposed, and ensure investment is made in accordance with their investment objectives, restrictions and risk profiles.<\/p>\n<p>5.1(a) of the FMCC and IV.6 of the Internal Control Guidelines require managers to maintain effective record retention policies and keep proper records of their risk assessments to demonstrate compliance with legal and regulatory requirements.<\/p>\n<h2>Failure to disclose risks to clients<\/h2>\n<p>Instances were found where managers did not provide fund investors with adequate information, including failing to disclose:<\/p>\n<ul>\n<li>Concentrated positions and significant exposures that subject the fund to significant risk, such as the majority of the fund\u2019s assets being exposed to a single issuer or issuers of the same group<\/li>\n<li>Significant events impacting the funds such as major investment losses, significant defaults in investments with substantial adverse impact on the funds\u2019 NAV or the funds\u2019 ability to meet their liquidity needs<\/li>\n<li>Modified opinion issued by the funds\u2019 auditors or material delay in the issuing of audited financial statements<\/li>\n<\/ul>\n<h3>Example case studies<\/h3>\n            <\/div>\n<\/section>\n\n<section class=\"accordion standard-spacing\">\n    <div class=\"container\">\n                    <div class=\"accordion\">\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Debt fund invested HK$100 million (75% of NAV) in loan to private company that is major shareholder of listed company<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Manager did not disclose significant exposure to this loan to investors<\/li>\n<li>Private company defaulted on loan and loan valued at cost, but manager did not make specific disclosure about default to investors<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Stop-loss mechanism requires fund to secure additional subscriptions from designated investors to maintain NAV level or consider rejecting redemption requests when NAV drops to certain levels<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>If NAV continues to drop, fund is liquidated<\/li>\n<li>Manager notified investors of triggering stop-loss mechanism that required subscription of additional shares only two months after mechanism triggered<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Fund with quarterly redemption had a default of significant loan holding<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Due to difficulty in deciding reasonable valuation of fund, redemption was suspended<\/li>\n<li>Manager notified investors of suspension six months afterwards<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Offering memoranda stated audited financial statements of funds should be provided within six months of financial year, but audited financial statements were issued seven and nine months after year-end, exceeding timeframe<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Manager failed to notify investors of delay<\/li>\n<li>Audited financial statements provided to investors 11 months after year-end upon request of SFC<\/li>\n<li>Auditor gave modified opinions on financial statements<\/li>\n<li>Manager failed to inform investors about this material information in timely manner<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                            <\/div>\n            <\/div>\n<\/section>\n\n<section class=\"text-block standard-spacing  \">    <div class=\"container fade-in\">\n        <h3>Meeting the requirements for risk disclosure<\/h3>\n<p>6.2 of the FMCC requires responsible for the overall operation of a fund (ROOF) managers to provide fund investors with adequate information on the funds to allow them to make informed judgement about their investments into the funds.<\/p>\n<h2>Valuation methodologies<\/h2>\n<p>The SFC noted some managers adopted inappropriate valuation methodologies to hide investment losses of funds including valuing investments at cost but not justifying why no adjustments were needed when issuers and guarantors of the investments defaulted on the payments for their debts.<\/p>\n<h3>Example case studies<\/h3>\n            <\/div>\n<\/section>\n\n<section class=\"accordion standard-spacing\">\n    <div class=\"container\">\n                    <div class=\"accordion\">\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Manager valued defaulted loan at cost which accounted for 75% of NAV<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Loan was collateralised by majority stake in listed company in Hong Kong<\/li>\n<li>Shares of that company suspended from trading due to litigation and winding up petitions against it and delay in publication of audited annual result. Company subsequently delisted<\/li>\n<li>Constitutive documents state fund directors have discretion to determine valuation methodology for securities when market prices not available<\/li>\n<li>As loan in default and trading of shares suspended, fund\u2019s directors (also the ROs of manager) valued loan at cost based on estimated value of collateralised shares which exceeded loan principal<\/li>\n<li>Estimated value of collateralised shares calculated using closing prices of shares at different times prior to suspension and weighted by different probabilities that shares would trade at such prices<\/li>\n<li>Manager unable to justify why shares were expected to trade at those prices, no adjustment required for impact of litigation and petition cases, nor prolonged period of suspension of shares<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                    <div class=\"accordion-item\">\n                        <div class=\"title\">\n                            <p>Fund heavily invested in high-yield bonds issued by companies and obtained guarantees from the bond issuers or their related parties<\/p>\n                            <div class=\"toggle\"><\/div>\n                        <\/div>\n                        <div class=\"expanded\">\n                            <div class=\"inner\">\n                                <ul>\n<li>Under guarantees, if market prices of bonds fell below specified thresholds, issuers required to provide cash deposits to cover difference between par and market value of bonds<\/li>\n<li>Market prices fell below specified thresholds, but manager did not take reasonable steps to collect promptly the difference between par and market values from guarantors<\/li>\n<li>Majority of required cash deposits remained uncollected, some for more than two years<\/li>\n<li>Manager continued to book full value of receivables in NAV computation<\/li>\n<li>Manager did not properly assess likelihood of collecting long overdue receivables<\/li>\n<li>Some bonds had already defaulted, calling into question ability of issuers or related parties to pay cash deposits as they had defaulted on other payment obligations<\/li>\n<li>Manager also failed to identify when assets should be written down or written off under valuation policies and procedures<\/li>\n<\/ul>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                            <\/div>\n            <\/div>\n<\/section>\n\n<section class=\"text-block standard-spacing  \">    <div class=\"container fade-in\">\n        <h3>Meeting the requirements for valuation methodologies<\/h3>\n<p>ROOF managers must ensure the valuation policies and procedures adopted by the funds are appropriate and comply with .3.1 of the FMCC. Managers must comply with 5.3.6 of the FMCC to value not actively traded or suspended securities unless dealt with in the constitutive documents.<\/p>\n<h2>How IQ-EQ can help?<\/h2>\n<p>IQ-EQ has a 20-year track record in undertaking SFC mock inspections, compliance health-checks and inspection remediation, providing recommendations for improvements and supporting clients through the regulatory inspection, improvement and remediation process.<\/p>\n<p>IQ-EQ drafts, reviews and customises all types of compliance and internal control manuals, operational and procedural manuals and risk management frameworks including valuation methodologies, liquidity risk frameworks and conflicts of interest assessments, mapping and registers.<\/p>\n<p>IQ-EQ represents the largest independent <a href=\"https:\/\/iqeq.com\/services\/compliance-consulting-asia\/\">regulatory compliance<\/a> firm in the Asia-Pacific region with 100+ regulatory compliance specialists now part of our team in Asia.<\/p>\n<h4><a href=\"https:\/\/iqeq.com\/hk\/\"><strong>Visit our dedicated IQ-EQ Hong Kong website<\/strong><\/a><strong> to find out more and get in touch today.<\/strong><\/h4>\n<p>&nbsp;<\/p>\n<hr \/>\n<p><strong>About the author<\/strong><\/p>\n<p>Philippa is IQ-EQ\u2019s Managing Director of Regulatory Compliance, Asia, with over 30 years\u2019 extensive business and regulation experience in Asia. Prior to founding ComplianceAsia, which is now part of IQ-EQ, Philippa was the Head of Compliance, APAC for Dresdner Bank and GT Asset Management (LGT Asset Management). She was one of the drafters of the original Fund Manager Code of Conduct in Hong Kong and is involved in numerous submissions to regulators and lobbying efforts with financial industry bodies.<\/p>\n            <\/div>\n<\/section>\n\n    <section class=\"related-section related-section--people related-section--centered standard-spacing\">\n        <div class=\"container\">\n                            <h2>Meet the author<\/h2>\n                        <div class=\"cards row-load\">\n                    <div class=\"person-card\">\n                    <a href=\"https:\/\/iqeq.com\/people\/philippa-allen\/\" class=\"bg-img lozad normal\">\n                <img width=\"290\" height=\"190\" class=\"attachment-person_card size-person_card lozad\" alt=\"\" sizes=\"(max-width: 290px) 100vw, 290px\" data-src=\"https:\/\/iqeq.com\/hk\/wp-content\/uploads\/2023\/10\/Philippa-Allen-Formal-Grey.png\" \/>            <\/a>\n            <a href=\"https:\/\/iqeq.com\/people\/philippa-allen\/\" class=\"bg-img lozad hover\">\n                <img width=\"290\" height=\"190\" class=\"attachment-person_card size-person_card lozad\" alt=\"\" sizes=\"(max-width: 290px) 100vw, 290px\" data-src=\"https:\/\/iqeq.com\/hk\/wp-content\/uploads\/2023\/10\/Philippa-Allen-Informal-Green.png\" \/>            <\/a>\n                <div class=\"info\">\n                            <h3>\n                    <a href=\"https:\/\/iqeq.com\/people\/philippa-allen\/\">Philippa Allen<\/a>\n                <\/h3>\n                        <p class=\"job-title\">Head of Sales, Regulatory Compliance, Strategic Relationships, EMEA, Japan &amp; India<\/p>\n            <div class=\"border\"><\/div>\n                            <p class=\"location\">Hong Kong<\/p>\n                        <a href=\"#contact-person\" class=\"link link--deepgray email\">\n                Send email            <\/a>\n                            <a href=\"tel:+85231800480\" class=\"link telephone\">\n                    +852 31800480                <\/a>\n                                        <a href=\"https:\/\/iqeq.com\/people\/philippa-allen\/\" class=\"link link--deepgray permalink\">\n                    Full profile                <\/a>\n                                        <div class=\"socials\">\n                    <a href=\"https:\/\/www.linkedin.com\/in\/complianceasia\/\" class=\"linkedin\">\n                        <span class=\"screen-reader-text\">LinkedIn<\/span>\n                    <\/a>\n                <\/div>\n                    <\/div>\n    <\/div>\n            <\/div>\n            <div class=\"button-wrapper\">\n                            <\/div>\n        <\/div>\n    <\/section>\n","protected":false},"excerpt":{"rendered":"","protected":false},"author":6,"featured_media":983,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","footnotes":""},"categories":[1],"tags":[],"expertise":[37,17],"service_category":[39],"class_list":["post-982","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>SFC Circular on deficiencies and substandard conduct in management of private funds and discretionary accounts | IQ-EQ Hong Kong<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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