The correct answer is that the specific rules for transferring accrued benefits between different MPF schemes when an employee changes jobs are governed by the Mandatory Provident Fund Schemes (General) Regulation. This regulation provides the detailed operational framework for MPF schemes, covering key areas such as enrolment, contributions, investment requirements, and the portability of benefits, which includes the process for transferring funds when a member changes employment. The other options describe matters governed by different parts of the MPF legislative framework. The criteria for specific industries to be granted exemptions from standard enrolment procedures are detailed in the Mandatory Provident Fund Schemes (Exemption) Regulation. The statutory powers of the Mandatory Provident Fund Schemes Authority (MPFA) to conduct investigations and impose penalties are established in the main Mandatory Provident Fund Schemes Ordinance (MPFSO) itself, which creates the authority and defines its overarching powers. Similarly, the high-level process for a company to apply for registration as an approved MPF corporate trustee is also set out in the MPFSO, which provides for the approval and control of trustees.

The Contract Notes, Statements of Account and Receipts Rules, made under the Securities and Futures Ordinance (Cap. 571), stipulate the minimum information that must be included in a contract note provided to a client. Statement I is correct because the rules require the inclusion of the transaction date, the settlement date, and the date of preparation of the contract note. Statement II is correct as the note must detail the consideration, the rate or amount of commission, and any applicable levies or duties, such as stamp duty. Statement III is correct and particularly relevant to the scenario; Section 5(3)(a) of the Rules explicitly requires that where an intermediary acts as a principal in a transaction, the contract note must contain a statement to that effect. Statement IV is incorrect; while the time of execution must be recorded by the intermediary for audit trail purposes under the SFC’s Code of Conduct, it is not a mandatory item to be displayed on the client’s contract note under the Contract Notes Rules. Therefore, statements I, II and III are correct.

This question assesses understanding of the key principles of the Code on Open-ended Fund Companies (OFC Code) and naming requirements under the Securities and Futures Ordinance (SFO). Statement II is correct because a key principle of the OFC Code is that key operators must act with due skill, care, and diligence, which explicitly includes the selection, appointment, and ongoing monitoring of any delegate, such as a custodian. Statement IV is correct as the OFC Code requires the OFC and its key operators to ensure compliance with regulatory requirements and to promptly inform the SFC of any material breach of the OFC Code or its constitutive documents. Statement I is incorrect because the SFO mandates that an OFC’s registered name must end with ‘Open-ended Fund Company’ or ‘OFC’. The proposed name is incomplete without this suffix. Statement III is incorrect because the OFC Code does not strictly prohibit such conflicts of interest. Instead, it requires that conflicts be avoided, or where they cannot be avoided, they must be managed, minimised, and properly disclosed to investors. Therefore, statements II and IV are correct.

The correct answer is that the REIT must distribute a minimum of HK$270 million. According to the SFC’s Code on Real Estate Investment Trusts, a REIT is required to distribute to its unitholders as dividends an amount that is not less than 90% of its audited annual net income after tax. In this scenario, the calculation is 90% of HK$300 million, which equals HK$270 million. This rule ensures that REITs function primarily as income-generating investment vehicles, passing through the vast majority of their rental and other income to investors. Distributing the full HK$300 million is permitted but not the minimum required, as the REIT is allowed to retain up to 10% for purposes such as working capital or minor property enhancements. The distribution amount is a mandatory requirement under the Code and is not a discretionary decision left to the management board’s assessment of market conditions, nor can it be based on pre-tax income figures.

According to the Code on Unit Trusts and Mutual Funds (UT Code), an SFC-authorised money market fund is subject to specific investment restrictions to ensure portfolio stability and liquidity. The correct answer is that an investment of HK$60 million in units of another SFC-authorised money market fund is a breach. This is because the UT Code stipulates that a money market fund may not invest more than 10% of its total Net Asset Value (NAV) in other money market funds. In this scenario, with a NAV of HK$500 million, the limit is HK$50 million (10% of HK$500 million). An investment of HK$60 million represents 12% of the NAV, thereby exceeding the regulatory limit. The other options are compliant. The holdings of HK$70 million in asset-backed securities are permissible, as this represents 14% of the NAV, which is below the 15% limit for such securities. The temporary borrowing of HK$45 million to meet redemptions is also compliant; it is 9% of the NAV, which is within the 10% borrowing limit, and is for a permitted purpose. Lastly, a cash deposit of HK$90 million with a single substantial financial institution is within the general 20% limit on exposure to a single entity for deposits.

This question tests the understanding of the key operational and governance requirements for an Open-ended Fund Company (OFC) in Hong Kong, as stipulated by the Securities and Futures (Open-ended Fund Companies) Rules.

Statement I is correct. A fundamental principle of investor protection is the segregation of assets and oversight. The custodian, responsible for the safekeeping of the OFC’s assets, must be a separate legal entity and independent of the investment manager to prevent conflicts of interest and ensure proper oversight.

Statement II is correct. The investment management function of an OFC must be delegated to an investment manager that is licensed or registered by the Securities and Futures Commission (SFC) to carry on Type 9 (asset management) regulated activity. This ensures that the entity managing the fund’s assets is regulated and meets the SFC’s competency and conduct standards.

Statement III is incorrect. The requirement for director independence is specifically tied to the investment manager, not the custodian. The rules mandate that an OFC must have at least one director who is independent of the investment manager and its connected persons. This is to provide an independent check on the manager’s activities on behalf of the OFC.

Statement IV is incorrect. The auditor of an OFC must be independent. This is a cornerstone of corporate governance and financial reporting integrity. The auditor must be independent of the OFC, its directors, the investment manager, and the custodian to provide an unbiased opinion on the financial statements. Therefore, statements I and II are correct.

According to the General Principles and the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the SFC assesses accountability not just at the level of the individual who directly interacts with a client, but throughout the entire management and supervisory chain. Statement I is correct because the SFC will consider the junior representative’s personal level of knowledge and control over their actions, in line with their experience and training. Statement II is correct as the SFC places significant emphasis on supervisory duties; a manager is responsible for adequately overseeing the activities of their subordinates. Statement III is correct because Responsible Officers and senior management are ultimately accountable for establishing and maintaining a robust compliance framework and fostering a proper compliance culture within the licensed corporation. Statement IV is incorrect because the SFC’s approach is holistic; it does not limit its focus to the most junior person involved but examines the entire chain of responsibility to identify systemic failures or supervisory lapses. Therefore, statements I, II and III are correct.

Under the Mutual Recognition of Funds (MRF) scheme between Mainland China and Hong Kong, a Mainland fund distributed in Hong Kong has several ongoing obligations. Statement I is correct because offering documents for funds authorized in Hong Kong, including those under the MRF, must comply with local disclosure requirements. As per the SFC’s Code on Unit Trusts and Mutual Funds (UT Code), this includes providing a bilingual (English and Chinese) offering document and a Product Key Facts Statement (KFS). Specifically, where original documents are in simplified Chinese, traditional Chinese must be used for the Hong Kong versions. Statement II is correct as a core principle of the MRF is that the fund remains primarily regulated and supervised by its home jurisdiction’s regulator, which is the China Securities Regulatory Commission (CSRC) for Mainland funds. Statement III is incorrect because all sales and distribution activities in Hong Kong constitute a regulated activity (Type 1 – Dealing in Securities) and must be conducted by persons licensed by or registered with the Securities and Futures Commission (SFC). Mainland qualifications alone are insufficient for conducting such activities in Hong Kong. Statement IV is correct; funds authorized for public sale in Hong Kong are required to make their constitutive documents (e.g., trust deed, articles of incorporation) available for inspection by the public in Hong Kong. Therefore, statements I, II and IV are correct.

This question assesses the disclosure requirements under the SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically concerning affiliations, benefits, and fee arrangements.

Statement I is correct. A licensed person must disclose any affiliation with the product issuer to the client. In this scenario, since the fund is managed by an affiliate of the brokerage (‘Global Wealth Management’), this relationship constitutes a potential conflict of interest and must be clearly disclosed.

Statement II is correct. For monetary benefits that are not quantifiable prior to or at the point of entering into a transaction (like a performance-based trailer fee), the licensed person must disclose the existence and nature of the benefit, along with the maximum percentage receivable per year. This allows the client to understand the potential incentive structure.

Statement III is incorrect. The Code of Conduct allows for a one-off disclosure of the generic terms and conditions under which a client may receive fee discounts. It is not necessary to disclose the specific discount applicable to each individual transaction, provided the general terms have been communicated to the client previously.

Statement IV is incorrect. The scenario explicitly states that the trailer fee is not quantifiable at the point of sale. Therefore, it is impossible to disclose the exact dollar amount. The requirement is to disclose the nature and maximum percentage, as correctly stated in Statement II, not a precise figure. Therefore, statements I and II are correct.

According to the SFC’s Code on Unit Trusts and Mutual Funds (UT Code), the management company is responsible for establishing and maintaining appropriate valuation policies. Statement I is incorrect because these policies must be established in consultation with the trustee/custodian, not in the management company’s sole discretion. Statement III is incorrect because while a management company can delegate the valuation function to a third party, it retains the ultimate responsibility to ensure the third party is competent and to properly monitor and supervise their work. The responsibility does not shift entirely. Statement II is correct as the UT Code requires that the valuation policies be reviewed and tested at least annually by a competent and functionally independent person to ensure they are appropriate and properly implemented. Statement IV is also correct; the offering document must disclose the valuation frequency, which must be at least once on every dealing day. Therefore, statements II and IV are correct.

The SFC’s Code on Unit Trusts and Mutual Funds (UT Code) sets out specific obligations for a management company when it directs transactions for a Collective Investment Scheme (CIS) to a broker or dealer that is a connected person. These rules are designed to manage potential conflicts of interest and ensure the CIS and its unitholders are treated fairly. Statement I is correct because the management company must ensure that transactions are executed on arm’s length terms, which includes adhering to best execution standards and ensuring that any fees or commissions paid are not higher than the prevailing market rate for comparable transactions. Statement II is correct as transparency is a key requirement. The UT Code mandates that the CIS’s annual report must disclose details of such transactions, including their nature, the total commissions paid, and any other quantifiable benefits received by the connected broker. Statement III is incorrect; while the management company must have robust internal controls and monitor these transactions, there is no requirement to obtain prior approval from the SFC for each individual trade. The SFC’s oversight is at the level of the management company’s systems and controls, not individual transactions. Statement IV is also incorrect. The management company’s primary duty is to act in the best interests of the CIS, which includes seeking best execution. Centralising all trades with a single connected broker is not a requirement and could potentially breach the duty of best execution if other brokers could offer better terms. The obligation is to select brokers carefully, not to exclusively use a connected one. Therefore, statements I and II are correct.

This question tests the core investment and borrowing restrictions for a Collective Investment Scheme (CIS) authorized by the SFC under the Code on Unit Trusts and Mutual Funds. Statement I is incorrect because a CIS is generally prohibited from borrowing more than 10% of its total Net Asset Value (NAV). The proposed 15% borrowing clearly exceeds this limit. Statement II is correct. A CIS may engage in short selling, provided the liability to deliver securities does not exceed 10% of its total NAV. An 8% liability is within this permissible threshold. Statement III is incorrect. The Code prohibits a CIS from investing in a security of an entity if any single director or officer of the management company owns more than 0.5% of the total nominal amount of all issued securities in that class. The director’s 1% holding violates this rule. Statement IV is correct. A CIS is permitted to invest in securities with uncalled amounts (or partly-paid shares) as long as the maximum potential liability is fully covered by cash or other assets that are not otherwise committed or segregated. Therefore, statements II and IV are correct.

According to the SFC’s Fund Manager Code of Conduct (FMCC), a fund manager may only receive goods and services (‘soft dollars’) from a broker in return for directing transactions if those goods and services are of demonstrable benefit to the fund’s clients. The benefit must relate to the execution of trades or research services. Statement I is acceptable as a specialized financial data terminal provides market data and analytics, which are crucial for investment decision-making and directly benefit the clients. Statement III is also acceptable because proprietary research and portfolio performance software directly contribute to the quality of investment management and analysis. Conversely, Statement II is unacceptable; professional membership fees are considered a general administrative or operational expense of the fund manager, not a service that benefits the fund’s clients directly. Statement IV, sponsoring an awards dinner, falls under the category of entertainment, which is explicitly prohibited as an acceptable soft dollar benefit. Therefore, statements I and III are correct.

Under the Securities and Futures Ordinance (SFO), the Securities and Futures Commission (SFC) possesses the authority to manage the registration of Open-ended Fund Companies (OFCs), including the power to cancel a registration upon the OFC’s application. However, this power is discretionary and guided by the SFC’s statutory objectives, primarily the protection of the investing public. The correct answer is that the SFC can refuse to grant the cancellation if it determines that it is in the public interest to investigate the OFC’s affairs before any cancellation proceeds, or if the cancellation would be contrary to the interests of investors. In the scenario presented, credible allegations of misconduct (such as providing misleading information) create a compelling reason for the SFC to launch an investigation to protect investors and maintain market integrity. Proceeding with cancellation could prejudice this investigation and potentially harm investors who relied on the misleading information. Therefore, refusing the application pending an investigation is the appropriate regulatory action. Granting the cancellation simply because the board of directors has passed a resolution is incorrect; an OFC’s internal corporate governance decisions do not override the SFC’s regulatory oversight and public interest mandate. Suggesting that the SFC would only suspend the application until the investment manager’s license is reviewed is also incorrect because the issue at hand directly concerns the OFC itself, and the SFC’s power to refuse cancellation is a direct tool to address such situations, rather than being contingent on a separate licensing action. Requiring the OFC to obtain approval from a majority of its shareholders before the SFC considers the application misrepresents the process; while shareholder approval might be a corporate requirement, the SFC’s decision to approve or refuse cancellation is an independent regulatory judgment based on the SFO and public interest considerations.

The explanation is that a licensed insurance agent’s fundamental duty under the Agents’ Code is to act with honesty, integrity, and in the client’s best interests. This includes advising the client on the principle of utmost good faith, which requires the applicant to disclose all material facts to the insurer. Failing to disclose a pre-existing medical condition is a material non-disclosure that could lead the insurer to void the policy and refuse to pay a claim in the future. Therefore, the agent’s most critical responsibility is to ensure the client understands the necessity of full disclosure and the severe consequences of failing to do so. Helping the client to frame the application in a way that minimises the condition’s severity is a breach of the duty of honesty and could be construed as misrepresentation. Recommending a different product without first addressing the disclosure requirement for the current application sidesteps the immediate ethical obligation. Directly reporting the client’s condition to the insurer would be a breach of client confidentiality; the agent’s role is to advise the client, not to act as an informant for the insurer against the client’s wishes.

Statement I is correct. Engaging in stock borrowing and lending activities generally falls under the definition of ‘dealing in securities’, which is a Type 1 regulated activity under the Securities and Futures Ordinance (SFO). A custodian performing such activities is not automatically exempt and would typically need to be licensed by the SFC for Type 1 regulated activity, unless a specific exemption in the SFO applies. Statement II is correct. Under section 105(3) of the SFO, a person acting as the Hong Kong representative for a Collective Investment Scheme (CIS) must be approved by the SFC to be served with notices and decisions related to the issuance of advertisements, invitations, or other documents to the public concerning the CIS. Statement III is incorrect. The ultimate authority for interpreting the SFO and determining whether an activity constitutes a regulated activity is the Securities and Futures Commission (SFC), not the Hong Kong Monetary Authority (HKMA). Statement IV is incorrect. While Part 2 of Schedule 5 of the SFO specifies certain ‘excluded activities’, there is no automatic blanket exemption for securities-related activities simply because they are ancillary to a primary custody or trust business. Each activity must be assessed on its own merits against the specific definitions and exclusions provided in the SFO. Therefore, statements I and II are correct.

The Securities and Futures Commission (SFC) assesses an individual’s fitness and properness based on a broad range of criteria as stipulated under Section 129 of the Securities and Futures Ordinance (SFO). Statement I is relevant because a past bankruptcy, even if discharged, pertains to the individual’s financial status, solvency, and financial integrity. The SFC needs to be satisfied that the individual can be trusted to handle client assets and financial matters. Statement II is relevant as any civil finding against an individual, even in a non-financial context, can reflect on their reputation, character, and reliability. It speaks to their general honesty and integrity. Statement III is directly related to the requirement for appropriate educational qualifications or experience. The SFC considers both formal qualifications and the relevance of an individual’s experience in relation to the functions they will perform. A lack of specific experience is a valid point of consideration in the overall assessment. Statement IV is incorrect because the performance of the employing firm’s funds is not a criterion for assessing an individual applicant’s personal fitness and properness. The firm’s financial soundness is assessed separately, but its investment performance is not a factor in an individual’s licensing application. Therefore, statements I, II and III are correct.

According to paragraph 5.2 of the SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, a licensed person should, when making a recommendation or solicitation, ensure the suitability of the recommendation for that client is reasonable in all the circumstances. This involves having regard to the client’s financial situation, investment experience, and investment objectives. Statement I correctly captures this fundamental requirement. Furthermore, paragraph 5.5 of the Code of Conduct and related guidelines on Online Distribution and Advisory Platforms (ODAP) specify enhanced requirements for complex products. An unlisted structured note is typically considered a complex product. Intermediaries must provide sufficient product information and clear warning statements to clients for such products. Statement II is therefore also correct. Statement III is incorrect; a client’s signature on a risk disclosure or declaration does not, by itself, discharge the intermediary’s suitability obligations. The responsibility to make a suitable recommendation remains with the licensed person. Statement IV is also incorrect because the act of providing a recommendation or advice triggers the suitability requirement, even if the client’s initial inquiry was unsolicited. The exemption for unsolicited, execution-only trades does not apply in a scenario where a recommendation is made. Therefore, statements I and II are correct.

Under the Securities and Futures Ordinance (SFO), a transaction involving the sale and purchase of securities without a change in beneficial ownership is defined as a ‘wash trade’. When such a trade is executed on a recognised stock market like the Hong Kong Stock Exchange, it is presumed to constitute false trading. The scenario describes Mr. Chan effectively selling shares from one entity he controls to another, meaning he remains the ultimate beneficial owner. Therefore, this action is presumed to be market misconduct. To rebut this presumption, the burden of proof falls on Mr. Chan. He must demonstrate to the satisfaction of the regulator that the transaction was not carried out for the purpose of creating a false or misleading appearance of active trading, or a false or misleading appearance with respect to the market for, or the price of, the securities. His stated goal of portfolio consolidation could serve as this legitimate purpose, but it is his responsibility to prove it. The transaction is not automatically considered price rigging, which involves specific actions to manipulate prices. The fact that there was no change in beneficial ownership is what defines the act as a wash trade and triggers the presumption of misconduct; it is not a defense. Finally, there is no automatic exemption for portfolio consolidation; the act is still subject to the presumption, which must be actively rebutted.

The correct answer is that the methodology used in the calculations, along with any relevant assumptions or limitations, must be disclosed. According to the SFC’s Fund Manager Code of Conduct and related circulars on managing climate-related risks, when Large Fund Managers disclose quantitative data on carbon emissions associated with their underlying investments, transparency is paramount. To allow investors to properly interpret the data, the disclosure must be accompanied by the methodology used for the calculation. This includes explaining the assumptions made and any limitations of the data or the calculation process. Additionally, the manager must state the proportion of the portfolio’s investments that are covered by this quantitative data. The option suggesting a guaranteed future reduction in emissions is incorrect because while firms may set targets, the SFC does not mandate a binding guarantee as part of the disclosure. The option requiring a comparison against every major global equity index is incorrect as it is overly prescriptive and not a specific regulatory requirement; the focus is on the firm’s own portfolio. Finally, disclosing the names of individual board members who approved the methodology is not a required element of this specific data disclosure, which is more concerned with the technical integrity and context of the emissions figures rather than individual attestations.

This question tests the understanding of record-keeping requirements for electronic trading systems as stipulated in Paragraph 18 and Schedule 7 of the Code of Conduct for Persons Licensed by or Registered with the SFC.

Statement I is correct. The Code of Conduct explicitly requires that comprehensive documentation of the risk management controls of an electronic trading system must be kept for a period of not less than two years after the system has ceased to be used. As the system was decommissioned on 1 July 2022, these records must be retained until at least 1 July 2024.

Statement II is correct. The Code of Conduct requires that incident reports for all material system delays or failures be kept for a period of not less than two years. The retention period starts from the date of the report or incident. Therefore, a report for an incident on 15 March 2022 must be kept until at least 15 March 2024.

Statement III is incorrect. Licensed corporations are required to keep proper records of the design and development of their electronic trading systems. While the Code of Conduct is more specific about the post-cessation retention period for risk management controls, it does not permit the immediate or short-term disposal of fundamental records like design and development documentation. Discarding them after only one year would be a breach of the general obligation to maintain proper records.

Statement IV is incorrect. The regulatory obligations concerning the operation and record-keeping of electronic trading systems apply to the licensed corporation regardless of the classification of its clients. The fact that the system was used exclusively by Professional Investors does not provide an exemption from these fundamental operational and compliance requirements. Therefore, statements I and II are correct.

The correct answer is that securing a loan equivalent to 12% of the fund’s net asset value to make a strategic investment is a violation. Under the Mandatory Provident Fund Schemes (General) Regulation, a constituent fund’s ability to borrow is strictly limited. Borrowing is only permitted for temporary liquidity purposes, such as meeting redemption requests, and must not exceed 10% of the fund’s total net asset value. The proposed action breaches these rules on two fronts: the amount (12% exceeds the 10% limit) and the purpose (it is for investment leverage, not for short-term liquidity). The other options describe permissible activities. Engaging in securities lending for up to 50% of the fund’s non-cash assets is allowed, subject to collateralisation and other requirements. Purchasing financial futures contracts for the sole purpose of hedging is a valid risk management technique permitted for MPF funds. Allocating up to 10% of the fund’s net asset value to SFC-authorized Real Estate Investment Trusts (REITs) is also acceptable, as these are considered permissible investments.

This question assesses a fund manager’s duties regarding inside information, order allocation, and best execution under the SFC’s Fund Manager Code of Conduct (FMCC) and the Securities and Futures Ordinance (SFO).

Statement I is correct. The internal research report, being non-public and potentially price-sensitive, constitutes ‘relevant information’ (inside information). Acting on it before public dissemination would likely constitute insider dealing, a form of market misconduct prohibited under the SFO. A fund manager must have policies to prevent this.

Statement II is incorrect. The FMCC explicitly requires that intended allocations for client orders be recorded prior to the transactions being executed. This is a key control to prevent ‘cherry-picking’—the practice of allocating favourable trades to preferred accounts after the outcome is known.

Statement III is incorrect. The principle of ‘best execution’ is multi-faceted. While price is a critical factor, it is not the sole consideration. A fund manager must also take into account other relevant factors such as the size and nature of the order, the speed of execution, the likelihood of execution and settlement, and the potential market impact of the trade. Focusing only on the lowest price could lead to a poor overall outcome for the clients.

Statement IV is correct. This statement accurately reflects the core principle of fair allocation. Should the fund manager trade after the information is public, they have a fiduciary duty to allocate the executed shares equitably among all participating client accounts, without unfairly favouring any specific fund or client, such as those that generate higher fees. Therefore, statements I and IV are correct.

The correct answer is that an OFC must appoint an independent custodian and be registered with the SFC before operating. Part IVA of the Securities and Futures Ordinance (SFO) establishes the legal framework for Open-ended Fund Companies (OFCs) in Hong Kong. A fundamental requirement is that no entity can carry on business as an OFC without first being registered by the Securities and Futures Commission (SFC). This registration process ensures the entity meets the necessary structural and operational standards. Furthermore, to safeguard the assets of the fund, the SFO mandates that every OFC must appoint a custodian. This custodian must be independent of the investment manager and is responsible for the safekeeping of the scheme property. The other statements are incorrect. An OFC is a corporate structure that owns its assets directly, so it appoints a custodian for safekeeping, not a trustee to hold legal title, which is a feature of a unit trust structure. While the SFC reviews offering documents for public OFCs to ensure adequate disclosure, it does not pre-approve the specific investment strategy or day-to-day portfolio composition; this responsibility lies with the investment manager operating within the disclosed investment objectives. Finally, the SFC is the sole authority for registering OFCs, and the Hong Kong Monetary Authority (HKMA) is not involved in their registration, regardless of the fund’s intended asset class.

According to the SFC Code on Unit Trusts and Mutual Funds, the constitutive documents of a collective investment scheme must provide for the removal of the management company under specific circumstances. Statement I is correct because the management company going into liquidation is an explicit ground for its removal by the trustee. Statement II is correct as it reflects the provision that the trustee can remove the management company for ‘good and sufficient reasons’ if it states in writing that a change is desirable in the interests of the unitholders. Statement III is also correct; for a unit trust, the trustee can remove the management company if holders of at least 50% in value of the outstanding units deliver a written request for its dismissal. Since 55% exceeds this threshold, it is a valid ground. Statement IV is incorrect. While a private reprimand from the SFC is a serious matter, it is not an automatic trigger for removal by the trustee. The specific condition that compels retirement is the SFC withdrawing its approval of the management company, which is a more severe regulatory action than a reprimand for a minor breach. Therefore, statements I, II and III are correct.

According to Section 56 of the Securities and Futures (Financial Resources) Rules (FRR), a licensed corporation for asset management that is not permitted to hold client assets must submit several financial returns to the SFC on a semi-annual basis. One of these key returns is an ‘analysis of the assets under management’ (AUM). The purpose of this analysis is to provide the regulator with a clear, aggregated overview of the nature and scope of the firm’s management activities. The correct answer is that this analysis requires a categorical breakdown of the total AUM. This includes classifying the assets by their type (such as listed equities, bonds, or collective investment schemes), their geographical concentration, and the nature of the clients who own them (for instance, distinguishing between retail funds and professional investor mandates). This information allows the SFC to assess the firm’s business profile and associated risks. An option suggesting a list of individual client names and personal details is incorrect; this level of detail is part of the firm’s internal client records and KYC processes, not the aggregated AUM analysis for the FRR. Another incorrect option focuses on the firm’s own financial standing, such as its proprietary positions and liquid capital calculation. While these are critical components of the FRR submission, they are reported in separate, distinct schedules, not within the AUM analysis. Finally, an option detailing investment performance against benchmarks and transaction logs is also incorrect. Although vital for client reporting and internal review, the FRR’s AUM analysis is a regulatory snapshot of asset composition, not a performance report.

This question assesses a fund manager’s obligations regarding IPO allocations and transactions with connected persons under the SFC’s Fund Manager Code of Conduct (FMCC).

Statement I is correct. Paragraph 3.8 of the FMCC requires fund managers to ensure that investments are allocated in a fair and equitable manner among their clients. For IPOs, this includes establishing and recording the intended basis of allocation before the final allocation is known. This prevents post-hoc allocation decisions that could favour certain clients over others.

Statement II is correct. According to Paragraph 3.6 of the FMCC, if a fund manager participates in underwriting on behalf of a fund (and this is permitted by the mandate), any commission, fee, or other benefit received must be credited to the fund’s account. The manager cannot retain these benefits.

Statement III is incorrect. Transactions with connected persons are not automatically prohibited. Paragraph 3.10 of the FMCC permits such transactions provided they are disclosed, executed on an arm’s length basis, and are in the best interests of the fund’s clients. The key is to manage the conflict of interest, not to avoid the transaction entirely if it is beneficial for the fund.

Statement IV is incorrect. This describes preferential allocation, which is explicitly prohibited. The principle of fair and equitable allocation means a fund manager cannot favour one fund over another, for instance, to boost the performance of a new fund or a fund with a higher fee structure. All clients must be treated fairly. Therefore, statements I and II are correct.

The correct answer is that the SFC’s primary focus is on ensuring the offering document contains all mandatory disclosures as required by the Code. Under the SFC Code on MPF Products, the SFC’s main responsibility during the authorisation process is to act as a gatekeeper for investor protection through adequate disclosure. It meticulously reviews the offering document to ensure it provides clear, comprehensive, and non-misleading information to the public. While the SFC and the MPFA cooperate, the SFC’s authorisation of the offering document is a separate process from the MPFA’s overall registration of the scheme; the SFC does not wait for the MPFA’s final approval before conducting its review. The SFC’s mandate is to ensure the fee structure is clearly disclosed in the offering document, not to assess its competitiveness against market benchmarks as a primary condition for authorisation. Although constitutive documents like the trust deed are submitted, the SFC’s detailed compliance check is specifically concentrated on the offering document, as it is the primary document upon which investors will base their decisions.

This question assesses the understanding of the fundamental separation of duties among key service providers for a Hong Kong-authorised unit trust, a principle enforced by the SFC’s Code on Unit Trusts and Mutual Funds. Statement I is correct as the primary function of a fund management company is to manage the investment portfolio according to the strategy defined in the fund’s constituent documents (e.g., the trust deed). Statement II is correct because the trustee is the legal owner of the fund’s assets, holding them in trust for the unitholders, and bears the ultimate responsibility for their safekeeping, even if it delegates the physical custody to a sub-custodian. Statement III is also correct; a critical role of the trustee is to act as a watchdog, ensuring the fund manager complies with all investment restrictions and operational guidelines set out in the trust deed. Statement IV is incorrect. While the fund manager provides the portfolio valuation data, the calculation of the Net Asset Value (NAV) is typically performed by an independent fund administrator, which is often the trustee or an entity appointed by the trustee. This separation ensures independent verification and protects investors from potential conflicts of interest. Therefore, statements I, II and III are correct.

The correct answer is that the representative must provide clear information identifying the specific licensed corporation she is acting for within the Apex Financial Group. According to paragraph 8.1 of the SFC’s Code of Conduct, a licensed person must provide clients with adequate and relevant information about its business. A key aspect of this, particularly within a large financial conglomerate, is to remove any ambiguity about which legal entity the client is dealing with. This ensures the client understands the specific regulatory framework, services, and contractual obligations associated with that particular licensed firm, rather than the group as a whole. Failing to do so could mislead the client about the nature of the services being offered and the entity responsible for them. The other options are incorrect for specific reasons. While audited financial statements must be provided to a client, this is done upon the client’s request, not as a mandatory upfront disclosure during an initial meeting. Presenting a comprehensive list of every product offered by all subsidiaries is not a requirement; the disclosure should be relevant to the business being conducted with the client. Finally, while the identity and status of the employee are important, the primary obligation in this context is to clarify the identity of the licensed corporation to establish a clear basis for the business relationship.