United States
Hong KongThe Fund Manager Code of Conduct: the basics Paper 1 wants
The Fund Manager Code of Conduct applies to SFC-licensed managers of collective investment schemes and discretionary accounts, typically Type 9 asset managers. It sits on top of the general Code of Conduct and adds standards on fund operations, valuation, custody of assets, risk management and disclosure to investors.
Paper 1 does not turn you into a fund manager. It asks whether you know that a separate code exists, who it catches, and roughly what it adds. That is a smaller job than the name suggests, and you can do it in an hour.
- Short name
- FMCC
- Issued by
- Securities and Futures Commission
- Applies to
- Managers of collective investment schemes and discretionary accounts, usually Type 9
- Relationship to the general Code
- Additional, not substitute - a Type 9 manager complies with both
- Themes
- Organisation, fund operations, valuation, custody, risk management, disclosure
Who does the Fund Manager Code of Conduct apply to?
Firms managing assets for others. That means managers of collective investment schemes and firms running discretionary accounts, which in licensing terms is mostly Type 9 asset management. A firm that only advises, or only executes, is not managing, and the FMCC is not aimed at it.
The point candidates miss is the stacking. The FMCC does not replace the general Code of Conduct. A Type 9 manager is subject to both at once, and to the fitness and properness regime behind them. Any answer option suggesting that the FMCC displaces the general Code is wrong.
What does the FMCC add to the general Code?
| Area | What the FMCC expects |
|---|---|
| Organisation and resources | Adequate staffing, segregation of functions, and management oversight of investment activity |
| Fund operations | Proper procedures for subscriptions, redemptions, dealing errors and cash management |
| Valuation and pricing | A consistent, documented valuation policy, and prompt correction of pricing errors |
| Custody of assets | Fund assets segregated from the manager's own, held with a properly appointed custodian |
| Risk management | A risk management framework proportionate to the strategies run, including liquidity risk |
| Disclosure to investors | Clear disclosure of strategy, fees, risks, leverage and conflicts, and periodic reporting |
| Securities lending and collateral | Policies covering lending, repo and the collateral taken against them |
Read that column as themes rather than rules. The syllabus does not ask you to quote the code.
Why is custody treated so seriously?
Because it is where the money actually is. Fund assets have to be segregated from the manager's own assets and held with a custodian who is properly appointed and functionally independent of the investment function. A manager who can move client assets without a second pair of eyes is a manager who can lose them, and the general Code's client assets principle points in the same direction.
This links back to the wider client asset regime under the Ordinance and its subsidiary rules, which another part of the syllabus covers in detail. For Paper 1 purposes, hold the principle: segregation, independent custody, clear records.
Valuation, and why it is a conduct issue
Management fees are usually calculated on net asset value, and performance fees on changes in it. So the person calculating the valuation has an interest in the answer. The FMCC responds with process: a documented valuation policy applied consistently, independent inputs where possible, and prompt correction and disclosure when a pricing error is found.
Frame it as a conflict of interest and it stops being an accounting topic. That is how the exam frames it too.
The FMCC is a conflicts code wearing an operations costume. Valuation, custody, dealing errors, side-by-side management of different funds: each is a place where the manager's interest and the investors' interest can diverge.
The other specialist codes, in one paragraph each
- Corporate Finance Adviser Code of Conduct - for Type 6 advisers including sponsors. Due diligence on transactions, competence of the team, and handling conflicts where the adviser sits on both sides of a deal.
- Code of Conduct for Persons Providing Credit Rating Services - for Type 10. Rating quality and integrity, independence from the rated entity, and management of analyst conflicts.
- Code on Open-Ended Fund Companies - the corporate fund vehicle, its directors, its custodian and its investment manager.
- Code of Conduct for Share Registrars - standards for the firms maintaining shareholder registers.
Each of these is examined at recognition level. Know the name, the regulated activity it attaches to, and one distinguishing feature.
How this appears in questions
A Type 9 licensed corporation manages a discretionary portfolio. Which statement about the codes applying to it is correct?
- The Fund Manager Code of Conduct replaces the general Code of Conduct for that firm
- The general Code of Conduct applies, and the Fund Manager Code of Conduct applies in addition
- Only the Fund Manager Code of Conduct applies, because discretionary management is a specialist activity
- Neither code applies, because discretionary management is governed solely by the client agreement
How much time is this worth?
Not much, and I would say so plainly. On our estimated split, the whole of Topic 5 is worth about 11 of 60 questions, and the general Code takes the lion's share of them. Spending an evening on the FMCC while your client agreement content is shaky is a bad trade.
The counterweight, and it is real: if you work in asset management, this material is the part of Paper 1 you will actually use after you pass. Learning it properly costs you an hour and pays out for years. Everyone else should read the table above twice and move on to Topic 6.
Common questions
Who is subject to the Fund Manager Code of Conduct?
SFC-licensed firms that manage collective investment schemes or discretionary accounts, which in practice means Type 9 asset managers. Firms that only advise or only execute orders are not managing assets and fall outside it.
Does the FMCC replace the general SFC Code of Conduct?
No. It is additional. A Type 9 asset manager complies with the general Code of Conduct and with the Fund Manager Code of Conduct at the same time, and non-compliance with either bears on fitness and properness.
What does the FMCC say about custody of fund assets?
Fund assets must be segregated from the manager's own assets and held with a properly appointed custodian that is functionally independent of the investment function, with clear records. The aim is that no single person can move investor assets unchecked.
Why does the FMCC deal with valuation?
Because management and performance fees are calculated from net asset value, so the manager has an interest in the valuation. The code requires a documented policy applied consistently, and prompt correction and disclosure of pricing errors.
Which other specialist codes does Topic 5 cover?
The Corporate Finance Adviser Code of Conduct for Type 6 advisers and sponsors, the Code of Conduct for Persons Providing Credit Rating Services for Type 10, the Code on Open-Ended Fund Companies, and the Code of Conduct for Share Registrars.