Hong KongÆs Securities and Futures Commission (SFC) has issued deadlines for compliance with revised advertising guidelines for marketing materials for funds.

From the start of this year, all new marketing materials will be required to comply with these new guidelines. Fund management companies will have until March 31 to update existing marketing materials. In case fund houses face difficulties in meeting this deadline, the SFC will consider applications for extensions on a case-by-case basis, with the absolute deadline for compliance being June 30.

ôThese new guidelines will enhance investor protection while the phased approach addresses industry concerns without compromising investorsÆ interests,ö says SFC acting CEO Paul Kennedy.

The SFC will maintain active surveillance of marketing materials to ensure compliance to the revised advertising guidelines and will take action to ensure investorsÆ interests are safeguarded in the event of compliance failure.

Failure to comply with the revised guidelines could lead the SFC to impose fund authorisation conditions and restrict marketing materials from distribution to the public. The regulator could also prevent fund houses form soliciting new subscriptions. Plus, misleading or deceptive statements in the marketing materials could attract civil liability and could constitute a criminal offence.

While fund houses will have no choice other than to comply, many worry about the significant added cost of reprinting marketing materials at a time when the industry is already focused on either overhauling or refining cost structures.

An executive at an international fund house in Hong Kong expects the stricter compliance with disclosure requirements to become a major expense because it will affect all information materials, from materials used for printed information to electronic, radio, and television campaigns.

The SFC wants fund offering documents to be up-to-date and to contain sufficient information needed by investors to make an informed decision regarding the investment. The SFC says the marketing materials must be clear, fair and present a balanced picture with adequate and prominent risk disclosure.

The revised advertising guidelines were gazetted by the SFC in July 2008 and have provided guidance to the industry in the following key areas: requirements regarding performance presentation for the preceding five years, disclosure of the name of the issuer of the advertisement; and disclosure of special risks pertaining to the fund.

The March 31 deadline follows a reminder from the SFC û in the form of a circular dated October 3 û for fund houses to comply with the disclosure requirements in information materials related to their products. The circular was issued in response to the public concern over the marketing of retail structured products triggered by the collapse of Lehman Brothers, which, as SFC chief executive Martin Wheatley notes, has affected ômoms and popsö in Hong Kong.

The circular directs issuers of all retail investment products to make sure marketing materials issued ômust be clear, fair, and present a balanced picture with adequate and prominent risk disclosureö. ThatÆs already an existing requirement, but the SFC says itÆs not enough that the information materials contain the risk disclosures. In most cases, the risk disclosures end up at the bottom of the document or in fine print.

The SFC says the risk disclosures, from now on, must be ôupfront, prominent and adequateö. The risk disclosures must also contain ônew risksö arising from the current market conditions.

The SFC has approved 80 fund applications since the enhanced disclosure requirements were put in place.