HKSI Paper 1 The Securities and Futures Ordinance (Cap. 571) question: Employee pools and the CIS definition

HKSI Paper 1The Securities and Futures Ordinance (Cap. 571)

Harbourfront Group's treasury company pools money contributed by bona fide employees of group companies, and by their spouses, and manages it as one fund, paying them returns without giving them day-to-day control. How is this treated under Schedule 1 to the SFO?

A It is a collective investment scheme, because pooling and the lack of day-to-day control are the only tests
B It is a collective investment scheme, because contributions from spouses take it outside any employee exclusion
C It is outside the collective investment scheme definition because the participants are group employees and their spouses
D It is outside the definition only if the treasury company holds a licence for Type 9 asset management

Show the answer and explanation

Answer: C. It is outside the collective investment scheme definition because the participants are group employees and their spouses

The arrangement meets paragraph (a) of the 'collective investment scheme' definition in Part 1 of Schedule 1: no day-to-day control, pooled contributions and returns from the property. But exclusion (iii) removes arrangements under which each participant is a bona fide employee or former employee of a corporation in the same group as the operator, or a spouse, widow, widower, minor child or minor step-child of such an employee. So the paragraph (a) elements are not the only tests. Spouses are expressly within the exclusion. Whether the operator holds a Type 9 licence has nothing to do with the exclusion. Source: SFO (Cap. 571) Sch. 1 Pt 1 s.1, definition of 'collective investment scheme', para (a) and exclusion (iii) (as at October 2026).

Common mistake

Candidates apply the three CIS elements and stop. The definition has a list of exclusions, and group employee schemes are one of them.

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