HKSI Paper 6 General regulatory framework question: CIS under the SFO

HKSI Paper 6General regulatory framework

Under the Harbour Suites Plan, investors each buy a room in a hotel building. The operator runs the whole building as one hotel; each investor receives the letting income of his own room, so contributions and profits are not pooled. Investors have no day-to-day control. Is the plan a CIS under the SFO?

A Yes; the operator manages the property as a whole, which suffices without pooling
B Yes, but only because the investors have no right to be consulted on its management
C No, because property is caught only if it consists of securities or futures contracts
D No, because contributions and profits must be pooled for any arrangement to be a CIS

Show the answer and explanation

Answer: A. Yes; the operator manages the property as a whole, which suffices without pooling

Paragraph (a) of the CIS definition needs three things: participants lack day-to-day control over the management of the property, whether or not they may be consulted or give directions; the property is managed as a whole by or for the operator, or the contributions and profits are pooled, or both; and the purpose is for participants to share in profits or returns from the property. Limb (ii) is met by management as a whole alone, so pooling is not required. 'Property' includes land, not only securities. A right to be consulted would not take the plan outside the definition, so that is not why it is a CIS. Source: SFO (Cap. 571) Sch. 1 Pt 1, s.1 (collective investment scheme, para (a)(i)-(iii); property) (as at October 2026).

Common mistake

Treating pooling as essential. Management of the property as a whole by the operator is an alternative route into the definition.

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