Internal controls and operational considerations for family offices
August 2023
Family offices are effectively wealth management firms that serve high-net-worth individuals or their families (‘Family Groups’). While multi-family offices (‘MFOs’) are third party platforms that are set up to manage the assets of many different Family Groups, single family offices (‘SFOs’) are set up by one Family Group solely to manage the assets of that Family Group. As such, SFO entities will often be wholly (or at least largely) owned by the Family Group which they serve, whereas MFOs may be wholly independent from their Family Group clients.
As far as the Securities and Futures Commission of Hong Kong (‘SFC’) is concerned, SFOs should not need any regulated activity licence (including a Type 9 (Asset Management) licence) as they are not ‘carrying on’ any business of asset management in performing their roles and functions for the Family Group (since it is the Family Group effectively managing its own moneys). MFOs, however, will need to be licensed for regulated activity (namely Type 9 (Asset Management)) since they are carrying on a business of asset management for third parties - see our article summarising the licensing and regulatory considerations here.
Regardless of whether they are regulated or not, SFOs and MFOs are responsible, ultimately, for managing significant amounts of assets and wealth. It would be crucial, therefore, for them to have robust internal controls and operational processes in place to ensure they carry out their functions effectively and efficiently, and in a professional manner. This is particularly important given the complex and often diverse nature of family office investments, which may include allocations to private equity, real estate, hedge funds, and other alternative asset classes.
In this final instalment of our three-part series on the family office regime, we set out some considerations that would be relevant to both MFOs and SFOs in terms of their internal compliance, governance, and operating processes/designs.
