Hong Kong’s securities regulator is in talks with certain European markets over the possibility of mutual fund recognition.

In a speech last week, Ashley Alder head of Hong Kong’s Securities and Futures Commission (SFC), said talks with other markets, including some in Europe, are taking place.

“These markets have recognised that the growing significance of the Hong Kong asset management industry should lead to a new era of reciprocal recognition arrangements,” Alder said at a Hong Kong Investment Funds Association (HKIFA) event.

“These may well supplant the type of unilateral recognition arrangements which have been the norm to support one-way fund sales into Hong Kong.”

The move, potentially, would allow Hong Kong-based asset managers to secure a bigger slice of money available for investment in the region, while also giving them an opportunity to expand overseas.

“Effectively this is the SFC saying if the EU wants to keep selling UCITS in Hong Kong, then it needs to open the EU to Hong Kong funds,” said Sean Tuffy, senior vice president and head of regulatory intelligence and Brown Brothers Harriman.

"This is all part of Hong Kong's ambition to become a global fund domicile, like Ireland or Luxembourg. With the trump card being access to China," Tuffy added.

Late last year, both Hong Kong and Chinese securities regulators approved the first batch of funds under a Hong Kong-China mutual fund recognition scheme, in a landmark development that further opens up China's capital markets.

The MRF (Mutual Recognition of Funds) initiative was described as a "major breakthrough" by the SFC at the time.

However, many believe exclusivity of the access Hong Kong enjoys to Mainland China may be tempered in future.

“While Hong Kong remains as a preferred gateway to Mainland China and the region, the investment professionals consulted all agreed that Hong Kong cannot afford to rest on its laurels,” Vivian Chui, partner, investment management, KPMG China said in a recent report.

“Shanghai and Singapore are also grooming their own financial hubs. In addition the industry and consumers are likely to face more scrutiny from regulators and compliance-related costs are likely to rise.”

Fund managers interviewed by KPMG in November last year said they expect increased coordination between Hong Kong and Mainland regulators.

However capitalising on that advantage is key, as the schemes increasing Hong Kong’s access to the Mainland may be expanded to other markets, perhaps encouraging the development of alternative hubs.

“Hong Kong will not be the exclusive entry point into Mainland China five years from now. People might go straight there,” added Terry Pan, chairman, HKIFA.

“It is opening up and despite a lot of uncertainties, there might be a lot of advantages to an asset manager not necessarily having to go through Hong Kong anymore.

“There are still a lot of things going for Hong Kong and it will continue to grow, no doubt about that. But if we want to maintain our position there are a lot of things that need to go right.”