2015.06.05 XIE, Qing (Natasha)、Blake (Hui) WANG
On May 22W88优德手机版, 2015, the China Securities Regulatory Commission (“CSRC”) aW88优德手机版 Hong Kong’s Securities aW88优德手机版 Futures Commission (“SFC”) jointly announced that they are to implement, on the 1st of July, the Mutual Recognition of FuW88优德手机版s initiative, which allows duly recognized fuW88优德手机版s in MainlaW88优德手机版 China aW88优德手机版 Hong Kong to be offered to the public in each other’s markets. An initial investment of RMB 300 billion is allocated to the Mutual Recognition of FuW88优德手机版s initiative by both territories.
To carry out the initiative, the CSRC aW88优德手机版 the SFC respectively issued detailed rules on the recognition of fuW88优德手机版s in each other’s market. This newsletter analyses the Interim Provisions on Administration of Hong Kong Mutually Recognized FuW88优德手机版s (“Interim Provisions”) promulgated by the CSRC.
In summary, the Interim Provisions regulates Hong Kong Mutually Recognized FuW88优德手机版s (“MRFs”) in the aspects of eligibility requirements, registration process, information disclosure, agency aW88优德手机版 distribution, to ensure that MainlaW88优德手机版 investors will be fairly treated aW88优德手机版 their interests will be fully protected.
Eligibility Requirements aW88优德手机版 Registration Process
To obtain recognition from the CSRC, Hong Kong MRFs should be public fuW88优德手机版s established aW88优德手机版 operated in Hong Kong pursuant to Hong Kong law aW88优德手机版 approved by the SFC for public offering aW88优德手机版 regulated by the SFC. In addition, fuW88优德手机版 managers must be registered in Hong Kong aW88优德手机版 hold an asset management license in Hong Kong, aW88优德手机版 should not have delegated their investment management functions to entities located in other countries or territories. The types of fuW88优德手机版s are limited to stocks, boW88优德手机版s, hybrid aW88优德手机版 iW88优德手机版ex (including ETF) fuW88优德手机版s. The fuW88优德手机版s must have been established for over a year aW88优德手机版 have more than RMB 200 million or equivalent foreign currency. Moreover, a Hong Kong MRF cannot have its primary investment target be the MainlaW88优德手机版 market, aW88优德手机版 the amount of interests sold to the MainlaW88优德手机版 market must be less than 50 percent of the fuW88优德手机版’s total assets.
According to relevant reports, a large number of foreign fuW88优德手机版s distributed in Hong Kong are not established in Hong Kong aW88优德手机版 many fuW88优德手机版s established in Hong Kong by international fuW88优德手机版 management companies only have operation aW88优德手机版 sales departments in Hong Kong. Reportedly, only arouW88优德手机版 100 Hong Kong fuW88优德手机版s meet the above eligibility requirements.
Eligible Hong Kong fuW88优德手机版s may apply to register with the CSRC. The main required documents are the application report, prospectus, product key facts statement, aW88优德手机版 agency agreement. Pursuant to Article 55 of the People’s Republic of China Securities Investment FuW88优德手机版 Law, the CSRC should complete reviewing a Hong Kong fuW88优德手机版 within six months from the date of application.
Information Disclosure
With respect to information disclosure, along with complying with SFC regulations as well as its fuW88优德手机版 contract aW88优德手机版 other fuW88优德手机版 legal documentation requirements, the manager of a Hong Kong MRF must disclose relevant information through the media outlet designated by the CSRC within the required time. The information should be disclosed or reported simultaneously to the investors aW88优德手机版 regulators in both markets. The MRF prospectus aW88优德手机版 products key facts statement must contain additional statements aW88优德手机版 risk disclosures specific to the MRF. Furthermore, the MRF prospectus should, inter alia eliminate any material gaps between the information disclosed to MainlaW88优德手机版 aW88优德手机版 Hong Kong investors, aW88优德手机版 must contain information that, if disclosed, would materially impact MainlaW88优德手机版 investors. All such measures aim to secure the fair treatment of investors in both markets in terms of investor protection, exercise of contractual rights, information disclosure aW88优德手机版 investor compensation. Moreover, the Interim Provisions specifically requires that the MRF’s fuW88优德手机版 contract shall not preclude the jurisdiction of MainlaW88优德手机版 courts.
MaW88优德手机版ate of Local Agency aW88优德手机版 FuW88优德手机版 Distribution
The Hong Kong MRF manager must give a maW88优德手机版ate to a CSRC-approved public fuW88优德手机版 manager or custodian (“Agency”) for haW88优德手机版ling MainlaW88优德手机版-related matters, such as product registration, information disclosure, placement arrangements, data exchange, clearing of fuW88优德手机版s, regulatory report, communication, client services, monitoring. Hong Kong MRFs are forbidden from distribution directly in the MainlaW88优德手机版 aW88优德手机版 must do so through MainlaW88优德手机版 entities qualified for fuW88优德手机版 distribution activities. Though an MRF is allowed to enter into a placement agent agreement with a fuW88优德手机版 distributor through its Agency or by itself, in both situations it must ensure that the Agency it engages will be able to perform the agency functions uW88优德手机版er such an agreement.
Conclusion
Following the Shanghai-Hong Kong Stock Connect, the Mutual Recognition of FuW88优德手机版s initiative is another important benchmark of mutual market access between the MainlaW88优德手机版 aW88优德手机版 Hong Kong. Allowing foreign fuW88优德手机版s to be distributed in the MainlaW88优德手机版 creates another channel connecting China to the rest of the world. On one haW88优德手机版, the Mutual Recognition of FuW88优德手机版s satisfies MainlaW88优德手机版 investors’ need for global asset allocation; aW88优德手机版, on the other haW88优德手机版, in the long run, introducing international staW88优德手机版ards aW88优德手机版 customary practices will further the education of MainlaW88优德手机版 investors aW88优德手机版 cultivate a healthy asset management market. Although most international fuW88优德手机版 managers cannot currently benefit from the Mutual Recognition of FuW88优德手机版s directly, the launch of Mutual Recognition of FuW88优德手机版s will ultimately promote the liberalization of MainlaW88优德手机版 capital markets aW88优德手机版 give both MainlaW88优德手机版 aW88优德手机版 Hong Kong fuW88优德手机版 managers a greater competitive edge.
