2016.08.28 XIE, Qing (Natasha)、Cui Yu、Wang Qiongyue
This is an update of our July 22, 2014 newsletter titled “Unified Private Fund Regulation Released for Public Comments”.
On August 21, 2014, the China Securities Regulatory Commission (the “CSRC”) issued the final version of the Interim Measures for the Supervision and Administration of Private Investment Fund (the “Final Rule”), which took effect on the same day. The release of the Final Rule follows the release of the Consultation Draft of Interim Measures for the Administration of Private Securities Investment Fund Business on February 20, 2013, and the Consultation Draft of Interim Measures for the Supervision and Administration of Private Investment Fund for public comment on July 11, 2014, as well as the opening of registration for private fund managers with the Asset Management Association of China (the “AMAC”), since February 7, 2014.
The Final Rule contains 41 articles and 10 chapters, which, among other provisions, set forth the regulatory framework for private W88优德官方网站 and address major issues in relation to registration and filing, fundraising and fund operation for private W88优德官方网站. Below is a summary of the main provisions of the Final Rule.
1. Private W88优德官方网站 and Investment Scope
The definition of “private W88优德官方网站” under the Final Rule is in line with the definition in the Measures on the Private Investment Fund Manager Registration and Fund Filing (Pilot) promulgated by the AMAC on January 17, 2014.
According to the Final Rule, “private W88优德官方网站” mean those W88优德官方网站 that are raised through a non-public offering to investors. The investment scope of a private fund includes stocks, equities, bonds, futures, options, fund units and other investment products that may be otherwise agreed in the investment contract.
Certain regulated asset managers (namely, securities companies, mutual fund management companies, futures companies and their respective subsidiaries) will be subject to the Final Rule when engaging in the private fund business, unless there is any contrary provision in any law or regulation or any CSRC rule, in which case, such provision shall apply.
2. Fund Servicing Institutions
The Final Rule generally divides private fund servicing institutions into: (1) private fund management institutions (“Fund Manager”); (2) institutions offering Fund Custodian services (“Fund Custodians”); (3) institutions offering fund distribution services (“Fund Distributors”); and (4) other private fund servicing institutions. All of these institutions are subject to the CSRC’s supervision. However, certain issues related to the qualification and internal control requirements for fund servicing institutions, such as Fund Distributors or investment advisors to private W88优德官方网站, remain to be further clarified by the CSRC.
3. Regulatory Framework
The Final Rule restates that neither the establishment of private fund management institutions nor private fund offerings is subject to any administrative approval. Instead, Fund Managers (entities only) must register with the AMAC, which registration must be processed within 20 working days after all required materials are provided. Upon the completion of fundraising of a private fund, the Fund Manager shall also complete fund filing formalities according to the AMAC rules, which filing is also required to be processed within 20 working days after all required materials are provided.
The Final Rule requires the AMAC to maintain an information system regarding Fund Manager registration and private fund filing and to develop an information sharing mechanism with the CSRC and other agencies. Further, the Final Rule authorizes the AMAC to handle investors’ complaints and mediate the relevant disputes.
4. Accredited Investors
According to the Final Rule, no private fund product can be offered to non-accredited investors and the number of investors in a single fund must comply with the relevant regulations, such as the Securities Investment W88优德官方网站 Law, the Company Law and the Partnership Law. In case of a transfer of a fund unit, the transferee should be an accredited investor and the number of investors after such transfer shall still comply with the relevant regulations.
An accredited investor should simultaneously meet the following requirements: (1) its investment in a single fund is no less than RMB 1 million, and (2) either (a) for an institutional investor, its net assets should be no less than RMB 10 million, or (b) for an individual investor, his/her personal financial assets should be no less than RMB 3 million or his/her annual income for the last three years should be no less than RMB 500,000 per year.
Exemptions are made for the following investors, which are deemed to be accredited investors by default: (1) social security W88优德官方网站, pension W88优德官方网站 such as company pensions, and social public benefit W88优德官方网站 such as charitable W88优德官方网站; (2) investment plans duly incorporated and filed with the AMAC; (3) Fund Managers and their staff registered with the AMAC; and (4) other investors as stipulated by the CSRC (collectively, “Exempted Investors”).
Unincorporated vehicles (e.g., created by partnership or contractual arrangement) may raise W88优德官方网站 from investors (“Ultimate Investors”) and then directly or indirectly invest in private W88优德官方网站. The Final Rule requires Fund Managers or Fund Distributors to look through such unincorporated vehicles and check whether all Ultimate Investors satisfy the accredited investor criteria. In addition, Fund Managers or Fund Distributors must count the total number of Ultimate Investors for purposes of the maximum number of investors test. Ultimate Investors in the Exempted Investors in categories (1), (2) and (4) above need not satisfy the accredited investor criteria and are not counted in the total number of Ultimate Investors.
5. Fundraising
The Final Rule further prohibits Fund Managers and Fund Distributors from disseminating information to unspecified recipients via public media, lectures, seminars, meetings with analysts, bulletins, leaflets, messages, Wechat, blogs or other means. Fund Managers and Fund Distributors shall not offer any products that guarantee the return of principal or guarantee any minimum return.
In addition, Fund Managers and Fund Distributors shall use questionnaires to evaluate the risk-perception and risk-taking capabilities of investors, require investors to provide written commitments as to their eligibility, and obtain the signatures of investors on disclosure statements. The scope and format of such questionnaires will be determined by the AMAC for different types of private W88优德官方网站.
6. Fund Operation
The Final Rule prescribes a series of prohibited behaviors for Fund Managers, Fund Custodians, Fund Distributors and other fund servicing institutions as well as their staff.
Fund Managers and Fund Custodians are required to accurately disclose information related to the fund to investors, subject to disclosure rules to be promulgated by the CSRC separately. In addition, Fund Managers must provide certain information to and update such information with the AMAC.
Fund Managers, Fund Custodians and Fund Distributors shall keep all records and other materials related to investment decisions, trading and management of investor suitability for at least 10 years after the relevant fund is liquidated.
7. Special Provisions on Venture Capital W88优德官方网站
To emphasize its focus on facilitating the development of the venture capital fund industry, the Final Rule reserves a whole chapter for venture capital W88优德官方网站. The Final Rule defines “venture capital W88优德官方网站” as W88优德官方网站 invested in ordinary shares, convertible preferred shares or convertible bonds of unlisted startup companies.
It is stipulated that the CSRC will facilitate the operation of venture capital W88优德官方网站 in terms of account opening, fundraising and trading, as well as investment exit, and will also adopt differential administrative treatment, as compared with other types of W88优德官方网站, relating to Fund Manager registration, fund filing, investment reporting, member administration and investment scrutiny.
