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The Chinese authorities have recently issued a series of relaxation legislation and policies to further encourage the development of the Chinese asset management sector. Amongst others, we highlight in this article the new opinions on the Greater Bay Area (GBA) which has become a very hot topic recently, a proposed regulatory regime for the securities and fund investment advisory business in China, and the recent regulatory developments on the QFII/RQFII regime.
On April 24, 2020, Chinese primary financial regulators (including the People’s Bank of China (PBOC), the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE)) jointly issued the Opinions on Providing Financial Support for the Development of the GBA including Guangdong, Hong Kong and Macau (in Chinese: 《关于金融支持粤港澳大湾区建设的意见》, the GBA Opinions).
The GBA Opinions specifically discuss the following points relating to the asset management sector:
It is anticipated that these new initiatives and further relaxation in the GMA area would create more opportunities and incentives for foreign financial investment and transactions in the asset management sector in the GBA.
On April 17, 2020, CSRC promulgated the draft Management Measures on Securities and Fund Investment Advisory Business (In Chinese: 《证券基金投资咨询业务管理办法(征求意见稿) , the Draft Investment Advisory Measures). Pursuant to the Draft Investment Advisory Measures, CSRC will introduce a new licensing regime on securities and fund investment advisory business, including consolidating current advisory licences, and imposing qualification requirements on the securities and fund investment advisory institutions (the Advisory Entities) and their shareholders.
For a long time, investment advisory business was loosely regulated in China. Although securities investment advisory business has been regulated since 1997, there is an absence of implementation and enforcement rules which distinguish securities investment advisory business from general investment advisory business and therefore market practice varies. According to the Draft Investment Advisory Measures, except for approval from or registration with CSRC, no company can use “securities investment advisory/consultancy”, “fund investment advisory/consultancy”, or similar as its company name. Also, the Draft Investment Advisory Measures for the first time introduce the following three types of licence (collectively, the Advisory Licences):
The existing legal regime governing the securities investment advisory business only imposes a very low entry threshold on Advisory Entities (i.e. the minimum paid-up capital of RMB1m). However, the Draft Investment Advisory Measures have set out higher and more stringent qualification requirements on the advisory entities and their investors, for instances:
It is worth noting that, the Draft Investment Advisory Measures provide for a respective transition period for existing securities investment advisory entities (up to one year) and their shareholders (up to five years) to rectify if they are not in line with the requirements imposed under the Draft Investment Advisory Measures. For entities that are currently engaging in fund investment advisory business but have not yet applied for the Advisory Licences, they must apply for the Advisory Licences during a one-year transition period. For any entities who are currently publishing securities research reports, but who are not able to satisfy the requirements set out in the Draft Investment Advisory Measures, these entities will not be allowed to take on new business, while existing business can be continued but subject to termination upon expiry.
On May 7, 2020, the PBOC and the SAFE jointly promulgated the Provisions on Fund Administration of Investments into Domestic Securities and Futures by Qualified Foreign Institutional Investors (in Chinese: 《境外机构投资者境内证券期货投资资金管理规定, the QFII Fund Administration Provisions), which explicitly simplify the regulatory requirements on the use of funds by the QFIIs and Renminbi QFIIs (collectively, QFIIs).
These QFII Fund Administration Provisions echoed the announcement published by SAFE last year when SAFE decided to cancel the investment quote limitations imposed on QFIIs, subject to final approval from the State Council. As background, CSRC also issued draft regulations in January 2019, designed to merge the QFII and RQFII regimes. However, these CSRC draft regulations have not yet been formally issued. It is anticipated that the issuance of the QFII Fund Administration Provisions may be deemed as a heads-up to the market that the CSRC draft regulations will be issued fairly soon.
We set out below some key takeaways from these QFII Fund Administration Provisions:
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