LawFlash

Hong Kong and Mainland China to Provide for Mutual Recognition of Retail Funds

February 03, 2013

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The Hong Kong Securities and Futures Commission (SFC) announced1 on 23 January 2013 that it has been working closely with the China Securities Regulatory Commission (CSRC) to provide for the mutual recognition of retail funds authorized in Mainland China and Hong Kong. Whilst still at a preliminary stage, this initiative will make it easier for mutual fund managers to raise capital in Mainland China, and will encourage the further growth of Hong Kong as an international asset management centre and the pre-eminent offshore centre for the Chinese currency, the Renminbi (RMB).

Background

In recent years, various joint initiatives in the asset management sector have been pursued by the Chinese and Hong Kong governments as part of the gradual process to internationalize the RMB. The Qualified Domestic Institutional Investor (QDII) program was launched in 2006, and the SFC was the first regulator to enter into memoranda of understanding with the CSRC and its bank and insurance regulatory counterparts, the CBRC and CIRC. This has allowed Chinese financial institutions to offer Hong Kong authorized funds on behalf of the promoters of such funds to Chinese QDIIs.

More recently, in December 2011 the Renminbi Qualified Foreign Institutional Investor (RQFII) program was launched, which allowed offshore RMB raised by Hong Kong subsidiaries of Chinese domestic fund management companies and securities companies to be invested directly in Mainland China’s domestic securities markets. Hong Kong authorized funds were the sole vehicle permitted to raise RMB under this initial phase of the program, and were permitted to invest directly in Mainland China’s A share and interbank bond market in RMB for the first time. The second phase of the RQFII program introduced in April 2012 has since allowed exchange traded funds which are established in Hong Kong and listed on the Hong Kong Stock Exchange to raise offshore RMB for investment directly into a portfolio of listed Chinese A shares. In less than a year, the RQFII program has led to the development of a new product class worth RMB56 billion.

At present however, there is no channel for funds authorized in Hong Kong to be sold directly to Chinese investors, or for funds in Mainland China to be sold directly to Hong Kong investors, hence the importance of this new initiative.

Proposal for mutual recognition

The proposed mutual recognition arrangements will allow funds authorized in either Hong Kong or Mainland China to obtain authorization in the other jurisdiction under a streamlined process, allowing such funds to be sold directly in the other jurisdiction for the first time.

It is currently unclear when this new framework will be finalized, but the SFC has confirmed that a joint working group was formed towards the end of last year. Given the rapid roll-out of other related initiatives in recent years there are reasons to be optimistic in this regard. The SFC has noted however that a full “passporting” regime allowing automatic entry into the other jurisdiction is still not an option in the near term, given the capital account restrictions in Mainland China and limits on RMB convertibility.

Practical implications

The most exciting aspect of this new proposal for fund managers outside of Mainland China will be the opportunity to raise capital directly from Mainland Chinese investors. Mainland China’s high savings rate, low investment fund market penetration and rapid economic growth all combine to make it a very attractive fundraising environment.

Hong Kong is also likely to become more popular as a jurisdiction in which to establish funds, given that a Hong Kong domicile is envisaged as a pre-condition for streamlined recognition in Mainland China. Whilst UCITS funds established in Europe currently constitute 70% of the funds authorized by the SFC in Hong Kong, such UCITS funds would not be entitled to benefit from streamlined recognition. This will assist Hong Kong in developing its domestic funds industry, allowing it to more effectively counter any competitive threat posed by the prospect of a funds passport being developed between Association of Southeast Asian Nations (ASEAN) members2.

The structural limitations of Hong Kong domiciled funds, which at present can only be established as unit trusts, are also likely to be given more attention in the near future. Hong Kong law does not currently permit the establishment of variable capital investment companies, meaning that it is not possible to establish corporate open-ended funds at present — although it is anticipated that the Companies Ordinance (Cap. 32) may be amended to address this.

At present, there are significant differences in the laws governing the distribution of funds in Hong Kong and Mainland China respectively, and the extent to which these laws will be harmonized and/or disapplied in order to implement an effective system of mutual recognition is unclear. Fund managers may also need to assess potential compliance risks and the structuring of their distribution arrangements in the foreign jurisdiction, particularly in light of the fact that more than two-thirds of funds sold in Mainland China are currently distributed through sales agencies (primarily commercial banks).

Looking to the future

As Hong Kong strives to cement its position as an international asset management centre and the pre-eminent offshore RMB centre, it appears that the Chinese authorities are continuing to be supportive in this aim. We are likely to continue to see further close cooperation between the Hong Kong and Chinese regulators in the future and the development of further initiatives that seek to capitalize on the relative strengths of each jurisdiction.


香港和中国大陆将作出零售基金互认安排

香港证券及期货事务监察委员会(“香港证监会”)于2013年1月23日宣布1,香港证监会在与中国证券监督管理委员会(“中国证监会”)密切合作就中国大陆和香港认可零售基金的互认事宜作出安排。该项工作还处于初期阶段,有关举措将会使零售基金管理人更容易在中国大陆筹集资金,并将促进香港作为国际资产管理中心和人民币离岸中心地位的进一步提升。

背景

近几年,作为人民币不断国际化进程的一部分,中国和香港政府在资产管理领域采取了诸多举措。2006年,中国推出合格境内机构投资者(“QDII”)制度,香港证监会成为第一家与中国证监会及中国银行业监管部门和保险监管部门(即中国银行业监督管理委员会和中国保险监督管理委员会)达成谅解备忘录的监管机构。据此,中国金融机构获准代表香港认可基金发起人向中国QDII发售该类基金。

2011年12月,中国推出人民币合格境外机构投资者(“RQFII”)制度,据此,中国境内基金管理公司和证券公司在香港的子公司所筹集的离岸人民币可直接投资于中国大陆证券市场。在RQFII制度施行初期,香港认可基金作为唯一一种被允许筹集人民币资金的投资工具,首次可以直接投资于中国大陆A股市场和人民币银行间债券市场。2012年4月,RQFII制度第二阶段启动,允许设立在香港并在香港联合交易所上市的交易所交易基金筹集离岸人民币资金,用以直接投资于中国上市A股组合。在不到一年的时间内,RQFII制度催生了人民币560亿元的新投资品种。

但是,在目前阶段,没有任何渠道可以允许香港认可基金直接发售给中国投资者或中国大陆基金直接发售给香港投资者。该项新举措的重要性可窥一斑。

拟议的互认安排

根据拟议的互认安排,香港或中国大陆认可基金可通过简化程序在对方司法管辖区获得认可,并首次允许该类基金直接在对方司法管辖区内销售。

关于该新框架安排将于何时最终尘埃落定,目前尚不明确。但香港证监会确认在去年年底时双方组建了联合工作小组。从近几年其它相关举措的推出速度之快来看,情况十分乐观。但是,香港证监会指出,由于中国大陆存在资本项目管制和人民币自由兑换限制,近期无望推出全面的基金“通行证”安排,无法允许基金自动进入对方司法管辖区。

实务方面的影响

对中国大陆以外的基金管理人而言,该项拟议安排最令人振奋的方面莫过于可以直接从中国大陆投资者手中筹集资金。中国大陆有很高的储蓄率,投资基金市场渗透度较低,而且中国经济发展迅速,各种因素结合促成了极具吸引力的筹资环境。

根据拟议安排,在中国大陆适用简化认可程序的一项前提条件是基金设立地在香港, 因此, 香港作为基金设立地可能会受到更多人追捧。目前,香港证监会在香港认可的基金中,有70%是欧盟可转让证券集合投资计划(“UCITS”)基金,但UCITS基金无权享受简化认可程序。这将有助于香港发展其本土基金产业,使之更能够有效地抵御由于东南亚国家联盟(“东盟”)成员国之间建立基金通行证所可能造成的竞争性威胁2

设立在香港的基金在结构方面有所局限,目前仅可设立为单位信托形式,这种局限很可能会在近期得到更多关注和重视。香港法律目前不允许设立变动资本投资公司,即目前不能设立公司制开放式基金,但预期香港方面可能会对香港《公司条例》(第32章)进行修订,以解决该问题。

目前,中国大陆和香港有关基金销售方面的法律规定存在很显著的区别。为有效实施互认制度,两地法律将在何种程度上得到统一和/或豁免适用,情况尚不明朗。基金管理人也需要评估潜在合规风险及其在外国司法管辖区销售安排的架构问题,特别是鉴于中国大陆所售基金产品中有三分之二以上目前是通过销售代理方式(主要是通过商业银行)销售。

展望未来

在香港努力巩固其作为国际资产管理中心和人民币离岸中心的地位的过程中,中国当局继续一如既往地予以大力支持。展望未来,我们很可能会看到大陆和香港监管当局之间更进一步的密切合作,以及有关旨在发挥两地各自优势的进一步举措。

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Beglin-Brian
Ye-Xiaowei
Joseph-Roger

1 The SFC’s announcement and the full text of the speech given by Ms. Alexa Lam (Deputy Chief Executive Officer of the SFC), is available on the SFC’s website.

2 The Thai Securities and Exchange Commission announced on 27 June 2012 that it would allow ASEAN collective investment schemes to be offered to accredited investors by July 2012, with the goal of extending the initiative to retail investors in the later part of 2012. In addition, the Monetary Authority of Singapore circulated in April 2012 a proposal to develop a mutual recognition framework for retail collective investment schemes among ASEAN members.

1 香港证监会发布的新闻稿以及香港证监会副行政总裁林张灼华女士的演讲辞全文可登陆香港证监会网站获取。

2 2012年6月27日,泰国证券交易委员会宣布将于2012年7月允许向合格投资者发售东盟集合投资计划,并争取在2012年晚些时候将发售对象范围扩大到包括零售投资者。此外,2012年4月新加坡货币当局提议在东盟成员国之间制定零售集合投资计划互认框架。

This article was originally published by Bingham McCutchen LLP.