More compliance efforts required after MRF approval

Alwyn Li was interviewed by Thomson Reuters for its article on compliance efforts required for retail distribution under the landmark Mainland-Hong Kong mutual recognition of funds scheme (MRF).

The article covered the regulatory compliance and taxation issues following the authorisation of the first batch of Mainland investment funds approved by the SFC.

The scheme, which regulators first started discussing in 2012, will allow global asset managers to secure a bigger slice of money available for investment in China while also giving Chinese managers an opportunity to expand overseas. However, the cross-border nature of the scheme could also lead to regulatory challenges, given differences in the two sets of rules – those in Hong Kong and those in China.

Alwyn commented: “Chinese funds do need to educate themselves as to Hong Kong’s rules, but that applies to anyone new to our market seeking fund authorisation in Hong Kong – not just mainland Chinese funds, but also for European UCITS funds. They need to acclimate to the changed regime and do what Hong Kong regulations will require. If there are any misses, they will be expected to enhance their internal controls,” he said.

For tax treatment, China’s State Administration of Taxation issued a circular for the new scheme.

“The SFC has said that outbound funds will need to update the PRC tax disclosures in their offering documents before launch,” Alwyn continued “The updating of offering documents is no doubt an ongoing process,” he said.

On the mainland side, all such outbound funds are regulated with the CSRC in Beijing.

Alwyn commented that they must update their offering documents regularly and issue quarterly reports. On that basis, the SFC expects equal treatment for all investors, including Hong Kong investors.

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Alwyn Li

Partner | Financial Services

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