Mainland China briefing: Greater Bay Area Wealth Management Connect scheme rules take shape

On 6 May 2021, financial regulators in Mainland China, including various offices of the People’s Bank of China (PBOC), the China Banking and Insurance Regulatory Commission (CBIRC), and the China Securities Regulatory Commission (CSRC) in Guangzhou and Shenzhen, jointly issued a consultation paper on the Implementation Rules for the Cross-border Wealth Management Connect Pilot Business in the Guangdong- Hong Kong-Macau the Greater Bay Area (《粤港澳大湾区“跨境理财通”业务试点实施细则(征求意见稿)》, the “Consultation”, which is available here in Chinese).

The plan to launch the Wealth Management Connect scheme (WMC) was announced by the PBOC, the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Macau in June 2020 (for more details of the announcement, you may refer to our previous article here). Subsequently, in February 2021, financial authorities in Mainland China, Hong Kong and Macau signed a memorandum of understanding for WMC, to outline the broader framework for the exchange of regulatory information and cooperation in law enforcement among the regulators in the three jurisdictions (for more details of the memorandum of understanding, you may refer to our previous article here).

The Consultation covers eligibility requirements for Mainland banks and Mainland individual investors; regulations concerning northbound and southbound investment; quota management; investor protection; information reporting and regulatory supervision.

The Consultation has set the initial aggregate quota under WMC at RMB 150 billion for each of the northbound WMC and the southbound WMC and the individual investor quota at RMB 1 million. As proposed in the announcement in June 2020, the Consultation has confirmed that cross-boundary remittance under WMC will be conducted and managed in a closed-loop. The Consultation further clarifies that the level of available aggregate quota will be published on the official websites of the Guangzhou Branch of the PBOC and the Shenzhen Central Sub-branch of the PBOC on each working day.

Account opening arrangements have been a major concern for market participants, because of restrictions that may be imposed from time to time on travel between the Mainland and Hong Kong due to Covid-19. It is worth noting that the Consultation has helpfully provided that the designated investment accounts may be opened remotely, i.e. Mainland banks may verify the identity of, and witness the execution of client agreements for, Mainland investors in order for them to invest through the southbound WMC. This additional flexibility means that Mainland investors are no longer required to travel to Hong Kong or Macau in person to open an account initially, which could accelerate the launch of WMC.

In relation to eligible products, a more cautious approach is being taken by the regulators at the initial stage. The Consultation stipulates that eligible products for the northbound WMC include: (i) non-principal guaranteed wealth management products (except cash management products) issued by Mainland wealth management companies which are rated R1, R2 and R3 by the issuer and the distributing Mainland banks; and (ii) publicly-offered securities investment funds which are rated R1, R2 and R3 by Mainland public fund managers and the distributing Mainland banks.

As for the eligible products for southbound WMC, the Consultation states that further details will be provided by the Hong Kong and the Macau financial authorities. Based on the list of eligible products for the northbound WMC, it is expected that, at the initial stage, eligible products for the southbound WMC will include “simple” SFC-authorised Hong Kong domiciled funds, with a low to medium risk rating given by the distributing Hong Kong banks.

The deadline for submitting comments on the Consultation is 21 May 2021. Although there is still no official launch date, WMC is anticipated to commence shortly.

We look forward to the launch of WMC which presents abundant opportunities for the asset management industry in Hong Kong. We have recently received several enquiries from fund managers on setting up Hong Kong domiciled funds with a view to offering products under the scheme.