Mainland China briefing: PBOC and SAFE issue new regulations removing QFII/RQFII investment quotas

On 7 May 2020, the People's Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) jointly issued the Regulations on Funds of Securities and Futures Investment by Foreign Institutional Investors (《境外机构投资者境内证券期货投资资金管理规定》)(PBOC & SAFE Announcement [2020] No. 2, the New Regulations available here in Chinese), and the Policy Q&A No.1 clarifying certain details in the New Regulations (available here in Chinese). The official implementation date for the New Regulations is 6 June 2020. The New Regulations implements a registration-based management system, which carries out the earlier decision announced by SAFE in 2019 to remove the investment quota restrictions on Qualified Foreign Institutional Investors (QFII) and RMB Qualified Foreign Institutional Investors (RQFII) (collectively, Qualified Investors).

The following existing SAFE provisions regarding Qualified Investors will be repealed:

 (i)

 the “Provisions on the Foreign Exchange Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors” (《合格境外机构投资者境内证券投资外汇管理规定》SAFE Announcement (2018) No.1) issued by SAFE and effective from 10 July 2018;

 (ii)

 the “Notice on Issues Relevant to Administration of Domestic Securities Investment by Renminbi Qualified Foreign Institutional Investors” (《关于人民币合格境外机构投资者境内证券投资管理有关问题的通知》Yin Fa (2018) No.157) issued by the PBOC and SAFE and effective from 12 June 2018; and

 (iii)

 the “Notice of the State Administration of Foreign Exchange on Adjusting the Ways of Data Submission by Qualified Institutional Investors” (《国家外汇管理局关于调整合格机构投资者数据报送方式的通知》Hui Fa (2015) No.45) issued by SAFE and effective from 4 December 2015.

((i)-(iii) above collectively, the Existing SAFE Provisions).

The key points of the New Regulations are as follows:

 The restrictions on the investment quotas of Qualified Investors are removed. Qualified Investors will only need to entrust their main custodian to register with SAFE, instead of applying for investment quotas from SAFE as required by the Existing SAFE Provisions.

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 The limit on the number of custodians is removed. A Qualified Investor can appoint multiple custodians, one of whom shall be designated as the main custodian and be responsible for filing and registration with regulators. If only one custodian is appointed, it shall be deemed as the main custodian by default.

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 Qualified Investors can chose the timing and currency of inward remittance freely, and the procedures for repatriation of securities investment income are significantly simplified. The requirements of a special audit report on investment returns issued by a Chinese certified public accountant and a tax clearance or tax filing certificates under the Existing SAFE Provisions are replaced by a Tax Commitment Letter signed by the Qualified Investor.

It’s worth noting that the New Regulations also include provisions addressing futures investments, which implies that China’s futures market will be further opened up.

The New Regulations, aiming to better facilitate foreign institutional investors’ participation in China’s financial markets, mark a step forward in further opening up these markets, and make the inbound investment channels more attractive to foreign institutional investors.

Separately, on 31 January 2019, the CSRC issued the Measures for the Administration of Domestic Securities and Futures Investment by Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors (Consultation Paper) (《合格境外机构投资者及人民币合格境外机构投资者境内证券期货投资管理办法(征求意见稿)》, CSRC Measures, available here in English), and the Provisions on Issues Concerning the Implementation of the Measures for the Administration of Domestic Securities and Futures Investment by Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors (Consultation Paper) (关于实施《合格境外机构投资者及人民币合格境外机构投资者境内证券期货投资管理办法》有关问题的规定(征求意见稿)CSRC Provisions, available here in English), which proposed to merge the QFII and RQFII regimes and ease some restrictions (for more details please refer to our previous Newsletter here). We expect the CSRC Measures and CSRC Provisions will be released before long, although currently there are no specific official dates or expected timelines. We will monitor progress and share developments.