The Securities and Futures Commission (SFC) together with the China Securities and Regulatory Commission (CSRC) recently announced the details of the Mutual Recognition of Funds (MRF) between the Mainland and Hong Kong. From 1 July 2015, a fund that is authorised by the SFC in Hong Kong, or the CSRC in China, can apply for authorisation for retail distribution in the corresponding host jurisdiction provided that certain requirements can be satisfied.
In our alert dated 22 May 2015, we discussed the general principles and requirements for mainland funds coming to Hong Kong for SFC authorisation. In this article, we cover recognised Hong Kong domiciled funds qualified to apply for registration for retail distribution in the Mainland.
Recognised Hong Kong funds going to the Mainland
The CSRC promulgated the Interim Provisions on Administration of Hong Kong Mutually Recognised Funds1(Interim Provisions) which establish the requirements for Hong Kong funds seeking registration with the CSRC.
What type of Hong Kong funds would be eligible for CSRC registration?
Only funds that are established and operating in accordance with Hong Kong law, authorised by the SFC for public offering and regulated by the SFC are eligible to apply for CSRC registration under MRF. These are also limited to plain vanilla equity funds, mixed assets funds, bond funds and index funds (including ETFs).
What are the requirements for Hong Kong funds seeking CSRC registration?
Hong Kong domiciled funds must:
What are the eligibility requirements for managers of Hong Kong funds seeking CSRC registration?
Managers of eligible Hong Kong funds must:
Delegation would not be allowed.
What are the eligibility requirements for trustees and custodians of Hong Kong funds seeking CSRC registration?
The requirements for trustees and custodians follow the requirements imposed by the SFC.
Any other requirements?
Hong Kong funds under MRF will need to appoint a CSRC-approved public fund manager or custodian as their Mainland local agent for handling Mainland-related matters including product registration, information disclosure, distribution arrangements, information exchange, clearing, regulatory reporting, communication, investors services and monitoring. The Interim Provisions also set out various Mainland related disclosures which the CSRC would expect. Managers should ensure that Mainland and Hong Kong investors are treated fairly and receive the same level of investor protection and disclosures.
Matters relating to investment transactions, safekeeping of assets, valuation, dealings, fee arrangement, taxation, unitholders meetings, changes to constitutive documents, termination and merger and withdrawal of authorisation, shall continue to follow the requirements under the fund’s constitutive documents and the requirements imposed by the SFC.
Mainland distributors of Hong Kong funds should obtain the relevant Mainland business licences. Advertisements and promotional materials are subject to local filing requirements. If the manager is aware that the eligibility requirements may cease to be satisfied (e.g. there is a drop in fund size), the same should be reported to the CSRC immediately.
What application documents are required to be submitted to the CSRC?
The application package will consist of:
Joint Announcement of China Securities Regulatory Commission and Securities and Futures Commission
Circular on Mutual Recognition of Funds (MRF) between the Mainland and Hong Kong
Interim Provisions on Administration of Hong Kong Mutually Recognised Funds (香港互认基金管理暂行规定)
Mutual Recognition of Funds – A New “Passport” to China and Hong Kong effective on 1 July, 2015
1 available in Chinese only