QFII update

On 14 December 2012, in order to further regulate foreign exchange administration of securities investments in China by Qualified Foreign Institutional Investors (QFIIs), China's State Administration of Foreign Exchange (SAFE) issued a circular to amend the Provisions on Foreign Exchange Administration of Securities Investments by QFIIs. The Provisions were issued in 2009. Key changes to the Provisions include:

• investment quota for sovereign wealth funds, central banks and monetary government authorities may exceed the previous US$ 1 billion maximum limit.
• the Renminbi (RMB) account structure has been modified. In particular, a QFII may now open up to six “RMB special deposit accounts” for its clients and the funds are not transferrable between these accounts. This allows the QFII to segregate and distinguish some of its clients' assets from its proprietary funds and other clients' funds. Previously, all the client assets of the same QFII would have to be commingled in an omnibus “QFII-Client Asset” account.
• restrictions on repatriation have been revised:
  • an open-ended China fund can now, through its PRC custodian, remit and repatriate the net balance of subscription or redemption monies on a weekly basis, instead of monthly. However, the monthly net repatriation cannot exceed 20% of the open-ended China fund's total onshore assets as of the end of the immediate past year. Before the amendments, the PRC custodian needed to make an application to SAFE before any remittance or repatriation if (1) the amount of net subscription remittance was more than US$50 million, or (2) the amount of net redemption repatriation was more than US$50 million.
  • a new rule has been introduced to permit a QFII to repatriate its principal investment as well as returns following the lock-up period; monthly repatriation however, cannot exceed 20% of the QFII's total onshore assets as of the end of the immediate past year. Previously, SAFE approval was required for repatriation for both QFII proprietary accounts and segregated client accounts.