Mainland China briefing: AMAC PFM registration

On 28 February 2020, the Asset Management Association of China (AMAC) published a Circular on Matters Concerning Facilitating Applications for Private Fund Manager Registration (the Circular). The checklist contained in the Circular provides clearer guidance on the information and materials required for a private fund manager (PFM) to apply for registration.

More foreign capital has been attracted to Mainland China’s private equity market as it has become increasingly sophisticated over the years. The large volume, and unique characteristics of the Mainland's asset management sector means it is an attractive proposition for global asset allocation.

The Circular is based on the existing requirements for PFM registration, which are set out in current laws, regulations and the amended Private Fund Manager Registration Instructions issued on 7 December 2018 (Instructions), as well as past practices, and is intended to assist institutions applying for PFM registration (applicants). In summary, the required materials set out in the Circular’s checklist (Checklist) can be categorized into nine areas, including: 1) the basic information of the applicant (such as certificate of paid-in capital, articles of association, tax registration, business plan); 2) the internal policies (such as operating risk control, disclosure of information); 3) conflicts of interest; 4) credit record for the past three years; 5) financial information; 6) investors’ information; 7) actual controller/or substantial shareholder; 8) senior management personnel; and 9) a legal opinion for the purpose of registration.

The Checklist specifies that for any material change relating to the actual controller or substantial shareholder of a registered PFM, applicants should refer to and comply with the requirements under the Checklist.

An interesting issue to note is that in practice, instead of setting up a new entity and applying for PFM registration directly, some foreign asset managers may choose an alternative route to accelerate access to the Mainland Chinese market by acquiring a PFM and subsequently applying for registration. This would typically involve a two-stage process, with a change of legal representative of the target PFM first, followed by a change of the actual controller or substantial shareholder of the PFM. Accordingly, the applicant should provide one legal opinion for each of the stages to the AMBERS system. It is anticipated that a more stringent review process would be imposed following the requirements under the Checklist, and it may take a longer time for the change of controller or substantial shareholder to get approved following the submission of the required materials to the system.

However, Article 12 (1) of the Instructions provides that after the registration of the PFM, if the PFM is required to submit a legal opinion for a material change in relation to the actual controller, legal representative, or substantial shareholder, failure to obtain approval within six months after the first submission shall result in AMAC suspending the applicant from issuing any new fund product until AMAC approval is obtained. This could have practical implications on foreign asset managers when they apply for registration: any delay in the submission and approval process for a change of legal representative or substantial shareholder could possibly result in a failure to register a new fund product. If the fund product cannot complete the registration process, the foreign asset manager could be stalled in achieving its fundraising goals in the Mainland.