On October 17, 2008, the China Securities Regulatory Commission (CSRC) issued the Guiding Opinions on the Supervisors of Qualified Foreign Institutional Investors (QFII) ( the Guiding Opinions). The Guiding Opinions are intended to improve the compliance of QFII and regulate the supervision of QFII in accordance with the Measures on the Administration of Domestic Securities Investment by QFII ( the Measures), which went into effect in September 2006, and other relevant laws and regulations.
According to the Guiding Opinions, QFII must appoint qualified personnel to supervise their business activities. In addition, QFII must build a corporate culture that is conducive to compliance, improve institutional control, and ensure that the supervisors perform their duties under the Guiding Opinions. Under the Guiding Opinions, qualified candidates for the supervisor positions are people who thoroughly understand the Measures as well as the laws and regulations governing China’s securities market, and who have good business ethics.
The scope of the supervisors’ duties includes but is not limited to: (1) reporting the compliance of QFII with the laws and regulations in their operations to the CSRC, (2) inspecting the compliance of clients, (3) examining and signing all application documents, product reports, and business reports to be filed with the CSRC, (4) working with relevant QFII departments to conduct daily inspections of QFII’s business activities, paying particular attention to any abnormal transactions, (5) conducting regular inspections and random checks on QFII’s business activities, (6) supervising the disclosure of information relating to domestic securities investments by QFII, and (7) coordinating with related departments to train QFII on the laws that govern their business activities. When a supervisor detects violations of China’s domestic laws in a QFII’s investment activities, he or she must stop the violation and report it to the CSRC within 10 business days.
After a QFII appoints a supervisor, it must file the supervisor’s basic information with the CSRC within 10 business days of the appointment. In addition, a QFII must submit an annual compliance report to the CSRC within 30 days of the year’s end.
As QFII come from many different countries, they may have difficulty understanding the relevant Chinese laws and regulations. The Chinese government expects that the establishment of an internal supervision system specifically targeting the activities of QFII in the domestic securities market will help ensure QFII’s compliance with Chinese laws.