Regulation, licensing and registrationPrincipal regulatory bodies
What are the principal regulatory bodies that would have authority over a private equity fund and its manager in your jurisdiction, and what are the regulators’ audit and inspection rights and managers’ regulatory reporting requirements to investors or regulators?
Since 2013, the China Securities Regulatory Commission (CSRC) has become the supervisory authority for the private equity fund industry in the PRC. Further, the CSRC entrusts the AMAC to take charge of registering private fund managers, filing private funds and forming self-regulatory systems for the investment fund industry. The AMAC is a national and industry-orientated social organisation under the supervision of the CSRC, according to its articles of association. The AMAC and the CSRC (often its local branches) may randomly conduct on-site inspections of private equity fund managers.
Private equity funds are also subject to the supervision and administration of tax authorities. Funds formed as limited partnerships or companies are also subject to supervision of the AIC (in charge of formation registration of legal entities) and the local government financial services office (which is responsible for supervising local financial enterprises in some local areas).
Private equity fund managers are required to submit periodic and emergency reports to the AMAC regarding their operations and funds, to provide periodic and emergency fund reports for fund investors as well as file in an AMAC back-up online system, to report tax-related information of non-residents’ financial accounts to the tax authorities and, if formed as limited partnership or company, to submit a relatively simple annual report to the AIC.Governmental requirements
What are the governmental approval, licensing or registration requirements applicable to a private equity fund in your jurisdiction? Does it make a difference whether there are significant investment activities in your jurisdiction?
Private equity fund managers in the PRC should register with the AMAC as private fund managers, as equity fund managers or as venture fund managers before engaging in fundraising in the PRC. Once a private equity fund manager closes a new fund, an information filing on the new fund is required to be made with the AMAC within 20 business days of the closing date. A newly registered private fund manager is required to make a filing for its first fund within six months after initially registering with the AMAC.
The PRC authorities only regulate fundraising within the territory of the PRC, according to the Interim Measures for Supervision and Administration of Private Investment Funds (2014 version).Registration of investment adviser
Is a private equity fund’s manager, or any of its officers, directors or control persons, required to register as an investment adviser in your jurisdiction?
As mentioned above, a private equity fund manager should register with the AMAC as a private fund manager before it raises any funds within the PRC.
A private equity fund manager that provides investment advisory services to third parties is also required to register with the AMAC (detailed rules not applicable right now) as an investment adviser, and to register as an adviser to the third-party funds which it advises.
Further, private equity managers must meet certain additional CSRC requirements to provide investment advisory services to securities and futures operating institutions for private asset management (such as fund management companies set up by securities companies). These requirements include becoming an AMAC member, having no record of significant violations and having appointed at least three qualified investment managers.Fund manager requirements
Are there any specific qualifications or other requirements imposed on a private equity fund’s manager, or any of its officers, directors or control persons, in your jurisdiction?
Requirements to register as a private equity fund manager include the manager’s business name, business scope, capital contributions, workplace, facilities and management systems and so on. The manager’s business name and business scope must contain ‘fund management’, ‘investment management’, ‘asset management’, ‘equity investment’, ‘venture capital investment’ or equivalent terms, and may not include any business activities that would conflict with those terms. The contributed capital of the manager should be able to cover operating costs for at least six months. The fund manager should have an actual workplace for business operations, proper office facilities and efficient management systems, as well as an adequate number of employees (at least five) with relevant work experience.Political contributions
Describe any rules - or policies of public pension plans or other governmental entities - in your jurisdiction that restrict, or require disclosure of, political contributions by a private equity fund’s manager or investment adviser or their employees.
There are no rules or requirements in the PRC that particularly restrict or require disclosure of political contributions by a private equity fund or its manager, investment adviser or their employees. Such contributions are, however, subject to anti-bribery laws.
Private equity funds invested in by government entities are usually requested by their governmental sponsors not to provide any sponsorships or donations to any third party (except for approved public welfare donations).Use of intermediaries and lobbyist registration
Describe any rules - or policies of public pension plans or other governmental entities - in your jurisdiction that restrict, or require disclosure by a private equity fund’s manager or investment adviser of, the engagement of placement agents, lobbyists or other intermediaries in the marketing of the fund to public pension plans and other governmental entities. Describe any rules that require a fund’s investment adviser or its employees and agents to register as lobbyists in the marketing of the fund to public pension plans and governmental entities.
Currently, there are no restrictions or special disclosure requirements for marketing funds to public pension plans and governmental entities. However, public pension plans and governmental entities often request special disclosure requirements, investment restrictions and other special terms and conditions in fund contracts with respect to fund operations in order to comply with special laws.Bank participation
Describe any legal or regulatory developments emerging from the recent global financial crisis that specifically affect banks with respect to investing in or sponsoring private equity funds.
Funds of commercial bank wealth-management products in the PRC are not allowed to invest directly in non-listed companies, although in practice these funds previously invested in private funds through indirect channels such as trust plans or other asset management plans. Since April 2018, however, a series of new asset management regulations have resulted in great changes in the PRC market. According to the new regulations, commercial banks are not allowed to use any types of asset management plan as investment channels for purposes of circumventing statutory limitations, but, at the same time, privately offered commercial bank wealth-management products managed by qualified subsidiaries of commercial banks are permitted to invest in certain private funds directly. Special requirements for these private funds have also been established. For example, the manager of such funds is required have been registered with the AMAC for not less than one year and be a regular member of the AMAC, and it shall have no records of serious illegal conduct or irregularities.