On March 21, 2019, the Central Bank of Ireland (CBI) confirmed its approval of the use of Bond Connect for Irish-authorised UCITS and Alternative Investment Funds (AIFs). In addition, the CBI reiterated that Irish-authorised UCITS and AIFs acquiring Chinese bonds through Bond Connect must ensure that the relevant depository retains control over the bonds at all times, as well as conducting ongoing review of the depositary’s compliance with the Bond Connect arrangements.
Bond Connect is a mutual market access scheme launched by the People's Bank of China in 2017. The scheme aims to facilitate bond trading between mainland China and overseas markets – to be achieved through the connection between the related financial infrastructure institutions in mainland China and Hong Kong. Currently, the scheme is open only in respect of northbound investments through Hong Kong into the China interbank bond market (CIBM) pursuant to mutual access arrangements in respect of trading, custody and settlement. Bond Connect allows a wider range of global investors to access the CIBM and provides investors with an alternative to the existing access routes through CIBM Direct and the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) programmes.
This CBI approval has significant implications for the Irish funds industry. Prior to the CBI approval, Irish funds have only been able to trade bonds on the CIBM through either the QFII or RQFII programmes, each of which has a quota. Bond Connect will present a less costly and more convenient alternative, and will provide greater access to European investors looking to invest in Chinese bonds through Irish funds.
This development is also timely given the expected inclusion of CIBM bonds on a number of internationally recognised indices.