The Hong Kong Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) have signed a Memorandum of Regulatory Cooperation on 22 May 2015 regarding Mainland-Hong Kong Mutual Recognition of Funds (MRF). The aim of MRF is to allow eligible Mainland and Hong Kong funds to be distributed in each other’s market through a streamlined vetting process. The MRF also provides a framework for information exchange and regulatory cooperation on cross-border fund offerings.
Mainland funds applying for SFC authorization must meet the following eligibility requirements:
- the fund is a publicly offered securities investment fund registered with the CSRC under the Securities Investment Fund Law of the People’s Republic of China;
- the fund is established, managed and operates in accordance with Mainland laws and regulations, and its constitutive documents;
- the fund must have been established for more than 1 year;
- the fund must have a minimum fund size of not less than RMB200 million or its equivalent in a different currency;
- the fund must not invest primarily in the Hong Kong capital market; and
- the value of shares/units in the fund sold to investors in Hong Kong shall not be more than 50% of the value of the fund’s total assets.
Hong Kong funds applying for CSRC authorization under the Scheme must meet the following eligibility requirements set out in the Provisional Rules for Recognised Hong Kong Funds issued by the CSRC:
- the fund is established and operated in Hong Kong, and authorized by the SFC for public distribution;
- the manager of the fund is licensed by the SFC to carry out Type 9 regulated activity (asset management) in Hong Kong and has not been subject to any material sanctions by the SFC in the past 3 years;
- the trustee and/or custodian must meet the qualification requirements imposed by SFC;
- the fund is an equity fund, mixed fund, bond fund or index fund (including exchange traded fund); and
- the assets of the fund in the past 1 year have been no less than RMB200 million (or in equivalent foreign currencies) and must not be invested primarily (more than 50% of the fund’s total assets) in the Mainland market.
According to the current arrangements under the MRF scheme, the initial investment quota will be RMB300 billion for in and out fund flows. CSRC official data estimates that about 100 (as of end of 2014) Hong Kong funds and 850 (as of end of first quarter of 2015) Mainland funds are eligible for the scheme.
The MRF scheme will be implemented on 1 July 2015. In the meantime, CSRC and SFC will hold briefings to explain to the market in detail the application procedures and requirements for the scheme.
The SFC announcement can be read here
The SFC – CSRC joint announcement can be read here