In yet another step to break down barriers between Mainland China and international markets, the long-awaited mutual recognition scheme that allows cross-border retail fund sales between Hong Kong and mainland China will start from 1 July 2015.
On Friday 22 May the China Securities Regulatory Commission (CSRC) issued the much anticipated “Interim Provisions on the Administration of Recognised Hong Kong Funds” (Provisions on Recognised HK Funds). These provisions set out the requirements to be met for Hong Kong domiciled funds seeking registration and approval by the CSRC for retail distribution in Mainland China (Recognised Hong Kong Fund).
Similarly the Hong Kong Securities and Futures Regulatory Commission (SFC) issued the Circular on Mutual Recognition of Funds between the Mainland and Hong Kong (Circular on Recognised Mainland Funds), which outlines the regulatory procedures that Mainland retail funds must meet to be distributed in Hong Kong.
As expected, to qualify as a Recognised Hong Kong Fund, Hong Kong domiciled unit trusts that are authorised by the SFC and will need to comply with the Code on Unit Trusts and Mutual Funds (UT Code). They shall be general equity funds, balanced funds, bond funds or index funds but cannot be primarily investing in the Mainland China markets. Funds from Mainland China seeking to be authorised by the SFC for sale to the public in Hong Kong will need to comply with the relevant laws and regulations in Mainland China.
The initial investment quota of RMB600 will be for fund flows each way.
Commentators largely expect that initial flows will be southbound, as middle class Mainland Chinese investors continue to seek international exposure.
It is expected that briefing notes and guidelines on the application process will be issued by both regulators in coming weeks ahead of the 1 July launch. At this stage there has been no guidance on how cross border marketing restrictions will be amended to allow marketing of Recognised Hong Kong Fund in Mainland China. However in Hong Kong when issuing advertisements for Recognised Mainland Fund, the SFC’s Advertising Guidelines will apply. The SFC’s circular also sets out various Hong Kong disclosure which the SFC would expect.
While this is the third fund recognition scheme in Asia – the two other being the Asean Collective Investment Scheme and the Asian Regional Funds Passport – it is the most anticipated and likely to attract considerable investment flow.
Please click here for SFC & CSRC's joint announcement.
Please click here for SFC’s Circular on Recognised Mainland Funds