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[CSRC Announcement (2015) No. 12] Interim Administrative Provisions on Mutually-recognized Funds of Hong Kong

[2015-07-20]

Promulgating Institution: China Securities Regulatory Commission

Document Number: Announcement [2015] No.12 of the China Securities Regulatory Commission

Promulgating Date: 05/14/2015

Effective Date: 07/01/2015

 

Chapter 1: General Provisions

Article 1      With a view to regulating the registration, sales, information disclosure and other activities concerning mutually-recognized funds of the Hong Kong Special Administrative Region of the People's Republic of China (hereinafter referred to as "Hong Kong") in the Mainland (referring to the entire customs territory of the People's Republic of China), protecting the legitimate rights and interests of investors and relevant parties, and promoting the healthy development of securities investment funds and the capital market, these Provisions are formulated pursuant to the Law of the People's Republic of China on Securities Investment Funds (hereinafter referred to as the "Fund Law"), other relevant laws and regulations, and pertinent regulatory cooperation memoranda of understanding concluded by and between the China Securities Regulatory Commission ("CSRC") and the Securities and Futures Commission of Hong Kong ("SFC").

Article 2      For the purpose of these Provisions, mutually-recognized funds of Hong Kong shall refer to unit trusts, mutual funds or other forms of collective investment schemes that are set up, operated and publicly sold in Hong Kong in accordance with the laws of Hong Kong, and are approved by the CSRC to be offered for public sales in the Mainland.

Article 3      Managers of mutually-recognized funds of Hong Kong shall entrust qualified institutions in the Mainland to act as agents to handle relevant business of such funds in the Mainland.

Chapter 2: Product Registration

Article 4      To be sold publicly in the Mainland, a mutually-recognized fund of Hong Kong shall satisfy the following conditions and be registered by the CSRC:

(1) The said fund shall be set up and operated in Hong Kong in accordance with the laws of Hong Kong, be approved for public sales by the SFC, and be subject to the regulation of the SFC;

(2) The manager of the said fund shall be a Hong Kong-registered institution that meets the following requirements: it is being run in Hong Kong; it holds Hong Kong's asset management license; it has not delegated its investment management functions to any other country or region; and, it has not been subject to any major punishment by the SFC over the past three years or since its establishment;

(3) The said fund shall be subject to the custody system, and its trustee and custodian shall meet the qualification requirements prescribed by the SFC;

(4) The said fund shall fall under the type of a conventional equity fund, a hybrid fund, a bond-focused fund or an index fund (including an exchange-traded fund); and

(5) The said fund shall also meet the following requirements: it is established at least one year ago; it has an asset size of not less than RMB 200 million (or its equivalent in a foreign currency); it does not take the Mainland market as its main investment direction; and, its sales in the Mainland account for not more than 50% of its total assets.

Article 5      The CSRC shall, pursuant to Article 55 of the Fund Law, examine the application for registration of a mutually-recognized fund of Hong Kong, and make a decision thereon. The CSRC may consult the SFC during examination.

Registration application materials shall include the following documents:

(1) An application report;

(2) The trust deed or articles of association of the said fund;

(3) The prospectus and the summary of product materials of the said fund;

(4) The latest audited annual report of the said fund;

(5) Information on the agent of the said fund, and the agency agreement signed;

(6) Documents proving that the said fund, and its manager, trustee, custodian and agent satisfy the prescribed conditions;

(7) Written legal opinions issued by the relevant law firm; and

(8) Other materials required by the CSRC.

In the event of any discrepancy between the aforesaid documents and the versions approved by the SFC, major discrepancies shall be listed and the reasons therefor shall be specified.

Chapter 3: Investment Operations and Information Disclosure

Article 6      The following matters concerning a mutually-recognized fund of Hong Kong shall be governed by the regulatory requirements of the SFC and the agreements under legal instruments on the said fund: investment transactions, asset custody, valuation and accounting, subscription and redemption, arrangements for fee rates, taxation on the said fund, general meeting of fund unit holders, changes to legal instruments, termination and merger, revocation of recognition, etc.

Article 7      Unless otherwise prescribed herein, the contents, formats, disclosure deadlines, disclosure frequency, matters subject to disclosure, etc. concerning the information disclosure documents required of a mutually-recognized fund of Hong Kong in the Mainland (including its prospectus, summary of product materials, net value announcement, periodic financial reports, interim announcements, etc.) shall be governed by the regulatory requirements of the SFC and the agreements under legal instruments on the said fund.

The manager of a mutually-recognized fund of Hong Kong shall take reasonable measures to ensure that relevant information disclosure documents and regulatory reports are simultaneously disclosed or submitted to the investors and regulatory authorities both in the Mainland and in Hong Kong.

Article 8      The manager of a mutually-recognized fund of Hong Kong shall disclose the information subject to disclosure via nationally-circulated newspapers and periodicals designated by the CSRC, the website of the entrusted fund agent and other media, and ensure that investors can inspect or duplicate publicly-disclosed information and materials in accordance with the time and manner agreed under the legal instruments on the said fund.

Article 9      The manager of a mutually-recognized fund of Hong Kong shall, three days prior to the sales of fund units, make public disclosure of the following information of the said fund: its summary of product materials, announcement on the offering of fund units for sale, prospectus, trust deed or articles of association, and the latest annual and semi-annual financial reports.

Article 10      The Mainland prospectus of a mutually-recognized fund of Hong Kong shall be prepared pursuant to the regulatory requirements of the SFC, and shall contain the following additional contents:

(1) Special notes and risk disclosure for mutually-recognized funds of Hong Kong;

(2) The types of information disclosure documents required of the said fund in the Mainland, the deadlines and ways of information disclosure in the Mainland, the places where documents for future reference are kept, and the means to inspect such documents;

(3) The rights and obligations of the parties to the said fund, the procedures and rules of the general meeting of fund unit holders, the causes and procedures for the rescission or termination of the contract on the said fund, and the means of dispute resolution;

(4) The types and contents of services provided by fund unit holders, the channels of services, and contact details; and

(5) Other information that is significantly different from the information obtained by Hong Kong investors or that has a material impact on investors in the Mainland.

Article 11      The Mainland summary of product materials of a mutually-recognized fund of Hong Kong shall be prepared in accordance with the regulatory requirements of the SFC, and shall contain additional special notes and risk disclosure for mutually-recognized funds of Hong Kong.

Article 12      The manager of a mutually-recognized fund of Hong Kong shall prepare an announcement on the offering of fund units for sale to specify operational matters such as account opening, clearing, registration, sales period, sales channels, sales methods, etc. concerning the sales of fund units, and disclose the said announcement together with the prospectus of the mutually-recognized fund of Hong Kong.

Article 13      The manager of a mutually-recognized fund of Hong Kong shall take reasonable measures to ensure that Hong Kong investors and investors in the Mainland are treated fairly, including in terms of the protection of investor rights and interests, the exercise of investor rights, information disclosure, compensation, etc.

Article 14      Disputes over a mutually-recognized fund of Hong Kong shall be resolved by the means agreed under the contract on the said fund. Where such disputes are to be resolved through litigation, the rights of courts in the Mainland to hear relevant lawsuits may not be excluded.

Chapter 4: Sales of Funds

Article 15      The Mainland sales agencies of a mutually-recognized fund of Hong Kong shall be qualified for fund sales business.

Sales of a mutually-recognized fund of Hong Kong in the Mainland shall be governed by Mainland laws and regulations on the sales of publicly-raised funds, as well as these Provisions.

Article 16      Where the manager of a mutually-recognized fund of Hong Kong prepares fund product promotional materials applicable to the Mainland market either on its own or by entrusting other agencies, the agent entrusted for the said fund shall conduct compliance inspection in advance, and issue opinions which shall be submitted to the local office of the CSRC at the principal place of business of the agent for record-filing within five working days from the date of distribution or publication of the said materials to the public. As regards the promotional materials of a mutually-recognized fund of Hong Kong that are prepared by a fund sales agency on its own, the senior management personnel of the fund sales agency who are in charge of fund sales business and compliance shall conduct inspection in advance, and issue compliance opinions which shall be submitted to the local office of the CSRC at the place of industrial and commercial registration of the fund sales agency for record-filing within five working days from the date of distribution or publication of the said materials to the public.

Relevant statements in the promotional materials of a mutually-recognized fund of Hong Kong that are distributed or published to the public in the Mainland shall be expressed in a comprehensive, accurate, clear and effective manner, and shall indicate in a clear and eye-catching manner that the said fund is set up in accordance with the laws of Hong Kong and that its investment operations, information disclosure and other standards shall be governed by the laws of Hong Kong and relevant provisions of the SFC.

Article 17      The manager of a mutually-recognized fund of Hong Kong may conclude a sales agreement with a fund sales agency in the Mainland either on its own or by entrusting the agent of the said fund. Where the said manager signs the sales agreement on its own, it shall ensure that the agent is able to perform relevant duties.

The manager, the agent and the fund sales agency of a mutually-recognized fund of Hong Kong shall agree with each other on the continuous service responsibilities owed to fund unit holders, the fulfillment of anti-money laundering obligations, the division of responsibilities, etc.

Article 18      The manager of a mutually-recognized fund of Hong Kong shall entrust the agent of the said fund to exchange data with fund sales agencies via the technology platform designated by the CSRC.

The registration institution of a mutually-recognized fund of Hong Kong shall enable the back-up of the registration data of Mainland investors in the Mainland.

Article 19      A Mainland institution engaging in the evaluation of mutually-recognized funds of Hong Kong shall develop a scientific and effective evaluation system for offshore fund products, and relevant evaluation criteria and methods adopted thereby shall be consistent with those under the evaluation system for Mainland fund products.

Where evaluation or rating results issued by overseas institutions are cited when a mutually-recognized fund of Hong Kong is offered for sale in the Mainland, special reminders shall be given to indicate that the evaluation methods and results of the overseas institutions are different from the methods adopted, and the results obtained, by evaluation institutions in the Mainland.

Chapter 5: Agencies

Article 20      The agent entrusted by the manager of a mutually-recognized fund of Hong Kong shall have the qualifications verified and approved by the CSRC for the management or custody of publicly-raised funds.

Article 21      The agent of a mutually-recognized fund of Hong Kong shall, according to the entrustment by the manager of the said fund, handle product registration, information disclosure, sales arrangements, data exchange, fund clearing, regulatory reporting, communications and liaison, client services, monitoring and other matters on behalf of the said manager, provided that the manager of the mutually-recognized fund of Hong Kong shall not be exempted from its due duties prescribed by law on the ground of entrustment.

The manager of a mutually-recognized fund of Hong Kong shall select its agent in a prudent manner, and conduct continuous supervision and regular assessment of the performance of the agent, so as to ensure that the responsibilities of the manager are effectively performed.

Article 22      The manager of a mutually-recognized fund of Hong Kong shall sign an entrustment agreement with the selected agent to specify the contents of the entrustment, the responsibilities and rights and obligations of both parties, and the plans to properly handle relevant business following the expiry of the said agreement or the termination of cooperation.

Chapter 6: Supervision and Administration

Article 23      The manager of a mutually-recognized fund of Hong Kong shall take reasonable measures to ensure that the said fund satisfies the qualifications for mutual recognition on an ongoing basis. Where the asset size, the main investment direction or major sales targets of the said fund fail to meet the prescribed requirements, the said manager shall promptly report relevant information to the CSRC, and suspend the sales activities of the said fund in the Mainland until it satisfies the prescribed conditions again. In the event of material changes to the type and operating model of the said fund, the manager shall suspend the sales activities of the fund in the Mainland, and re-apply for registration to the CSRC.

Article 24      Supervision and administration of the illegalities and irregularities of a mutually-recognized fund of Hong Kong shall be conducted by the CSRC or the SFC based on the places where such illegalities and irregularities occur. The CSRC shall regulate the sales, information disclosure and other activities of a mutually-recognized fund of Hong Kong in the Mainland in accordance with the laws and regulations of the Mainland, while the SFC shall regulate the investment operations in Hong Kong of a mutually-recognized fund of Hong Kong in accordance with the laws of Hong Kong.

Article 25      Routine regulation over the manager of a mutually-recognized fund of Hong Kong shall be governed by the principle of territory-based regulation, provided that the CSRC shall be entitled to require the manager of a mutually-recognized fund of Hong Kong to give explanations to major regulatory matters.

Where the manager of a mutually-recognized fund of Hong Kong commits violations of relevant laws and regulations when engaging in the sales, information disclosure and other business activities of the said fund in the Mainland, the CSRC may request the SFC to provide assistance, and take administrative regulatory measures or mete out administrative punishments against the said manager pursuant to the law.

Article 26      The Mainland agent of a mutually-recognized fund of Hong Kong shall earnestly fulfill its operational responsibilities in accordance with these Provisions. The CSRC shall conduct supervision and administration of relevant business conducts of the said agent pursuant to the law. Where the said agent commits violations of these Provisions in carrying out relevant business activities, the CSRC shall order the agent to make rectification within the prescribed time period, and may suspend or restrict its operations during the rectification period; and, the CSRC may arrange regulatory talks with, issue warning letters to, and take other administrative regulatory measures against, the persons-in-charge who are directly responsible for the agency business and other personnel subject to direct liabilities.

Article 27      The CSRC and the SFC shall establish a regulatory cooperation mechanism for the ongoing regulation of mutually-recognized funds of Hong Kong to effectively safeguard the legitimate rights and interests of fund unit holders both in the Mainland and in Hong Kong.

Chapter 7: Supplementary Provisions

Article 28      Relevant documents disclosed in the Mainland or submitted to the CSRC, and promotional materials distributed to the public in the Mainland by mutually-recognized funds of Hong Kong shall be prepared in Simplified Chinese, and relevant wording shall be consistent with fund business practices of the Mainland. Where the original documents are in another language, truthful, accurate and complete translations in Simplified Chinese shall be provided.

Article 29      These Provisions shall come into effect on July 1, 2015.