Supplemental Details about Mutual Recognition of Funds

On 5 June 2015, CSRC of China and SFC of Hong Kong organized a training workshop on mutual recognition of funds. Over 400 representatives from fund management industry in China and Hong Kong attended the training workshop. Further supplemental details were provided and discussed in the training workshop that is summarized as below:

(1)  Details about mainland funds seeking SFC authorization (Southbound Funds)

(i) HK SFC will only consider funds types below seeking SFC authorization under the mutual recognition of funds regime and at this stage will not consider other alternative or innovative types of investment funds products:

      • equities fund
      • bond fund
      • mixed fund
      • unlisted index fund
      • physical index-tracking ETF fund

(ii) The following documents should be provided to the HK SFC for funds authorizations: (1) Fund offering documents registered with the CSRC in China in Chinese and English versions (Chinese version needs to be in traditional Chinese) ; (2)  Hong Kong covering document containing supplementary information in accordance with Hong Kong laws and regulations in Chinese and English versions (Chinese version needs to be in traditional Chinese); and (3) Product key facts statement (“KFS”) in Chinese and English versions (Chinese version needs to be in traditional Chinese).

​In addition, the ​fund constitutive documents of the fund contract and the latest audited financial report of the fund should also be provided to the HK SFC in Simplified Chinese version only  (English or Traditional Chinese versions are not required).

​(iii) Once the mainland fund is recognized by the HK SFC, termination or withdrawal of registration should seek prior approval from the HK SFC.

(iv)​ HK SFC does not set quota on Southbound Funds seeking SFC authorizations but HK SFC will only accept Southbound Funds authorization applications if the Southbound Funds meet with all the registration criteria under the Mutual Recognition of Funds regime.

(v) Funds under the Mutual Recognition of funds regime cannot have more than 50% of the value of the fund’s total assets from distribution in the Host Jurisdiction. As such, fund management companies need to monitor investor’s ratio of the fund from Hong Kong and China on an ongoing basis. Once the ratio reaches the 50% limit, regulators should be notified immediately. The funds may not be allowed to accept further subscriptions but investors will not be required to redeem their investments from the funds.

(vi) Funds under the Mutual Recognition of funds regime should adopt dealing day when both Hong Kong and China are open for dealing of the funds. The dealing cut off time for China should be 3 p.m and for Hong Kong should be 4 p.m.

(2) Details about HK SFC authorized funds seeking CSRC authorization (Northbound Funds)

(i) The fund must not primarily invest in the Host Jurisdiction markets meaning that over 80% of the fund’s non-cash assets must not be invested in the Host Jurisdiction under the Mutual Recognition of Funds regime.

(ii) CSRC in China will adopt a step by step process in recognizing types of HK SFC authorized funds for retail distribution in China. Currently, the CSRC will not consider Gold ETF Funds, Guaranteed Funds and Capital Preservation Funds.

(iii) CSRC in China does not set quota on Northbound Funds seeking CSRC authorization. 

(iv) Mainland funds management companies as agent of HK SFC authorized funds in China can conduct direct retail sales to retail investors in China.

(v) In processing the CSRC authorization, CSRC in China may seek opinion from HK SFC. The CSRC authorization should be completed in 6 months that the applicant will be notified of the result. Any rejection of CSRC authorization will be provided with explanation to the Applicant.

(vi) The following documents should be provided to CSRC for funds authorizations:

(1) Application report

(2) Trust deed and/or article of incorporation about the Fund

(3) Offering documents and Key Fact Statements of the Fund

(4) The latest financial report of the Fund

(5) Agency agreement or distribution agreement of the Fund in China

(6) Supporting documents evidencing that the Fund, its investment manager, the custodian, the trustee, and the Agent has complied with the CSRC’s requirements.

(7) A legal opinion regarding the eligibility of the Fund to participate in the Mutual Recognition of Fund regime

(8) Any other documents as may be requested by the CSRC.

(vii) The CSRC fund authorization process is as below:

(1) Acceptance of the Application

(2) Vetting of the Application documentations

(3) Call for review meeting (optional)

(4) Feedback on the Application documentations

(5) Approval

CSRC does not intend to make substantive or editorial changes to the funds offering documents seeking CSRC authorizations. The details in the offering documents should follow the Home Jurisdiction requirements and need not be amended to meet with the Host Jurisdiction’s requirements.

– End – information as of 5 June 2015

CompliancePlus has years of experience in handling the HK SFC compliance requirements and has helped lot of leading mainland fund management companies and leading fund managers to establish their local offices in Hong Kong. As one of the leaders in compliance industry in Hong Kong, some of the team members of CompliancePlus are native mandarin speakers who can write both traditional and simplified Chinese Characters that can assist you on compliance issues quickly and diligently.

For fee quote and consultation, please find contact information below:

Josephine Chung

Director of CompliancePlus

Email: [email protected]

Tel: 852-3487 6333

We Chat: jyychung

Sharon Zeng

Compliance Analyst of CompliancePlus

Email: [email protected]

Tel: 852-3487 5022

Copyright (June 2015)