Hong Kong SFC and China’s CSRC will review cross border fund sale scheme this quarter
The securities regulators of Hong Kong and mainland China would be in talks within the first quarter to improve the cross border fund sales scheme which the fund industry has lobbied for, according to Securities and Futures Commission executive director Julia Leung.
The scheme started from July last year and needed six months for the two regulators to approve the first batch of funds to sell across the border, much slower when compared to the promise of regulators for a “speedy approval” of six to eight weeks.
There is also a serious of imbalance in the rate of approvals by the two sides. The SFC has approved 24 mainland funds to be sold in Hong Kong while the China Securities Regulatory Commission (CSRC) has only approved three Hong Kong based funds to be sold in the mainland.
The fund industry wants to see speedy approvals, a lifting of fund size restrictions and an expansion of sales channels. Leung said the SFC and the CSRC will meet together to study the demands.
“The CSRC has been very busy in handling the stock market in light of the volatilities of the mainland markets,” she said. “We understand the industry would like to see a faster approval process. However, the cross border scheme requires the funds to follow local disclosure requirements which also need time to approve.”
She added the scheme has benefited Hong Kong’s fund industry by having more new funds set up in Hong Kong and a 10 per cent rise in applications for fund manager licenses filed with the SFC last year.
The mutual recognition fund scheme allows Hong Kong domiciled funds to be sold in the mainland while mainland funds can be sold in Hong Kong. Each side has a total quota of 300 billion yuan.
The scheme has a 50-50 restriction that requires a fund sold in mainland China must have 50 per cent of the assets sold in mainland and the rest overseas.
Leung said the requirement prevents some funds setting up purely for the purpose of being sold in China because they want the funds to be also sold in Hong Kong and other markets.
Hong Kong Investment Funds Association chief executive Sally Wong said fund managers would like to see more relaxation in the rules of the scheme.
“We would like to see the scheme to allow delegation of the investment management function to overseas affiliates or fund managers, and to relax or remove the requirements on 50 per cent of the assets to be raised overseas. We also like to see a change on the minimum asset size as well as the one-year track record,” Wong said.
“Also, we hope that non-Hong Kong domiciled funds can be eligible and greater flexibility be provided for the inclusion of ETFs.”
Eleanor Wan, chief executive of BEA Union Investment Management, also want to the see the 50-50 quota limit lifted.
“There is a suggestion from the industry to broaden the fund domicile to Luxembourg funds with sub-advisory (functions),” Wan said.
Andrew Fung, executive director of Hang Seng Bank, which has a mutual fund approved to be sold in the mainland, also believes it would be good to lift the 50 per cent cap.
“It will be good for northbound mutual recognition funds because the asset size in Hong Kong is relatively small as Hong Kong is a city of 7 million people while the mainland is a nationwide market with a 1.3 billion population,” he said.