Hong Kong seeks recognition of its funds on the mainland

It the plan is accepted then it will change the industry in both markets, says fund manager

PUBLISHED : Wednesday, 28 November, 2012, 12:00am
UPDATED : Wednesday, 28 November, 2012, 2:34am

The Hong Kong government is working with the mainland securities regulator to seek mutual recognition of fund products sold in both markets to boost the local asset management industry.

Secretary for Financial Services and the Treasury Chan Ka-keung said yesterday that he gave the proposal to the China Securities Regulatory Commission during his visit to Beijing late last month.

Chan said no details or timing had been set but the CSRC was keen to study the project.

"The proposal, if it can be achieved, will mean all Hong Kong domicile funds would be allowed to be sold in the mainland market, while all mainland funds would also be allowed to be sold in Hong Kong," he said.

"This will attract international fund companies that target mainland markets to come to Hong Kong."

However, he said this would be a long-term aim and a lot of policy and legal issues needed to solved. China does not yet allow international funds to be freely sold domestically and has capital controls. But, for a start, the mainland could introduce a quota system, Chan said. There are several thousand mutual funds available in Hong Kong but they are mainly incorporated in European centres such as Luxembourg and Dublin. Hong Kong-domiciled funds account for less than 5 per cent of the total authorised funds.

Hong Kong requires overseas domiciled funds to receive authorisation from the Securities and Futures Commission before being sold to the public.

To incorporate in Hong Kong they must set up a trustee for the fund, something not required in European jurisdictions.

Chan said he would like to see a change in the law to make it easier for these funds to incorporate in Hong Kong to create more jobs and business opportunities. Changes in the law as well as the mutual recognition with China would attract overseas asset managers to set up funds here, Chan said.

Hong Kong Investment Funds Association chief executive Sally Wong said the industry welcomed the government initiative. Both jurisdictions would benefit from it and would foster the development of their asset management industry, she said.

"If mutual recognition of Hong Kong-domiciled funds is allowed, it is a major breakthrough," she said.

"But ultimately, we believe that it would be in the best interest of the mainland investors if all authorised funds, not just Hong Kong-domiciled ones, can be made available to them as they will be able to access a much greater breadth and depth of products more cost effectively."

Mark Konyn, chief executive of Cathay Conning Asset Management, said if such an ambition could be achieved, it would stimulate demand for Hong Kong-domiciled funds among service providers.

"This will potentially transform the industry, giving it a unique competitive advantage relative to other jurisdictions," he said. "There has been an ambition in Hong Kong for the financial sector, and in particular the mutual fund industry, to play a larger role in China. For the longer term, the yuan-denominated funds domiciled in Hong Kong could prove attractive."