SFC identifies 600 funds for cross-border scheme
Securities watchdog identifies Hong Kong and mainland participants for cross-border mutual recognition scheme ready to be launched soon
The securities regulator has identified about 600 Hong Kong and mainland funds for participation in the soon-to-be launched mutual recognition scheme allowing cross-border fund sales, according to outgoing Securities and Futures Commission deputy chief executive Alexa Lam Cheung Cheuk-wah.
Lam told the yesterday that among the 300 Hong Kong-domiciled funds, only about 100 were qualified, while there were about 500 mainland-domiciled funds that would be allowed to trade in the city. This is because no hedge funds or derivatives funds can be sold under this scheme, only simple bond and equities issues.
"There will be a quota arrangement as the mainland still has capital controls, but the way to calculate the quotas will be flexible," she said.
Lam said there would be a total quota for the whole scheme and each fund would have individual quotas that would be calculated based on a certain percentage of assets under management by a Hong Kong fund allowed to be sold on the mainland.
The same method would be applied to calculate the quota for mainland funds allowed to be sold in the city, she said.
No new fund launched can be cross sold under the scheme, only existing funds with qualified track records.
This marks the first time the commission has unveiled the details of the mutual recognition scheme, which has been in the works for two years. Fund managers believe it will be launched this year.
"Both Hong Kong and mainland regulators are ready for the scheme and we only need to wait for the State Council to give approval for the scheme to kick off," Lam said. "The new scheme will expand the Hong Kong fund industry from a market of seven million people to include the mainland, which has a population of 1.3 billion people.
"The opportunities for the Hong Kong fund industry will be huge."
With regard to regulation, she said the Hong Kong funds to be sold on the mainland must get authorisation from the China Securities Regulatory Commission, while the mainland funds must get approval from the SFC before they could be sold here.
"The SFC and the CSRC have already prepared a memorandum of understanding. We will sign the MOU after the State Council approves the mutual recognition scheme," she said.
Lam, who joined the SFC in 1999 as a legal adviser, will retire tomorrow. Former undersecretary for financial services and the treasury Julia Leung Fung-yee will replace Lam on Monday.
Lam is known for promoting the fund industry. Besides pushing the mutual recognition reform scheme, she was involved in the launch of the renminbi qualified foreign institutional investor programme in 2011 to allow mainland fund houses to launch yuan-denominated products in the city.
She was also behind the Securities and Futures Ordinance in 2003 that turned insider dealing into a criminal offence.
Lam plans to go to Michigan University in the United States for a series of lectures on China market reform and then become a full-time law professor at Hong Kong University where she will focus on securities legislation.
"I enjoyed my time at the SFC. It has provided a platform to achieve many new reforms, from the RQFII, the stock market connect and the proposed mutual recognition scheme," she said.
"There will be challenges ahead such as a volatile investment market and new international regulations.
"Some international reforms launched after the financial crisis in 2008 may not always fit the needs of Asia. But I believe the commission will cope with them well."
