Mainland China a step closer to Hong Kong funds

Hong Kong-based fund houses are a step closer to selling their products on the mainland as regulators from the two markets have worked out the ground rules for the kind of funds to be offered.

Securities and Futures Commission deputy chief executive Alexa Lam told the South China Morning Post that the Hong Kong regulator and the China Securities Regulatory Commission had completed a six-month study on the regulatory framework of the two markets and concluded they offered the same level of protection to investors. This could support a planned mutual recognition scheme allowing Hong Kong funds to be sold on the mainland and vice versa.

The mainland is keen to leverage the city's strong fund market to develop its own. Hong Kong's fund industry grew 39.3 per cent last year, with assets under management at US$1.6 trillion, beating Singapore, whose fund industry expanded 22 per cent to US$1.29 trillion.

Mainland and Hong Kong regulators are now working on the selection criteria for funds to be allowed for cross-border sales.

"Initially, we will consider Hong Kong-domiciled funds authorised by the SFC," Lam said. "The fund managers need to be licensed by the SFC and operate in Hong Kong."

The background of the shareholders or owners of the fund houses would not be an issue, she said, as the SFC wanted to attract international players to Hong Kong.

Since the mainland still has capital controls, there will be a quota system for each chosen fund product. Initially, simple products such as bond and equity funds would be selected, Lam added.