Jurisdiction - China
Reports and Analysis
Asia Pacific – Coming Soon: Mutual Recognition Of Funds Between Mainland And Hong Kong.

10 June, 2015


On May 22nd, 2015, the China Securities Regulatory Commission (“CSRC”) and Hong Kong’s Securities and Futures Commission (“SFC”) jointly announced that they are to implement, on the 1st of July, the Mutual Recognition of Funds initiative, which allows duly recognized funds in Mainland China and Hong Kong to be offered to the public in each other’s markets. An initial investment of RMB 300bn is allocated to the Mutual Recognition of Funds initiative by both territories.
To carry out the initiative, the CSRC and the SFC respectively issued detailed rules on the recognition of funds in each other’s market. This newsletter analyses the Interim Provisions on Administration of Hong Kong Mutually Recognized Funds (“Interim Provisions”) promulgated by the CSRC.
In summary, the Interim Provisions regulates Hong Kong Mutually Recognized Funds (“MRFs”) in the aspects of eligibility requirements, registration process, information disclosure, agency and distribution, to ensure that Mainland investors will be fairly treated and their interests will be fully protected.
Eligibility Requirements And Registration Process
To obtain recognition from the CSRC, Hong Kong MRFs should be public funds established and operated in Hong Kong pursuant to Hong Kong law and approved by the SFC for public offering and regulated by the SFC. In addition, fund managers must be registered in Hong Kong and hold an asset management license in Hong Kong, and should not have delegated their investment management functions to entities located in other countries or territories. The types of funds are limited to stocks, bonds, hybrid and index (including ETF) funds. The funds must have been established for over a year and have more than RMB 200m or equivalent foreign currency. Moreover, a Hong Kong MRF cannot have its primary investment target be the Mainland market, and the amount of interests sold to the Mainland market must be less than 50 percent of the fund’s total assets.
According to relevant reports, a large number of foreign funds distributed in Hong Kong are not established in Hong Kong and many funds established in Hong Kong by international fund management companies only have operation and sales departments in Hong Kong. Reportedly, only around 100 Hong Kong funds meet the above eligibility requirements.
Eligible Hong Kong funds may apply to registerwith the CSRC. The main required documents are the application report, prospectus, product key facts statement, and agency agreement. Pursuant to Article 55 of the People’s Republic of China Securities Investment Fund Law, the CSRC should complete reviewing a Hong Kong fund within six months from the date of application.
Information Disclosure
With respect to information disclosure, along with complying with SFC regulations as well as its fund contract and other fund legal documentation requirements, the manager of a Hong Kong MRF must disclose relevant information through the media outlet designated by the CSRC within the required time. The information should be disclosed or reported simultaneously to the investors and regulators in both markets. The MRF prospectus and products key facts statement must contain additional statements and risk disclosures specific to the MRF. Furthermore, the MRF prospectus should, inter alia eliminate any material gaps between the information disclosed to Mainland and Hong Kong investors, and must contain information that, if disclosed, would materially impact Mainland investors. All such measures aim to secure the fair treatment of investors in both markets in terms of investor protection, exercise of contractual rights, information disclosure and investor compensation. Moreover, the Interim Provisions specifically requires that the MRF’s fund contract shall not preclude the jurisdiction of Mainland courts.
Mandate Of Local Agency And Fund Distribution
The Hong Kong MRF manager must give a mandate to a CSRC-approved public fund manager or custodian (“Agency”) for handling Mainland-related matters, such as product registration, information disclosure, placement arrangements, data exchange, clearing of funds, regulatory report, communication, client services, monitoring. Hong Kong MRFs are forbidden from distribution directly in the Mainland and must do so through Mainland entities qualified for fund distribution activities. Though an MRF is allowed to enter into a placement agent agreement with a fund distributor through its Agency or by itself, in both situations it must ensure that the Agency it engages will be able to perform the agency functions under such an agreement.
Following the Shanghai-Hong Kong Stock Connect, the Mutual Recognition of Funds initiative is another important benchmark of mutual market access between the Mainland and Hong Kong. Allowing foreign funds to be distributed in the Mainland creates another channel connecting China to the rest of the world. On one hand, the Mutual Recognition of Funds satisfies Mainland investors’ need for global asset allocation; and, on the other hand, in the long run, introducing international standards and customary practices will further the education of Mainland investors and cultivate a healthy asset management market. Although most international fund managers cannot currently benefit from the Mutual Recognition of Funds directly, the launch of Mutual Recognition of Funds will ultimately promote the liberalization of Mainland capital markets and give both Mainland and Hong Kong fund managers a greater competitive edge.
Jun He 4  

For further information, please contact:


Natasha (Qing) Xie, Partner, Jun He

[email protected]


Blake (Hui) Wang, Jun He

[email protected]

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