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Reports and Analysis
China – Unified Private Fund Regulation Released for Public Comments.

31 July, 2014



Following the release of the Consultation Draft of the Interim Measures for the Administration of Private Securities Investment Fund Business (the “Old Draft”) on February 20, 2013 for public comments and the open for registration of private fund manager with the Asset Management Association of China (the “AMAC”) since February 7, 2014, the China Securities Regulatory Commission (the “CSRC”) issued on July 11, 2014 the Consultation Draft of Interim Measures for the Supervision and Administration of Private Investment Fund (the “New Draft”) for public comments. The New Draft contains 41 articles and 10 chapters, which, among others, sets forth the regulatory framework of private funds and addresses major issues in relation to fundraising and fund operation for private funds. Below is a summary of the main provisions of the New Draft.

1. Private Fund And Investment Scope 

The definition of the private funds under the New Draft is in line with the definition made by the Measures on the Private Investment Fund Manager Registration and Fund Filing (Pilot) promulgated by the AMAC on January 17, 2014. According to the New Draft, private funds mean those funds which are raised through non-publicly offering from accredited investors. The investment activities of the companies and partnerships, which are established by non-publicly offering for investment purposes, and whose assets are managed by a fund manager or a general partner, shall also be governed by the New Draft. 

2. Fund Servicing Institutions 

The New Draft generally divides the private fund market institutions into (i) the private fund management institutions, (ii) the institutions offering fund custodian services, (iii) the institutions offering fund distribution services, and (iv) other private fund servicing institutions, all of which are subject to the CSRC’s supervision. However, certain issues related to the qualification and internal control requirements for the fund servicing institutions, such as the fund distributor or the fund advisor, remain to be further clarified by the CSRC. 

3. Regulatory Framework 

The New Draft restates that neither the incorporation of private fund management institution nor private fund offering is subject to any administrative approval, instead, fund managers are subject to the registration with the AMAC, which registration must be processed within 20 working days after all required materials are provided. Upon fund raising, the fund manager shall also complete the fund filing formalities according to AMAC rules, which filing is also required to be processed within 20 working days after all required materials are provided. 

The New Draft requires AMAC to maintain an information system regarding the private fund manager registration and private fund filing and build up an information sharing mechanism with CSRC and its agencies. Besides, the New Draft also authorizes the AMAC to accept the investors’ complaints and conduct the mediation of the relevant disputes. 

4. Accredited Investors 

According to the New Draft, no private fund product can be offered to non-accredited investors and the number of investors of a single fund must comply with the relevant regulations. In case of a transfer of fund unit, the transferee should be an accredited investor and the number of investors after the transfer shall also comply with the relevant regulations. 

As one of the most notable changes from the Old Draft, the New Draft provides for new criteria of accredited investor. An accredited investor should simultaneously meet the following: (1) its investment in a single fund is no less than RMB 1m , and (2) for an institutional investor, its net assets should be no less than RMB 10 million, while for an individual investor, his/her personal financial assets should be no less than RMB 3m or his/her annual average income of the latest three years is no less than RMB 500k. Exemptions are made for the following investors which are deemed as accredited investors: (1) social security funds, company pension, charitable funds; (2) investment plans supervised by the financial supervision and administration agencies of the State Council; (3) private fund managers and their staff investing in the fund under their management; (4) other investors as stipulated by the CSRC. 

5. Fundraising 

The New Draft further prohibits fund manager and fund distributor from disseminating information to unspecified objects via public media, lectures, seminars, analysis meetings, bulletins, leaflets, messages, Wechat, Blogs or other means. Fund manager or fund distributor shall not offer any principal-guaranteed or return-guaranteed products.


In addition, fund manager or fund distributor should use questionnaires to evaluate the risk-perceiving and risk-taking capabilities of the investors, require the investors to make written commitment on their eligibility, and present risk disclosure statement to the investors for signing. 

6. Fund Operation 

The New Draft prescribes a series of behaviors that the fund managers, fund custodians, fund distributors and other fund servicing institutions as well as their staff are prohibited from conducting. Moreover, fund managers and fund custodians are required to accurately disclose information related to the fund to the investors, subject to disclosure rules to be promulgated by the CSRC separately. Other than the information that a private fund manager shall report to or update with the AMAC, private fund managers, fund custodians or fund distributors shall keep all records and other materials related to the investment decision, trading or administration of investor suitability for at least 10 years after the relevant fund is liquidated. 

7. Special Provision On Venture Capital Funds 

To emphasize facilitating the development of venture capital fund industry, the New Draft reserves a whole chapter for the venture capital funds. The New Draft defines the venture capital funds as the funds invested in ordinary shares, convertible preferred shares, or convertible bonds to unlisted startup companies. 

It is stipulated that CSRC will provide facilitation for the venture capital funds in terms of the account opening, fund issuance and trade, as well as the investment exit, and will adopt differential administration treatment relating to the fund manager registration, fund filing, investment reporting, member administration and investment scrutiny compared with other types of fund. 

8. Prominent Changes Compared With Old Draft 

Other than the above, here below sets forth other major differences between the New Draft and the Old Draft or the AMAC’s current practice. 

(i) Private Fund Scope Expanded 

As opposed to the Old Draft which only covers private securities investment funds (excluding private equity funds and venture capital funds), the New Draft regulates the activities of all types of private fund. Moreover, the New Draft further clarifies that the activities of securities companies, (mutual) fund management companies, futures companies and their subsidiaries shall be subject to the New Draft when those entities carrying out the private fund business. 

(ii) Underlying Financial Products Clarified

Under the Securities Investment Fund Law, the assets of a private fund may be used for the investments on the financial products including stocks, bonds, and fund units publicly issued as well as other securities and their derivatives as prescribed by the CSRC. The New Draft further clarifies the underlying financial products to cover stocks, equities, bonds, futures, options, fund units and other investment objects that may be agreed otherwise in the investment agreement. Our interpretation of the above underlying products is that, the futures referred hereto should include both financial futures and commodity futures and the options should also include both financial options and commodity options.

(iii) Timeline For AMAC To Process Private Fund Manager Registration 

By stipulating that the AMAC shall process private fund manager registration and private fund filing within 20 working days after all information required are submitted, the New Draft creates both the authority and obligation on AMAC under the administrative rules, to timely process the registration and filing. 

(iv) Individual Private Fund Manager Permitted 

Under the AMAC’s current practice, individuals are not permitted to register as private fund managers. As the New Draft explicitly permits individuals to make the private fund manager registration, such restriction would probably be lifted by the AMAC.


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Wang Qiongyue, Jun He

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