Our Observation: It is definitely a good surprise to observe such a swift action of the CSRC and the AMAC allowing wholly foreign-owned enterprise and majority foreign-owned enterprise to obtain the private securities investment fund manager registration following the 2016 China-US Strategic & Economic Dialogue. Though this action does not intend to open a window for cross-border money in-flow or out-flow for the time being, an access and entry license to the Chinese asset management market will definitely attract many foreign fund managers’ interest and it is the time to measure their confidence and ambition in the Chinese asset management market.
On June 30, 2016, the Assets Management Association of China (“AMAC”) issued the Q&A Regarding Registration and Filing of Private Funds (X)(“AMAC Q&A (X)”). On the same day, the China Securities Regulatory Commission (“CSRC”) released the Media Q&A as echoing. Below is a full text of the AMAC Q&A (X) as well as its English version.
Q: Among the policy achievements of the 8th Round China-US Strategic & Economic Dialogue, there includes a commitment welcoming qualified WFOEs (wholly foreign-owned enterprises) and JVs (joint venture enterprises) to apply for the registration of private securities investment fund management institution (“PFM”) and engage in private securities fund management businesses (including securities trading in the secondary market) in accordance with stipulations. The question is, what are the requirements for a WFOE or JV (“WFOE or JV PFM”) if it applies for the private securities investment fund manager registration?
A: In accordance with the policy achievements reached in the 7th and 8th Round China-US Strategic & Economic Dialogue and the 7th China-UK Economic & Financial Dialogue, subject to the consent by the CSRC, a WFOE or JV shall be registered as a PFM with the AMAC for engaging in the private securities fund management businesses within the territory of China, and shall meet the following requirements:
a. It shall be a company incorporated within the territory of China;
b. Its foreign shareholder shall be a financial institution approved or licensed by the competent financial regulatory authorities in the country or region of its domicile, and the securities regulatory authorities of the country or region of its domicile shall have signed a memorandum of understanding on cooperation regarding the securities regulation with the CSRC or other institutions recognized by the CSRC;
c. It and its foreign shareholder shall not have been subject to any severe penalty by a securities regulator or justice department in the preceding three years.
If it has a foreign de facto controller, such foreign de facto controller shall also meet the requirements set forth in above Item b and c.
In order to engage in private securities fund management businesses, in addition to conforming with the Securities Investment Fund Law, the Interim Measures for the Supervision and Administration of Private Investment Funds, the Measures on Registration of Private Investment Fund Managers and Filing of Funds (Trial) and other laws and regulations, a WFOE or JV PFM shall also comply with the following stipulations when conducting private securities fund management businesses:
a. Usage of its capital funds as well as the RMB funds settled therefrom shall comply with the relevant rules stipulated by the foreign exchange authorities;
b. For securities or futures trading within the territory of China, the investment decisions shall be made independently, and trading orders shall not be delivered by an institution or system located outside China, unless otherwise stipulated by the CSRC.
Q: How does a WFOE or JV apply for private securities fund manager registration?
A: For a WFOE or JV applying for private securities fund manager registration, it shall faithfully fill in and submit the following information via the Private Fund Registration and Filing System (https://pf.amac.org.cn):
a. The relevant registration information for private securities fund manager required by the Measures on Registration of Private Investment Fund Managers and Filing of Funds (Trial) and the other relevant rules issued by AMAC, including the evidentiary materials regarding the eligibility set forth in the above Q&A;
b. A letter of undertaking for private fund registration and filing, which undertakes that all information and materials submitted are true, accurate, complete, and there is no false record, misleading statement or material omission contained therein, and to abide by the Chinese laws and regulations and the relevant self-disciplinary rules of the AMAC;
c. A legal opinion on the Registration of Private Fund Manager issued by a Chinese law firm and its attorneys-in-charge. Apart from those requirements of the Guide on Legal Opinions for Registration of Private Fund Managers, the relevant law firm and its attorneys-in-charge shall issue conclusive opinions on whether such applicant conforms to the eligibility conditions and requirements set forth in the above Q&A in the legal opinion.
If the application materials for registration submitted by a WFOE or JV are complete, the AMAC will within 20 working days after receiving all such materials accomplish the registration formalities for it by publicizing the basic information of private fund managers on its official website (http://www.amac.org.cn).
WFOE or JV shall after its PFM registration launch its businesses timely according to laws. Upon completion of the fundraising of the relevant private securities investment fund, it shall in accordance with the relevant laws promptly file with AMAC for filing via the Private Fund Registration and Filing System, and punctually perform the information report obligations for private fund manager and private funds managed by them, including the quarterly, annual and material event information reporting and updating.