On June 28, 2013, the China Securities Regulatory Commission (CSRC) convened a press conference to promulgate the new amendments to the Administrative Measures for the Client Asset Management Business of Securities Companies (the "Administrative Measures") and the Detailed Rules for the Implementation of the Aggregate Asset Management Business of Securities Companies (the "Implementing Rules"). In order to implement the Securities Investment Funds Law of the People's Republic of China (2012 Amendment ) (the "Securities Investment Funds Law"), which formally went into effect on June 1, 2013, the revision of Administrative Measures and Implementing Rules mainly revolves around the regulations of "Large Aggregate" and "Small Aggregate". Through new legislation, we can read CSRC's attitude regarding path selection on the reform of the asset management business.
I．"Large Aggregate" and "Small Aggregate" included in the category of public and private funds
The new Administrative Measures and the Implementing Rules are clear on its main theme from the very beginning. In both cases, Article 1 states its legislative intent and sources, and lists the Securities Investment Funds Law as one of the legislative sources for the first time. Based on that, the new Administrative Measures and the Implementing Rules change their scopes of regulation:
1. In order to eliminate the regulations on the double limitations of 10% in a "Large Aggregate",(1) Article 31 of the Administrative Measures and Article 35 (1) (2) (3) of the Implementing Rules have been removed.
2. Article 14 of the Implementing Rules, governing the range of "Large Aggregate" investment, has been removed.
3. Article 28 (2), which stipulated 100 million RMB as a condition to establish a "Large Aggregate", has been removed from the Implementing Rules;
4. Article 14 and Article 24 (2) has been removed from the Administrative Measures, which defined the division of limitative aggregate and non-limitative aggregate as well as threshold for relevant clients respectively.
The new amendments entirely removed the regulations that a "Large Aggregate" should amount to 200 investors minimum. From now on, regardless of aggregate asset management, directional asset management or special asset management, the whole client asset management business will be defined as private wealth management. And a "Large Aggregate", which has more than 200 investors, will be defined as the public wealth management products. According to the requirements of the Securities Investment Funds Law, to operate these kinds of products, securities companies will need the qualification for public funds.
In terms of "Small Aggregate", the amendments reflect multiple perspectives, and keep pace with the Securities Investment Funds Law. These changes include but not limit to:
1. Removing the proviso as an exception in Article 15 (2) from the Implementing Rules. It stated "there is no customer quantity limit on the single trust which amounts above 3 million".
2. Article 26 of the new Administrative Measures defines the aggregate asset management plan's client range as the "qualify investor" under Article 88 of the Securities Investment Funds Law;
3. Different from Article 20 of the old Administrative Measures, the new Article 19 changes the essential terms of asset management contracts to the specification of private fund contract as specified in Article 93 of the Securities Investment Funds Law, and, in some cases, the terms about the unlimited joint and several liability of general partners in accordance with Article 94 of the Securities Investment Funds Law;
4. The limit ratio of 7% in affiliated transactions has removed in Article 32 from the Administrative Measures, emphasized the principle of clients' benefits first;
5. The Implementing Rules changed the former Article 21 to 20, and restricted intensively on the advertisement means, such as, "securities companies cannot raise money from non-quality investors", and "securities companies cannot ad publicly through the methods such as lectures, presentations, analysis".
II. The enhancement of investor protection
The new amendments made a lot of adjustments, meanwhile increasing the protection to investors to some extent. On one hand, Article 26 (2) of the new Administrative Measures defines "qualify investor", and emphasizes the ability of risk identification and risk-taking. The Administrative Measures specify that: a) The personal or family financial assets should be more than 1 million RMB; and b) The net asset of institutions (Like Corporation or company) should be more than 10 million RMB. In addition, the Administrative Measures clearly outline that "the various Aggregate Asset management products, which are legally established and regulated by the CSRC, will be treated as one single quality investor"; on the other hand, the new amendments emphasize a company's obligation of information disclosure, for example, Article 14 (2) of the Administrative Measures states that "securities companies should understand and disclose to investors the important matters, such as, the credit and compliance situation of the fundamental assets owners or financing subjects, the ownership situation of the fundamental assets, specific guarantee arrangement situation, and risk yield characteristics of the investment objectives."
Articles 56 to 59 are the regulations of administrative punishment, civil liability, and criminal liability. Although no substantial changes to above provisions, the Administrative Measures still made some legislative and technical adjustments in order to make the laws to be applied with ease.
III. Where to go
These two amendments for the Administrative Measures and the Implementing Rules on June 28, 2013, are made to carry out the Securities Investment Funds Law and to set down the reform direction of asset management business in whole. In order to combine the regulatory resources, improve the regulation efficiency, and gradually realize the effective unified regulation, the new amendments define the private asset management business of securities companies as private funds.
The CSRC's reform on private asset management is not just limited to the range of private securities investment funds. On June 27, 2013, State Commission Office for Public Sector Reform (SCOPSR) issued the Notification about the Responsibility Division of Private Equity Funds Administration, which transforms regulatory power of PE and VC from the National Development and Reform Commission (NDRC) to the CSRC: "The CSRC is responsible for the regulation of PE, and protect the investors' benefits. The NDRC is responsible for the formulation of policies and measures, and should work together with other related departments to form the standards and rules about PE; The NDRC and theCSRC need work together and share information." In light of this it is suggested that the unified regulation of the whole private funds is not impossible in the future.
The road ahead is long and has no ending; yet high and low we will search with our will unbending. The two amendments are just one step in the reforming of deregulation and reregulation. The era of unified regulation is worth the wait.
(This article was originally written in Chinese, and the English version is a translation.)
1. Article 35 of theImplementing Rules on the Collective Assets Management Business of Securities Companies (2012)(Expired) stipulates that: The securities of any company held through a single Collective Plan shall not exceed 10% of the net assets under the Collective Plan, unless the Collective Plan is employed to invest in the index funds. Where a securities company invests the assets under the Collective Plan under its management in the securities issued by a company, the share of such assets shall not exceed 10% of the total outstanding securities of such company.