16 November 2015

New policy for funds mutually recognized by China and Hong Kong

This article was written by Andrew Fu (Partner) and Xin Jin (Associate)

On 22 May 2015, the China Securities Regulatory Commission ("CSRC") and the Hong Kong Securities and Futures Commission ("SFC”) jointly announced that on 1 July 2015  funds may be offered to public investors in both China and Hong Kong. To implement this scheme, CSRC issued the Interim Provisions for Recognized Hong Kong Funds, allowing qualified public funds domiciled in Hong Kong ("Northbound Funds") to be recognized and offered in Mainland China. At the same time, SFC promulgated a Memorandum of Regulatory Cooperation concerning Mutual Recognition of Funds between Mainland China and Hong Kong which allows qualified mainland public funds ("Southbound Funds") to be offered in Hong Kong. 

On 6 November 2015, Operating Guidelines for the Administration of Cross-border Offering and Sale of Securities Investment Funds between Mainland China and Hong Kong (“Operating Guidelines”) were issued by the People’s Bank of China ("PBOC") and the State Administration of Foreign Exchange ("SAFE"). These specify the policies for mutually recognized funds ("MRF") in relation to opening fund-raising accounts, foreign exchange, cross-border payments and information reporting.

1. Entity Information Report

Before making its offering, a MRF should have information in the SAFE Capital Information System ("System"). If there is no information about the fund manager in the System, then it must apply for a special agency code and enter information in the System. The procedure and the material needed for the entity information report for the MRF are as follows:


Northbound Funds

Southbound Funds


The fund manager provides an entity information report through a mainland agent.

The mainland manager provides an entity information report through a mainland trustee.

Application Material

  • Information Report for the offering of the Hong Kong Fund in China
  • A copy of Hong Kong registration certificates of the manager of the Hong Kong fund
  • A copy of the documents that the Hong Kong fund has registered with the CSRC
  • Information Report for the offering of the mainland  fund in Hong Kong
  • A copy of the business license of the manager of the mainland fund
  • A copy of the documents evidencing that the mainland fund has been recognized by the SFC

2. Opening a Special Fund-Raising Account

A MRF that has successfully reported entity information can open a special fund-raising account in RMB and/or in foreign currency, ("Fund-Raising Account") with relevant business certificates generated after the entity information has been reported in the System. Opening a Fund-Raising Account involves the following procedure:

The “Northbound”

The “Southbound”


  • A fund manager requests a mainland agent to open a Fund-Raising Account in the designated bank for each fund in the name of the Hong Kong fund manager.
  • The RMB Fund-Raising Account is opened in the mainland by the Hong Kong fund manager according to the regulations for RMB bank settlement accounts by overseas institutions.
  • Where the mainland agent is the MRF distributor, it opens a Hong Kong Fund Sales Account (in RMB and/or foreign currency) with the business certificates generated after the entity information report is in the System.
  • A mainland fund manager opens a Fund-Raising Account for each fund with a mainland trustee or the bank designated by a mainland trustee.

3. Foreign Exchange and Cross-border Remittance

According to the Operating Guidelines, the funds in both the RMB and in the Foreign Exchange Fund-Raising Accounts can be mutually transferred after settlement and purchase of foreign exchange. The fund manager may remit subscription and redemption funds, in or out, in RMB or in foreign currency through the bank where the Fund-Raising Accounts are held. The use of RMB currency denomination is encouraged in the MRF cross-border offering and distribution. The fund managers may use foreign currency within China, and it is inferred from the Operating Guidelines that they can make payments inwards or outwards without the prior approval of SAFE.

The Operating Guidelines clarify that the remittance of funds will be controlled by quota instead of being regulated based on a single institution or a single fund product. The initial investment quota for each of the Northbound Funds outflow and Southbound Funds inflow is RMB 300 billion. Once the quota limit reaches RMB300 billion, SAFE will issue a notice on its website, and the manager of the fund in that direction must withdraw the registration (recognition) of the fund and cease the trading of the MRF until SAFE announces remittances have fallen below RMB300 billion. Either (i) the fund manager must cease registration (recognition) and distribution of the MRF from the day the SAFE announcement is made, or (ii) the SAFE announcement will specify the date from when the fund manager should cease operating. It remains to be seen which of these options SAFE will take. SAFE will publish on its website a monthly report of the amount of MRF cross-border fund flows. 

The Operating Guidelines have affirmed the principle, set out in the Interim Provisions for Recognized Hong Kong Funds and a Memorandum concerning Mutual Recognition of Funds between China and Hong Kong, that the funds raised by a MRF in the other market shall not exceed 50% of the total asset value of the MRF. A Hong Kong (Mainland) fund manager must suspend the distribution of a MRF in Mainland (Hong Kong), if the asset value of the holders in the Mainland (Hong Kong) exceeds 50% of the total assets of the MRF due to redemption by the Hong Kong (Mainland) holders. However, it is not clear from the Operating Guidelines when a fund manager can restart distribution of the MRF. It is therefore assumed that fund managers may choose to restart the distribution of a MRF once the asset value held by the Mainland (Hong Kong) holders falls below 50% of the total assets of the MRF.

4. Information Reporting

Pursuant to the Operating Guidelines, the PBOC and SAFE will supervise, respectively, cross-border payments in RMB Fund-Raising Accounts and the foreign exchange, payments and use in Foreign Currency Fund-Raising Accounts. Fund managers will report account and fund remittance information to the RMB Cross Border Payment & Receipt Management Information System and to the SAFE system accordingly. Fund managers must submit a report to PBOC and SAFE before the end of January each year including information on the number of MRFs, the asset scale of each MRF, fund remittance (on a monthly basis), foreign exchange, and other matters.

5. Government Supervision

PBOC and SAFE can penalize misconduct by fund managers, agents, trustees, and mainland banks for:

  • failure to report information in accordance with the regulations, or incomplete or incorrect information, or providing false material or false information certificates;
  • remitting funds inwards or outward in violation of the regulations;
  • failure to cease the subscription and registration (recognition) of the MRF as required;
  • failure to open or close accounts in accordance with the regulations;
  • failure to make foreign exchange settlement or failure to receive or to pay the foreign exchange in accordance with the regulations;
  • failure to submit data, report, or file material in accordance with the regulations;
  • failure to declare international balance of payment statistics as required;
  • any other misconduct in violation of the regulations of PBOC and SAFE.

The promulgation of the Operating Guidelines has further clarified the implementation rules for opening fundraising accounts, foreign exchange, and cross-border remittance of MRFs, and will facilitate the application and approval procedures for MRFs. It is expected that the first batch of MRFs will be announced in the near future.

(This article was originally written in Chinese, and the English version is a translation.)

Editor’s note: This article was simultaneously published on Chinalawinght.com

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