On 16th December 2011, the long-awaited RMB QFII (RQFII) scheme was officially kicked off by a pilot program following the promulgation of the Measures in respect of Domestic Investment by RMB Qualified Financial Institutional Investors of Fund Management Companies and Securities Companies jointly by the China Securities Regulatory Commission (CSRC), the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) (the RQFII Measures). Pursuant to the RQFII Measures, RMB funds raised in the HK market may be invested in the PRC mainland securities market through the HK subsidiaries of PRC fund management companies and securities companies.
We summarise below some of the requirements set out in the RQFII Measures:
- The RQFII Measures make it very clear that only HK subsidiaries of PRC mainland fund management companies and securities companies will be permitted to apply for the RMB QFII qualification. An application will only be possible upon satisfaction of various requirements, inter alia, the HK subsidiary must be licensed to conduct asset management business in HK and the onshore parent company must also have obtained its securities management qualification for mainland China. Both the HK subsidiary and the onshore parent need to have been operating in compliance with all applicable regulations and must not have received any severe disciplinary penalties from the relevant regulators in the last three years.
- The basic regulatory structure applicable to the RQFII is not dissimilar to the existing rules governing QFII in general. The RQFII qualification is subject to the approval of CSRC and the extent of the onshore investment operations of the RQFII must be within a quota approved by SAFE. PBOC will take charge of supervising the RMB accounts opened by RQFIIs for their onshore operations.
- CSRC will, within 60 days of receipt of all required application documents, decide whether or not approval will be granted as regards a RQFII qualification. The review period of SAFE in respect of the quota approval is also 60 days from submission of all required application documents.
- RQFIIs may invest in certain types of onshore RMB financial instruments, though the types of instruments and the proportion of their capital that they can invest in such products are subject to the approval of CSRC and PBOC. An RQFII’s investment in the interbank market must be conducted in accordance with PBOC regulations. For investment in the securities market, RQFIIs must comply with the existing PRC rules concerning shareholding ratios and information disclosure.
- A custodian bank must be appointed by a RQFII to play the role of account manager of the RQFII and to provide a supervisory window for PRC regulators.
- RQFIIs can remit principal capital and investment proceeds in RMB or foreign currency back to HK.
- The HK subsidiaries which have been granted the RQFII status must report to CSRC, PBOC and SAFE within five working days of the occurrence of various matters including, e.g. (i) change of the custodian bank of the RQFII, (ii) change of the chief responsible personnel; (iii) change of the shareholding structure or registered capital, (iv) merger with other entities, or (v) being involved in significant litigation proceedings or being subject to serious penalties offshore.
The RQFII scheme opens another channel for offshore RMB funds to flow back to China and represents another positive step forward towards the internationalisation of the RMB.
For more information about the RQFII program please contact Lynn Yang of our Shanghai office.