China Securities Regulatory Commission, Circular on Issues Relevant to Provisioning for Risk Reserves by Fund Management Companies

Issued: August 14 2006
Effective: as of date of issue

Main contents: Fund management companies shall provide for risk reserves from their fund management fee income each month. The provisioning percentage shall not be less than 5% of the fund management fee income. When the balance of the risk reserve amounts to 1% of the net asset value of the fund, no further provisioning is required (Article 1). Risk reserves are managed by fund management companies and may be invested in highly liquid and low-risk assets such as treasury bonds. Interest income and investment profit and loss of risk reserves shall be put under the management of the reserve (Article 6). Fund management companies and the custodian banks of the special accounts thereof shall, prior to January 20 of each year, submit special reports on the provisioning for, and management and use of, risk reserves for the preceding year to the China Securities Regulatory Commission (Article 10). Fund management companies that have provided for risk reserves prior to the effective date of this Circular shall manage such reserve funds in accordance with the Circular (Article 13).
Related legislation: PRC Securities Investment Fund Law, Oct 28 2003, CLP 2003 No.10 p.43 and Measures for the Administration of Securities Investment Fund Management Companies, Sep 16 2004, CLP 2004 No.9 p.14