Taking China's Asset Management to the Next Level

1 . WHAT ARE THE LATEST REGULATORY DEVELOPMENTS AFFECTING INVESTMENT FUND SCHEMES IN CHINA?

The latest regulatory development having a relatively major effect on private funds recently is the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (the New Rules) jointly issued by the People's Bank of China, the China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange on April 27, 2018.

The New Rules mainly apply to financial institutions such as banks, trusts, securities companies, futures companies, insurance asset management institutions and financial asset investment institutions. However, the New Rules additionally provide that, “specific laws and administrative regulations for private investment funds shall govern private investment funds, but where specific laws and administrative regulations for private investment funds are silent, these Opinions shall apply”. Most of the specific rules that apply to private funds now are rules and regulations issued by the CSRC or self-regulation rules issued by the Asset Management Association of China (AMAC), which do not fall within the ranks of “laws and administrative regulations”. Thus, when compared to the above rules and regulations, self-regulation rules or other regulatory documents issued by the CSRC or AMAC, the New Rules should apply on a priority basis.

The New Rules set forth more stringent requirements than previous relevant regulations in terms of the criteria for qualified investors, requirements in respect of sales institutions, prohibition on the contribution of loan or bond proceeds as capital, restrictions on the nesting of asset management products, ceiling on debt ratio, restrictions on the class percentage, active management, prohibition on the guaranteeing of principal and returns, etc.

As mentioned above, where specific laws and administrative regulations for private investment funds are silent, the New Rules apply, thus these provisions will have a major impact on fundraising, fund investment, fund management, fund exit, etc. However, the issue of how the provisions of the New Rules will specifically apply to private funds is yet to be seen and we will have to wait until the CSRC issues relevant rules or authorizes AMAC to formulate a self-regulatory code for clarification.