Hong Kong Fund Body Proposes to Remove Cross-Border Funds Sale Restrictions

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By Alex Ho

The Hong Kong Investment Fund Association (HKIFA) has reportedly submitted a range of proposals to the China Securities Regulatory Commission (CSRC), requesting it to lift some restrictions related to the sale of cross-border funds, according to various reports.

In exchange, Hong Kong funds would then be traded only in the region covered by the “Greater Bay Area,” and not across the rest of China as is currently the case, reports citing the proposals said.

The South China Morning Posts reported that the HKIFA, which represents the Hong Kong businesses of international fund houses managing U.S.$1.2 trillion in asserts worldwide, has worked with multinational professional services firm EY to submit the proposals to the CSRC last week.

“The Hong Kong retail fund market is limited by its small population. The Greater Bay Area has a population of 70 million, which is 10 times that of Hong Kong’s … it offers a huge expansion opportunity for the Hong Kong fund industry,” said Christine Lin, partner, financial services at EY.

Let the barbarians in

According to the SCMP, the association also requested the Chinese regulatory body to let overseas managers directly offer their products in China.

Currently, only Hong Kong-based fund managers are allowed to sell in mainland China.

“This has made it hard for global stock funds to apply to be sold in mainland China,” said Nelson Chow, managing director of the Hong Kong client group at Alliance Bernstein Hong Kong.

“This is why 10 out of 15 Hong Kong funds sold in mainland China are Asia focused. If Beijing relaxes the rule, more fund houses can apply to bring their global funds to be sold on the mainland, helping mainland investors adopt a more diversified investment approach,” said Chow.

In addition, the HKIFA wants the restriction that limits Hong Kong funds to offer only offer up to 50% of their total assets to mainland investors to be removed.

The association also urged the Chinese government to reduce the approval process for the Mutual Recognition of Funds Scheme, a cross-border fund sales scheme also known as MRF launched in 2015, to six months from the current approval time of three years.

The scheme is an initiative driven by the Hong Kong Securities and Futures Commission (SFC) to promote the city as an international asset management centre.

As at the beginning of 2018, memorandums of understanding have been signed between Hong Kong and Switzerland and France.

The Greater Bay Area has a combined population of 70 million, or 10 times Hong Kong’s population, while its economy is estimated to worth U.S$1.51 trillion.

“The GBA initiative is expected to promote the freer flow of capital, people and services to boost Hong Kong’s economy,” said Reginald Chin, Corporate Shares Incentive Plan Manager at Bank of China International.

“It also potentially offers bigger markets for different industries and professions. The area is a big opportunity for the Hong Kong fund industry,” he added.

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