The long-awaited enhancements to the Mainland-Hong Kong Mutual Recognition of Funds (MRF) regime is now effective.
Since the China Securities Regulatory Commission’s (CSRC) announcement on 19 April 2024 for the five measures on the capital market cooperation with Hong Kong, the Hong Kong fund industry has been waiting in eager anticipation for the implementation of the enhancements to the arrangements of Mainland-Hong Kong MRF. On 17 December 2024, the CSRC published the revised Provisions on the Administration of Recognised Hong Kong Funds (《香港互認基金管理規定》) (MRF Administration Provisions) reflecting the enhancements and announced an effective date of 1 January 2025. We summarise below the key enhancements.
There are three key areas of enhancement under the MRF Administration Provisions:
1. Relaxation of sales limit – Under the previous interim rules, for a Hong Kong fund recognised for sale in Mainland China pursuant to the MRF (Recognised HK Fund), the value of units in the Recognised HK Fund sold to investors in Mainland China could not be more than 50% of the value of the fund’s total assets. This limit has been relaxed such that the maximum sales limit in the Mainland can now be 80% of the Recognised HK Fund’s total assets.
2. Relaxation of overseas delegation restriction – Delegation of investment management functions by a Hong Kong fund manager of a Recognised HK Fund is now permissible. The Hong Kong fund manager may now delegate its investment management functions to its affiliates within the same group, provided that such affiliates are domiciled in countries or regions where the securities regulatory authorities have signed a memorandum of understanding, and maintain effective regulatory cooperation, with the CSRC. This relaxation allows international asset managers to leverage their global expertise, and at the same time, protects the interest of Mainland investors.
3. Potential expansion to the scope of Recognised HK Funds – To leave room for further development in future so as to respond to investor demand when needed, it is now included in the MRF Administration Provisions a generic category of fund type within the scope of Recognised HK Funds, namely, “other types of funds recognised by the CSRC”, in addition to the existing in-scope typed of funds, i.e. equity, bonds, mixed assets and index fund (including ETF).
Our views – The enhancements to the Mainland-Hong Kong MRF regime as reflected in the MRF Administration Provisions are significant not only in that the sales potential of a Recognised HK Fund in the Mainland is substantially increased, but that the scope of Hong Kong funds which may seek to be recognised for sale and distribution in Mainland China are expanded both in terms of product types and investment management models thereby opening a new arena for business expansion.
