Mainland China Briefing.

Measures

Wealth Management Regulations

Relevant regulator

CSRC, AMAC

CBIRC

Do the PRC Securities Investment Funds Laws apply?

Yes

No; these laws do not apply to a public offering of wealth management products.

Regulated entities / product managers

Securities companies, fund management companies, futures companies, and their subsidiaries.

Subsidiaries of commercial banks (banks themselves are not allowed to promote or manage wealth management products), including Chinese-funded commercial banks, wholly foreign-funded banks and Sino-foreign JV banks.

Apart from private products, can product managers promote public products pursuant to the relevant rule?

No. Although some of the product managers may promote public products, such activities are not regulated by the Measures.

Yes

Independent custodians required?

Yes

Yes

External auditors required?

Yes

Yes, for public products only.

Central filing required for launch of each product?

Yes

Yes

Segregation of assets between product managers and products

Yes (as explained in a CSRC Q&A).

Yes (specified in the Wealth Management Regulations).

Principal / income guaranteed products

Not allowed

Not allowed

Conditions applicable to a successful launch

• Receipt of a total minimum subscription amount of 10 million RMB upon launch. The initial offer period shall not exceed 60 days, except for products exclusively investing into private equities, in which case, the initial offer period shall not exceed 12 months.

• Instalments of subscription money are allowed, provided that the product has received a total minimum commitment amount of 10 million RMB upon launch, and all unpaid capital will be paid within three years of launch.

Not applicable

Restrictions applicable to proprietary investments in the products

• Must not hold more than 20% of the units/interests of the product.

• Together with its affiliates, must not hold more than 50% of the units/interests of the product.

• Must hold investment for at least six months.
• Must notify investors and custodians five working days prior to an investment or redemption/withdrawal.

• Must not hold more than 10% of the NAV of the product.

• Must not invest more than 20% of the manager’s proprietary assets.

• Must not invest in subordinated units/interests of a structured product.

Eligible qualifications of accredited investors for a private offering

Individual investors

Must have over two years’ investment experience, and one of the following:

• no less than RMB 3 million of net financial assets (at the household level), or

• no less than RMB 5 million of financial assets (at the household level), or

• no less than RMB 400,000 average annual income over the past three years (at the individual level).

Institutional investors

Must have no less than RMB 10 million of net assets at the end of the previous year.

Investment restrictions

• Exposure to a single asset must not exceed 25% of its NAV. This restriction is not applicable to assets such as bank deposits, government bonds, central bank notes, policy financial bonds, bonds issued by local governments.

• Maximum leverage based on the NAV of a product: 140% for structured products; 200% for other types of products.

In addition, the following restrictions apply to products managed by the same manager:

• the aggregate exposure of all products to a single asset shall not exceed 25% of the market value of such asset;

• the aggregate exposure of all products including public funds to a single publicly traded stock shall not exceed 30% of total tradable shares of the same stock.

Public product

• Exposure to a single security or a single CSRC-authorised retail fund (a “fund”) must not exceed 10% of its NAV.

• Maximum leverage: 140% of its NAV (for open-ended public products), and 200% of its NAV (for closed-ended public products).

• For open-ended public products at least 5% of its NAV must be held in cash or stipulated cash-equivalents.

Private product

• Leverage must not exceed 200% of its NAV.

In addition, the following restrictions apply to products managed by the same manager:

• the aggregate exposure of all public products to a single security or fund shall not exceed 30% of the market value of such security or fund;

• the aggregate exposure of all public and private products to a single publicly traded stock shall not exceed 30% of the total tradable shares of the same stock;

• the aggregate exposure of all open-ended public products to a single publicly traded stock shall not exceed 15% of the total tradable shares of the same stock.

Can structured products be open-ended?

No, must be closed-ended.

Yes