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Key Changes reflected in SAFEs new QFII FX regulation


									                  Key Changes reflected in SAFE’s new QFII FX regulation

Area of Change                          Current Regulation                       Changes
1. Investment Quota
1.1 Initial quota application           One QFII may apply for an                Quota ceiling is to be extended
amount per QFII                         investment quota between USD             from current USD 800 million to
                                        50-800 million (inclusive).              USD 1 billion.
1.2 Additional quota application        A QFII could apply to increase their     QFII is not allowed to apply for the
                                        investment quota upon SAFE’s             additional quota within one year
                                        approval. No specific statements on      after the last quota approval.
                                        the maximum times of such
                                        application per year.
2 Injection of Investment Funds
2.1 Time frame for capital injection    3 months of capital injection period,    Time frame is extended from 3 to 6
                                        after which the approved quota will      months starting from the quota
                                        expire and the actual remitted           approval date. Extension of this
                                        amount will be QFII’s actual quota.      time frame is allowed, but only
                                        No specific requirements on              based on SAFE approval to the
                                        extension of the injection period.       extension.
2.2 Liquidation if QFII fails to meet   No detailed requirements regarding       If the injected amount is less than
the timeframe                           the liquidation and the minimum          the approved quota and over USD
                                        injected amounts.                        20 million after the 6-month
                                                                                 injection period, the actual quota for
                                                                                 the QFII will be reduced to the
                                                                                 injected amount.
2.3 Start trading threshold             QFII may start trading only upon at      QFII may start trading upon at least
                                        least USD 50 million injected after      USD 20 million injected after initial
                                        initial quota approved.                  quota approved.
3. Lock-up Period & Repatriation
3.1 Lock-up period                      Close-ended China Fund: 3-year           Open-ended China Fund: 3-month
                                        lock-up period after its remittance of   lock-up period, starting calculation
                                        the principal amount.                    from when full quota amount is
                                        Other types of QFII: 1-year lock-up      injected.
                                        period after remittance of the
                                        principal amount.                        Mutual Funds, Insurance, Pension
                                                                                 Funds, Charity Funds, Donation
                                                                                 Funds and Government investment
                                                                                 entities, etc.: 3-month lock-up
                                                                                 period after capital injection,
                                                                                 starting calculation from when full
                                                                                 quota amount is injected.

                                                                                 Other investors (Securities
                                                                                 companies, Commercial banks,
                                                                                 etc): 1-year lock-up period after
                                                                                 capital injection, starting calculation
                                                                                 from when full quota amount is
3.2 Repatriation of Principal           QFII can apply to SAFE to                QFIIs can repatriate principals after
                                        purchase foreign exchange for the        their respective lock-up periods:
                                        repatriation of principal in stages.     • For Open-ended China Fund: It
                                        Prior approval from SAFE is                 can repatriate monthly within the
                                        required for repatriation of any            approved quota, based on the
                                        amount.                                     netting of redemptions and
                                                                                    subscriptions of last month.
                                                                                 • For Open-ended China Fund,
                                                                                    prior approval is not required for
                                                                                    repatriation of less than USD 50
                                                                        million or equivalence, which
                                                                        only requests a post filing to the
                                                                        SAFE branch where the QFII’s
                                                                        custodian locates.
                                                                      • For Open-ended China Fund,
                                                                        prior approval is required for
                                                                        repatriation of over USD 50
                                                                        million, which should be
                                                                        submitted to the SAFE branch
                                                                        where the QFII’s custodian
                                                                        locates at 10 working days prior
                                                                        to the repatriation.
                                                                      • Other types of QFIIs: could
                                                                        repatriate upon SAFE’s approval.

                                                                      QFII should close its cash accounts
                                                                      if the principal left is less than USD
                                                                      20 million or equivalent due to
3.3 Calculation of lockup period   Starts from the first inward       For all types of QFIIs: start from the
                                   remittance                         date full principal was injected or
                                                                      expiration date of injection period.
3.4 Repatriation of profits        Yearly repatriation of realized    For Open-ended China Fund: within
                                   profits is permitted upon SAFE’s   the monthly repatriation, the
                                   approval                           principal and profit is decided by the
                                                                      proportion of the final trading day of
                                                                      last month, which should be
                                                                      confirmed by the QFII custodian.
                                                                      The tax certificate is not required for
                                                                      the monthly repatriation including
                                                                      For other types of QFIIs: could
                                                                      repatriate upon SAFE’s approval.
                                                                      The repatriation application should
                                                                      include the tax certificate and the
                                                                      special audit report on the profit
                                                                      issued by CPA firm together with
                                                                      other documents.
3.5 Beneficiary of repatriation    The beneficiary should be a QFII   The requirement that “the
                                   itself                             beneficiary should be a QFII itself “
                                                                      has been removed.
4 Multiple FX and RMB Accounts
4.1 Multiple Accounts              No FX account stipulated.          • Multiple FX and RMB cash
                                   Upon approval from SAFE, a QFII      accounts are allowed for QFII’s
                                   should only open a RMB Special       proprietary funds, funds of
                                   Account with its custodian.          underlying clients, and Open-
                                                                        ended China Funds respectively
                                                                      • QFII’s proprietary funds and
                                                                        funds of underlying clients will
                                                                        have only one set of FX and
                                                                        RMB accounts respectively
                                                                      • Each Open-ended China Fund
                                                                        can have one set of FX and RMB
                                                                      • The FX and RMB accounts will
                                                                        be closed if the principle left in
                                                                        the FX and RMB accounts is less
                                                                        than USD 20 million or RMB
                                                                      • If less than USD 20 million is
                                                                        injected within 6- month injection
                                                                                 period, QFII will be forced to
                                                                                 closed its FX and RMB accounts
                                                                                 and the approved quota will be
4.2 FX Conversion                       FX principal will be immediately      • In application documents, QFII
                                        converted to RMB upon capital            should clearly state in its
                                        injection and deposited into the         investment plan the timeline of its
                                        RMB Special Account.                     investment progress and the plan
                                                                                 for FX conversion.
                                                                              • QFII could conduct FX
                                                                                 conversion 10 working days prior
                                                                                 to its actual investment. The
                                                                                 converted RMB funds shall be
                                                                                 deposited into its RMB account.
4.3 Fund movements                      No specific statement on fund        It is stated clearly that the fund
                                        movements between QFII’s             transfer between QFII’s accounts of
                                        different accounts.                  proprietary funds, underlying
                                                                             clients’ funds and Open-ended
                                                                             China Funds is not allowed.
5 Statistical and Supervision Administration
5.1 Significant event reporting     There is no requirement on this          Under any of the following
                                    currently.                               circumstances, QFII shall report to
                                                                             SAFE to change a Foreign
                                                                             Exchange Registration Certificate
                                                                             and submit the
                                                                             written report within 5 working days:
                                                                             (1) Changes in basic information
                                                                             such as QFII’s name, person in
                                                                             charge, major shareholder or actual
                                                                             (2) QFII or its major shareholder or
                                                                             actual controller has been severely
                                                                             punished by other regulatory
                                                                             authorities, which may negatively
                                                                             impact QFII’s operation;
                                                                             (3) Changes in the custodian,
                                                                             domestic entrusted investment
                                                                             institution (broker) or relevant
                                                                             important information;
                                                                             (4) Changes in account details;
                                                                             (5) Changes in the fund prospectus
                                                                             of the open end China funds;
                                                                             (6) Other situations stipulated by
                                                                             QFII changing its custodian should
                                                                             also provide the draft custody
                                                                             agreement signed with new
                                                                             domestic custodian, statement on
                                                                             the basic information of the new
                                                                             custodian and relevant situations of
                                                                             asset custody business, and new
                                                                             notarised letter of authorisation.
                                                                             QFII should submit the official
                                                                             custody agreement within 5
                                                                             business days after the opening of
                                                                             foreign exchange account and RMB
                                                                             special account.
5.2 transfer or sell investment quota   There is no specific regulation on   QFII performing one of the following
                                        this currently.                      behaviours shall be punished by
                                                                             SAFE in accordance with
                                                                             Regulations on the Foreign
                                                                             Exchange System of the People’s
                                                                               Republic of China with its
                                                                               investment quota adjusted or even
                                                                               (1) Violate regulations to transfer or
                                                                               investment quota
                                                                               (2) Submit false information or
                                                                               documents to the custodian or
                                                                               (3) Fail to handle the investment
                                                                               settlement or purchase & purchase
                                                                               & payment in accordance
                                                                               with regulations;
                                                                               (4) Fail to provide relevant
                                                                               information or documents on its
                                                                               capital exchange and domestic
                                                                               securities investments as required
                                                                               by SAFE;
                                                                               (5) Other behaviours against
                                                                               regulations on foreign exchange
Note on the definition to Open-ended China Fund in the regulation: publicly offered, open-ended and at least 70%
of fund asset to be invested in China domestic capital market. The original version of the prospectus of the Fund
together with the Chinese translation of the key part of the prospectus should be filed to SAFE within 20 working
days after the launching.

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