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 injected. 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 repatriation. 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 profit. 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 accounts • 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 equivalents • 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 cancelled. 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 controller (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 SAFE 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 cancelled: (1) Violate regulations to transfer or sell investment quota (2) Submit false information or documents to the custodian or SAFE (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 administration. 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.