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Mutual retail fund recognition attracts Chinese investors

Mutual retail fund recognition attracts Chinese investors

Lawyers in both Hong Kong and Australia are already fielding a wave of enquiries from clients looking to benefit from the mutual recognition scheme announced last week. The Australian Securities…

Lawyers in both Hong Kong and Australia are already fielding a wave of enquiries from clients looking to benefit from the mutual recognition scheme announced last week.

The Australian Securities and Investments Commission (ASIC) and the Hong Kong Securities and Futures Commission (SFC) have rubber stamped the new regime, facilitating the offering of retail funds to investors in each other’s market. It is anticipated that the arrangement will reduce regulatory duplication and open up new investment opportunities in both markets.

ASIC and the SFC signed the declaration of mutual recognition on 7 July.

“This is an important milestone towards international convergence of regulation and stronger regulatory ties and co-operation between the SFC and ASIC”, said Tony D’Aloisio, ASIC’s Chairman.

“Not only does it present exciting marketing opportunities for our respective funds management industry seeking investment flows from the counterpart jurisdiction, it also gives more choices to the Australian and Hong Kong retail public.”

Mallesons Stephen Jaques lawyer Minny Siu told Lawyers Weekly that her clients have responded enthusiastically to the announcement,

“After we sent out the client alerts, within 10 minutes we received a number of emails from clients — including international institutional banks with upper fund management business — and their responses are so far very positive,” she said.

Prior to the announcement, the Hong Kong and Australian funds regimes had been incompatible because of the introduction of a single responsible entity structure in Australia.

Funds seeking to be offered to retail clients in Hong Kong must meet a number of clearance requirements — including qualifying as an ASIC-licensed responsible entity — and funds must be registered as a managed investment scheme with ASIC prior to offering.

Siu has been with Mallesons in Hong Kong for seven years, and says the new arrangement will make the Australian retail funds market more attractive for Chinese investors.

“Australia has a very advanced fund industry, and there is a lot of variety in the type of funds currently offered. The response from this side of the table in Hong Kong, and also the investment banks targeting the China market, [demonstrates that] they are very excited about this development,” Siu said.

“In the past, people were faced with technical differences in the structural arrangement for the fund framework. Australian funds, by the very reason of their structure, cannot be registered in Hong Kong, and that has put off a lot of Australian issuers.”

Pressure has been mounting for the Hong Kong government to instigate a reform of these and other financial services regulations. Siu views the move as a positive step by the SAR government, which has traditionally been recalcitrant about such cross-border regulatory reform.

“In Hong Kong, the regulatory framework for the funding schemes was enacted a long time ago and, obviously, given the market developments, the government has seen the need to reform and improve the regulatory framework as more funds are coming into Hong Kong,” Siu said.

“I think that there is a lot of investor interest in China, and I think these changes will attract new investment, and have a substantial impact on the Australia side as well.”

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