Asian Regulatory RoundUp - March 2013

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Greater China

The China Securities Regulatory Commission (CSRC) announced on March 6, 2013 significant relaxations to various regulations governing the Renminbi Qualified Foreign Institutional Investor (RQFII) regime applicable to Hong Kong-based RQFIIs.

Following an earlier announcement this year to increase the aggregate RQFII investment quota from Renminbi (RMB) 20 billion to RMB 270 billion, both the pool of permissible applicants for an RQFII licence and the pool of permissible investments by RQFII funds have been expanded.

Applications for an RQFII licence may now also be made by (1) the Hong Kong incorporated and licensed subsidiaries of Mainland Chinese banks and insurance companies (as well as securities brokers and asset management companies); and (2) appropriately licensed financial institutions (including those with a non-Chinese parent company) which have their principal place of business in Hong Kong.

Permissible investments now include fixed-income products on the inter-bank bond market and stock index futures, with greater flexibility in the equity-debt mix.

The CSRC is also considering granting Taiwan an RQFII quota of RMB 100 billion (approximately US$16.1 billion) which is expected to be quickly utilized due to demand from domestic investors in Taiwan. The launch of such a scheme in Taiwan is a source of concern for some Hong Kong RQFII managers whose existing or potential Taiwanese clients may move their RMB assets back to Taiwan. Others view the development as an opportunity to establish strategic partnerships with Taiwanese financial institutions to manage Taiwanese RQFII funds. Hong Kong leads Taiwan in the development of its offshore Renminbi business.

Hong Kong

A non-governmental Financial Services Development Council (FSDC) has been established to provide a high-level platform for financial industry players to explore ways to complement the internationalisation of Hong Kong’s financial markets and the further development of its financial services industry. The FSDC has been tasked to (1) conduct policy research and industry surveys to formulate proposals to the government and regulators; (2) work with regulators and trade bodies to identify new opportunities for, and any constraints on, the sustainable growth and diversity of the financial services industry; (3) maintain a dialogue with other regulators (particularly Mainland China) to support Hong Kong’s financial services industry in accessing new markets and growth areas; (4) facilitate the upgrading of skills and expertise; and (5) promote Hong Kong as an international financial center.

Whilst its supporters believe that it is helpful to have a single body promoting Hong Kong’s financial services industry, with asset managers benefiting from new opportunities, markets and increased cooperation with the Mainland, detractors of the FSDC have noted the potential lack of accountability of the FSDC which has been established as a non-governmental organization (NGO) rather than as a government or quasi-government body.

Taiwan

In a bid to encourage the growth and development of the offshore fund business in Taiwan, the Financial Supervisory Commission (FSC) has adopted the “Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds” 「鼓勵境外基金深耕計畫」(the Plan). The Plan sets out the conditions and assessment criteria that each offshore fund is required to satisfy before being eligible for certain incentives available under the Plan. The incentives offered include faster fund approvals for retail launch, faster approval for waiver of derivative product restrictions, the ability to apply for more fund authorisations, relaxed restrictions on fund distribution and human resources requirements and permission for the launch of new fund products, including guaranteed funds, index-tracking funds, fixed-income funds that invest in convertible bonds or relaxation or waiver of investment restrictions for balanced funds. Eligible applicants may apply to the FSC in June of each year indicating which incentive scheme they wish to apply for and approvals will be granted on a case-by-case basis.

Singapore

The Singapore financial industry welcomed recent recommendations of the Financial Advisory Industry Review (FAIR) panel (which had been established in 2012 by the Monetary Authority of Singapore to review industry practices). Under Singapore's Financial Advisers Act, individuals employed by financial advisory (FA) firms, corporations engaged in the provision of investment advice, issuance of reports on investment products, marketing collective investment schemes and arrangement of life insurance products, are all required to be licensed as FA representatives. The FAIR panel recommended reviewing five aspects: (1) raising the competence of FA representatives; (2) raising the quality of FA firms; (3) making financial advising a dedicated service; (4) lowering distribution costs; and (5) promoting a culture of fair dealing.

Specifically, the panel called for minimum relevant working experience of 10 years for the CEO of a licensed FA firm, of which 5 years should be at a managerial level, as well as raising the minimum academic entry requirement for new FA representatives from the current four GCE O-level credit passes. It also recommended that representatives fulfil an annual minimum of 30 continuous professional development training hours (including 4 hours on ethics and 8 hours on rules and regulations). These recommendations are now subject to a period of industry consultation before actual industry guidelines will be finalised.

India

The Securities and Exchange Board of India (SEBI) is actively considering a proposal put forward by the Association of Mutual Funds in India (AMFI) on the introduction of a product labeling system for mutual funds and long term mutual fund policies. The system will color-code products to highlight risks and is to be applied to all mutual fund documentation. It is hoped that acquainting product risk level with color (for instance, labelling high risk products red) will alert investors to potential product risks when making investment decisions. Detailed guidelines will be issued by SEBI at a later date.