On June 28, 2013, the China Securities Regulatory Commission (CSRC) convened a press conference to promulgate the new amendments to the Administration of the Client Asset Management Business of Securities Companies Measures (“Administrative Measures”) and the Implementing Regulations of the Aggregate Asset Management Business of Securities Companies (“Implementing Regulations”). In order to implement the Law of Securities Investment Funds of the People’s Republic of China (2012 Amendment), which already formally went into effect on June 1, 2013, the revision of Administrative Measures and Implementing Regulations, mainly revolves around the regulations of “Large Aggregate” and “Small Aggregate”. Through new legislation, we can read CSRC’s attitude and path selection on the reform direction of the asset management business.
I. “Large Aggregate” and “Small Aggregate” included in the category of public and private funds
The new Administrative Measures and Implementing Regulations make clear the purpose and main theme from the very beginning. In their article 1, both Administrative Measures and Implementing Regulations, add the part about the Law of Securities Investment Funds (2012 amendment) as their legislative purposes and sources. Based on that, the new Administrative Measures and Implementing Regulations change their adjustment scope:
In order to eliminate the regulations about the limited of double 10% in the “Large Aggregate”, the new Administrative Measures removed former article 31, and the new Implementing Regulations removed former article 35 (1) (2) (3);
The new Implementing Regulations removed former article 14,which is the rules about the investment rang of the “Large Aggregate”;
Former article 28 (2) about 100 million RMB as one condition of “Large Aggregate” establishment was removed from the Implementing Regulations;
The new Administrative Measures removed former article 14, which is the division of the limitative aggregate and non-limitative aggregate, and article 24 (2);
The new amendments entirely removed the regulations of “Large Aggregate” which has more than 200 investors. From now on, no matter aggregate asset management business, or directional and special financial plans, the client asset management business of securities companies will be defined as private wealth management products. And the “Large Aggregate”, which has more than 200 investors, will be defined as the public wealth management products. According to the requirements of the Law of Securities Investment Funds (2012 amendment), if securities companies want to operate these kinds of products, they will need the qualification of public funds.
In terms of “Small Aggregate”, the new adjustment is multiple perspectives, and keeps pace with the Law of Securities Investment Funds (2012 amendment), which including but not limited to:
Removed the proviso in article 15(2), “there is no customer quantity’s limit on the single trust which’s amount above 3 million”, as exceptions to the rules, from the Implementing Regulations;
The new Administrative Measures article 26 define the aggregate asset management plan’s client range as the “qualify investor” of the Law of Securities Investment Funds (2012 amendment) article 88;
Different from the old Administrative Measures article 20, the new Administrative Measures article 19 change the essential terms of asset management contract to the specification of private fund contract from the Law of Securities Investment Funds (2012 amendment) article 93, and, in some cases, the terms about the unlimited joint and several liability of general partner as the Law of Securities Investment Funds (2012 amendment) article 94 required;
The new amendments emphasized the principle of client’s benefits first, and removed the rules about the 7% limit of affiliated transaction from Administrative Measures former article 32;
The Implementing Regulations change the former article 21 to article 20 right now, and add more restrictions on the advertisement means, such as, “securities companies cannot raise money from the non-quality investor”, and “securities companies cannot ad publicly through the methods such as lectures, presentations, analysis, and so on”.
II. The enhancement facilities of investor protection
The new amendments made many of the cohesion of legislation, technical adjustment, and strengthen the protection of investors at the same time. One hand, the new Administrative Measures article 26 (2) give the definition of “qualify investor”, and emphasize the ability of risk identification and risk-taking, “1. The financial assets of personal or family should be more than 1 million RMB; 2. Institution (like corporation or company)’s net asset should be more than 10 million RMB”, and clearly outline that “the various Aggregate Asset management products, which legally established and regulated by the CSRC, will be treated as one single quality investor”; on the other hand, the new amendments emphasize the companies’ obligations of information disclosure, for example, the new Administrative Measures article 14 (2), “securities companies should understand and disclosed to investors about the important item, as, the credit of the underlying asset’ owner or financing entity, the ownership of the underlying asset, with or without the collateral arrangement, the investment object’s characteristics of the risk and benefit, etc.”
At the same time, although there is no substantial change, the new Administrative Measures, from article 56 to article 59, made some legislative and technical adjustment, which based on the former regulations of administrative punishment, civil liability, and criminal liability, to better apply.
III. Where to go
These two amendments for Administrative Measures and Implementing Regulations, on June 28, 2013, are both the cohesion of the Law of Securities Investment Funds (2012 amendment), and the reform direction of the whole asset management business. In order to combine the regulatory resources, improve the regulation efficiency, and gradually realize the effective unified regulation, the new amendments definite the private asset management business of securities companies as a part of the private funds.
The CSRC’s reform direction is not just limited to the range of private securities investment funds. In addition, on June 27, 2013, State Commission Office for Public Sector Reform (SCOPSR), issue the <Notification about the Responsibility Division of Private Equity Funds Administration>, which transforms regulatory power of PE, VC, from the National Development and Reform Commission (NDRC) to the CSRC. “The CSRC is responsible for the regulation of PE, and protect the investors’ benefits; The NDRC is responsible for the formulation of policies and measures, and should work together with other related departments to form the standards and rules about PE; The NDRC and the CSRC need work together and share information.“ The unified regulation of the whole private funds is not impossible in the future.
The road ahead is long and has no ending; yet high and low we will search with our will unbending. The two amendments are just one step in the reforming of deregulation and reregulation. The era of unified regulation, is worth to wait.