According to the China Securities Regulatory Commission website (in Chinese), 13 Hong Kong funds are still pending approval to sell in the mainland through the Mutual Recognition of Funds scheme. Their applications were filed as early as 1 July 2015, the first day the CSRC opened for submission.
“The approval period is six months,” the regulator stated in the document.
So far, only six northbound funds have been approved by the CSRC and five of those are selling onshore with encouraging results.
In contrast, Hong Kong’s Securities and Futures Commission has approved 48 mainland funds, although only about half of them have started sales.
Approved northbound funds
|
Date of approval by CSRC |
Date of sale |
Northbound MRF fund |
|
Dec 15 |
Jan 16 |
Zeal Voyage China Fund |
|
Jan 16 |
JPMorgan Asian Total Return Bond fund |
|
|
Feb 16 |
Hang Seng China H-Share Index Fund |
|
|
Feb 16 |
Jul 16 |
JPMorgan Pacific Securities Fund |
|
Not yet for sale |
CCB International – China Policy Driven Fund |
|
|
Apr 16 |
Aug 16 |
BOCHK All Weather China High Yield Bond Fund |
Source: CSRC
BEA Union Investment Management is one of the fund houses that filed applications for northbound sales. It submitted two funds – BEA Union Investment Asian Bond & Currency Fund and BEA Union Investment Asia Pacific Multi Income Fund – in August and September, respectively, through different master agents: Tianhong Asset Management and China Southern Fund Management.
“We learned from our master agent that the CSRC said there’s no problems with the applications. It did not give any explanation [about the delay],” Rex Lo, BEA Union’s managing director of business development, told FSA.
“The spirit of the MRF agreement should be a two-way cooperation instead of a one-way flow.”
The two fund applications received the first feedback from the CSRC in autumn 2015, and no progress has been made since then, according to the CSRC document.
“We already have the infrastructure, marketing and distribution channels ready. What we lack is the regulatory part,” Lo said.
MRF ‘not mutual and not fair’
Lo’s guess is that the CSRC has other priorities after the stock market crash in the summer of 2015 and the subsequent weakening of the renminbi.
Cross-border financial activities have been subject to regulatory action and are watched closely as China tries to control capital leaving the country. The temporary suspension of overseas investment channels such as the Qualified Domestic Institutional Investor (QDII) and the Qualified Domestic Limited Partner (QDLP) programme, as well as the slowdown of outbound direct investment (ODI) are examples.
Stewart Aldcroft, Asia-Pacific senior adviser for markets and securities services at Citibank, shared a similar view. “It seems to me that MRF is becoming a very difficult subject for the regulators to talk about.”
The CSRC’s fund approval delay “fails to honour the basic agreement to set up MRF between the CSRC and SFC”, which is “not mutual and fair” to northbound funds, he said.
According to the same CSRC document, in 2017 the regulator approved 31 domestic mutual funds that were submitted through the simplified approval process, which takes 20 working days.
For onshore mutual funds that have gone through the normal approval process, which takes up to 6 months, 111 products are in the pipeline awaiting a decision, including about 30 of funds of funds. The CSRC permitted the sale of domestic mutual fund of funds products last year.
Aldcroft observed that the openness of the CSRC to communiciate depends on the style of the chairman. In February last year, Liu Shiyu replaced Xiao Gang as the new head. The watchdog also saw numerous staff changes in the past year.
The CSRC did not immediately respond to request for comments.
