China: PBoC to further liberalise capital markets   
China’s central bank has outlined plans to further liberalise its capital account by allowing retail and more institutional investors to invest overseas, according to Hong Kong newspaper Wen Wei Po.

The People's Bank of China (PBoC) plans to introduce a renminbi-denominated qualified domestic institutional investor (RQDII) pilot scheme. It would extend the country’s existing QDII programme to allow domestic institutions to invest in offshore assets denominated in renminbi.

The central bank also plans to launch a qualified domestic retail investor (QDRI) programme, which would allow retail investors to invest directly in offshore assets. Hong Kong is likely to be the first non-mainland exchange to be included in the scheme.

The PBoC will also allow Chinese companies greater flexibility to issue RMB-denominated equity in offshore capital markets, said Wang Dan, deputy director general of PBoC’s monetary policy department.

But Wang, who reportedly made the comments at a conference in Beijing last week, did not give a time frame for the reforms or the size of the programmes.

He said the regulator is working on the RQDII scheme, which would allow local investors to channel renminbi from China into foreign funds and would require a new quota-based system.

China/Hong Kong: Stock Connect trades said to be CGT-free
Northbound trades under the pending Shanghai-Hong Kong Stock Connect scheme might be exempted from China capital gains tax (CGT), a lawyer told AsianInvestor, echoing comments made in the media last week.

China charges 10% CGT on A-share trades and a dividend tax ranging from 5% to 20%, depending on the holding period.

An exemption would help put the scheme on an equal footing with the trading of Hong Kong-listed stocks, which are not taxed, the lawyer said. “It would be odd to tax PRC securities and not Hong Kong securities for offshore investors.”

A senior executive, who recently attended a meeting with senior officials from the China Securities Regulatory Commission, was reported as saying: "We have had a lot of verbal reassurances that there won't be a tax, but nothing official."

Separately, Taiwan's Financial Supervisory Commission will reportedly allow institutional investors and individuals with more than NT$30 million ($987,000) in investable assets to invest in mainland stocks through domestic brokers that outsource their investment process to Hong Kong counterparties, according to Taiwan's Economic Daily.

Taiwanese securities firms will be able to appoint brokers in Hong Kong to buy and sell A-shares for Taiwanese clients, but Chinese investors will not be allowed to access Taiwan’s stock market through the scheme.

China: Direct outbound investment rules eased
China’s Ministry of Commerce has relaxed rules to give Chinese companies greater freedom to invest directly in overseas projects.

Effective October 6, domestic firms are allowed to invest overseas without prior approval, although they must first register their investment with Chinese authorities. Under the previous regime, firms were required to seek approval for investments of more than $100 million.

“Prior to this policy change, in certain markets such as New York and London, it’s been difficult for Chinese institutional investors to compete in ‘on market’ processes, as the time frame required for internal and external approvals has often exceeded the time line for these sales processes,” said Alistair Meadows, Asia-Pacific head of the international capital group at property services firm Jones Lang LaSalle.

“With this policy change, Chinese investors will be more readily able to compete in bidding processes in those markets,” he added. "It is expected that this will further accelerate the flow of outbound capital from China, in particular into favoured markets like Australia, the US and the UK."

International: Iosco launches consultation on custodians
The International Organization of Securities Commissions (Iosco) began a consultation last week on a set of principles for custodians of collective investment schemes (CIS).

The organisation last addressed the topic in a major way in its 1996 publication Guidance on custody arrangements for collective investment schemes.

“CIS managers tend to invest more in complex instruments today than they did in the 1990s,” said the consultation report. "The wider array of eligible investment instruments raises questions about the scope of the custodian’s safekeeping role and duties.

“In addition, the growing and now widespread use of electronic book entry to register and track ownership changes in securities is transforming market practices and processes, creating new challenges and risks,” it adds.

Given that funds have increasingly diversified their portfolios globally since the 1996 report, the key risk may be the appointment of sub-custodians as custody chains become longer and more complex, and involve various foreign jurisdictions.

Views from investment managers, custodians and institutional investors, among others, are being sought on the development of a set of principles covering areas such as how entities should keep records, monitor mandates and provide ancillary services.

The consultation period will end on December 10.

Singapore: MAS proposes tighter Reit rules
The Monetary Authority of Singapore has proposed tighter regulatory oversight of real estate investment trusts (Reits) listed in the city.

In the event of a conflict of interest, MAS proposes investment trust managers and directors should have a statutory duty to prioritise the interests of investors over those of Reit managers and their shareholders.

The regulator also proposes to formulate a new method of calculating performance fees that takes into account the long-term interests of Reit investors.

Under the proposals, both rated and unrated Singapore-listed Reits would be permitted to borrow up to 45% of their total assets. Currently rated Reits are allowed to borrow up to 60% and unrated Reits up to 30%.

“The proposals to tighten regulatory oversight of S-Reits are credit positive for the industry because they would foster financial discipline, enhance corporate governance and strengthen investor confidence,” said ratings agency Moody’s in a report.

“Notably, the proposal to lower borrowing limits for rated S-Reits would ensure the Reits maintain a prudent approach when funding expansion plans and reduce potential losses to creditors.”

Japan: Anti-money-laundering bill approved by cabinet
Japan’s government has drafted an anti-money laundering bill after inter-governmental body the Financial Action Task Force (FATF) warned that the country’s current system is ineffective in combating money laundering and financial activities associated with terrorism.

In June, FATF said Japan was not effectively tackling the problems because financial activity linked to terrorism had not been criminalised, there was a lack of due diligence requirements for the finance industry, and mechanisms to freeze assets were incomplete.

The government reportedly plans to put the bill – which would introduce powers to freeze assets and increase scrutiny of financial transactions – to parliamentary vote by the end of November, before the current legislative session ends.