Market participants have hailed a new memorandum of understanding (MoU) between France and Hong Kong on mutual recognition of funds as cementing closer ties between Europe and the Chinese territory. But the big prize – an MRF agreement with China – is seen to be some way off.
Hong Kong’s Securities and Futures Commission (SFC) and the Autorité des Marchés Financiers (AMF) announced the deal yesterday. It will allow eligible Hong Kong public funds and French Ucits funds to be sold to retail investors in each other’s market via a streamlined authorisation process.
The MoU is the first such agreement between Hong Kong and a member of the European Union, although Switzerland (not an EU country) did announce its own MRF deal in December last year.
However, mainland China may not extend MRF to other countries – other than Hong Kong – any time soon, said an institutional saleswoman at a custodian bank in Hong Kong. “The Chinese government is likely not to want its domestic financial institutions or products to be regulated by regulators from another country,” she told AsianInvestor.
Still, the MoU is seen as a step in the right direction. It could herald the opening of further bilateral agreements, such as with Germany and the UK, paving the way for a Europe-Hong Kong MRF scheme, said Remi Toucheboeuf, Asia head of asset and fund services product at BNP Paribas Securities Services.
“As anticipated by BNP Paribas Securities Services during the Fund Forum Asia in April this year, the SFC is continuing its development to partner more European jurisdictions, creating the basis for a broader push to get Hong Kong recognised as an AIFMD-equivalent jurisdiction,” he told AsianInvestor by email.
He was referring to the EU’s Alternative Investment Fund Managers Directive, implemented in 2013 as a passporting regime governing hedge funds, private equity funds, real estate funds and other alternative products.
David Li, Hong Kong chief executive of Caceis, the asset servicing arm of French bank Credit Agricole, also welcomed the agreement. He was particularly optimistic about the opportunities it would provide to French firms.
French funds are not well known outside their home market, he told AsianInvestor, and very few French Ucits products are registered as Hong Kong-authorised funds. This is definitely that would interest French funds, he noted.
Moreover, while the Hong Kong MRF scheme is not a regional initiative, added Li, Hong Kong funds could ultimately become the next Ucits-type regime – a global product. But he conceded that it had taken Ucits decades to achieve its current status.
Meanwhile, there remains a question mark over how much French demand there is for Hong Kong-authorised funds.
Toucheboeuf said: "The interest from French investors for such products will depend on the strategy proposed as well as the distribution network leveraged by the fund manager, but this is definitely a new step towards an increasing fund distribution trend to open Europe to innovative schemes."
Additional reporting by Indira Vergis.