The eagerly awaited first round of fund approvals under the Hong Kong-China mutual recognition (MRF) scheme has been tipped to get the green light this year, as asset managers and distributors explore how they will work together.
On Friday, Julia Leung, executive director for investment products at Hong Kong's Securities and Futures Commission (SFC), said the first batch of funds would hopefully be announced by the end of 2015.
The SFC and China Securities Regulatory Commission are working on issues such as tax arrangements and setting up foreign exchange accounts, and preparatory work is on track, she said at the Hong Kong Investment Funds Association (HKIFA) annual conference in Hong Kong.
For most fund applications for the northbound (Hong Kong into China) scheme, foreign managers have provided the first round of feedback and are awaiting further questions.
The Hong Kong-China MRF scheme started accepting applications on July 1 and will enable approved funds to be sold from Hong Kong into the mainland and vice versa.
It was thought at the time that the first products might be approved as early as August. But the process has suffered delays, at least partly because the Chinese authorities diverted resources to responding to the stock-market turmoil in the summer.
So far 17 Hong Kong-domiciled funds have been accepted by the CSRC for the northbound scheme. About 40 mainland funds have applied to the SFC for the southbound scheme, and at least 10 mainland companies have set up H-share classes for their eligible funds.
But there are numerous details to be ironed out, such as around subscriptions, redemptions, foreign exchange and tax, said Sandra Lu, a partner at Llinks Law in Shanghai. She also pointed to challenges around as fee charges and advertising, where there are significant differences between Chinese and Hong Kong rules.
Other speakers at the HKIFA event discussed the potential of online sales, distribution partnerships and related issues under the MRF northbound scheme.
Zhou Xiaoming, vice general president at Tianhong Asset Management, whose Yu’E Bao money market fund has generated huge online sales, said the firm will offer global investment products to the large client base it has accumulated.
“Online fund sales will need products with simple structures,” Zhou noted. “We tend to look for actively managed funds with a clear and simple strategy and passive products that can represent a single market.”
Tianhong has been appointed by Hong Kong’s BEA Union Investment and Zeal Asset Management as master agent for northbound sales.
Qi Shi, chairman and chief executive of East Money, the parent company of China’s biggest online fund sales platform Tiantian, said the firm is in talks with a few Hong Kong fund houses.
And on the traditional fund sales side, the mainland’s biggest bank, ICBC, is speaking with several Hong Kong fund houses, said Amy Jia, deputy head of the global services division of the custody service department.
“We have to choose different products for our shelf every year, and [our choices] will need to combine with market timing,” she added.