Chinese regulators have released the long-awaited rules for Wealth Management Connect for the Greater Bay Area, bringing the cross-border investment scheme a step closer to realization. A combined quota of 150 billion yuan (US$23 billion) has been set for the southbound and northbound movements of funds under the pilot programme.
The draft guidelines, detailing the qualifications for products, investors and financial institutions who want to join the scheme, were issued for comments last night by the People’s Bank of China, China Banking and Insurance Regulatory Commission, and China Securities Regulatory Commission. The rules will take effect in 30 days.
The issuance of the rules marks an accelerated pace in the development of the GBA in terms of innovative financial regulations, according to Sun Yu, vice chairman and chief executive of BOCHK.
“We welcome further clarity provided in today's announcement, which marks another encouraging step towards the opening of mainland China’s capital markets and reinforcing Hong Kong’s status as an international financial centre,” says Daniel Chan, head of Greater Bay Area at HSBC.
Wealth Management Connect will start with pilot programmes, a common practice for new financial infrastructure being rolled out in China.
According to the rules, outbound investors should be residents registered in the nine mainland cities comprising the GBA via the household registration system (the hukou system).
They should have more than two years of experience in investment before accessing the Hong Kong and Macau markets through Wealth Management Connect. The net financial assets of the family of a qualified investor should exceed 1 million yuan over the past three months, or financial assets with a monthly balance of more than 2 million yuan.
The qualifications of northbound investors will be verified by the qualified banks in Hong Kong and Macau, according to the draft rules.
Wealth Management Connect provides convenience for high net worth individuals in the GBA to invest in cross-border products, while Hong Kong investors will benefit from a more diversified spectrum of investment products, especially in terms of RMB asset allocation, says Sun.
Northbound investors can invest in wealth management products with non-guaranteed principal issued by mainland wealth managers, including the wealth management subsidiaries of banks and the wealth management joint ventures. But the wealth management vehicles which can be used as cash management tools are excluded from the lists of products under the scheme. Northbound investors will also have access to mutual funds.
The qualified products for southbound investors will be verified by the regulators in Hong Kong and Macau, according to the draft rules.
Mainland banks that want to join the scheme should be registered or have branches registered in the nine mainland cities of the GBA, and have more than three years’ track record in cross-border RMB clearing.
“Wealth Management Connect is a significant breakthrough for the financial sector as it offers a new channel for GBA residents to capture cross-boundary and new investment opportunities to diversify and enhance their portfolios. It is also another milestone for RMB internationalization, facilitating increased appetite to invest internationally into Hong Kong and, on the other hand, access RMB solutions in mainland China,” says HSBC’s Chan.
In a recent meeting with asset managers in Hong Kong, HKMA senior officials confirmed that only Hong Kong domiciled funds will be allowed for distribution in the GBA. This means only Securities and Futures Commission (SFC) registered unit trust funds and the new Open-ended Company Fund (OFC) structure will be eligibile.
UCITS funds will not be eligible for distribution in the GBA. Also, asset managers who want to distribute their qualified funds in the GBA have to partner with local banks who are qualified under the scheme.
The implementation of the Wealth Connect scheme is not expected to result in a "big bang" growth of the funds industry in the GBA. Rather, growth is expected to be gradual and steady as the fund products become more widely available, particularly for southbound investors.
Northbound investments are also expected to grow steadlly, athough they will be facing competition from funds products that are already available in China through other overseas access channels.