Index number:000014453-2016-00460 Dispatch date: 2016/11/08
Publish organization: PBC State Administration of Foreign Exchange Reference number: YinFa No. 227 [2016]
Name: Circular of the People’s Bank of China and the State Administration of Foreign Exchange on the Management of Domestic Securities Investment by RMB Qualified Foreign Institutional Investors


Circular of the People’s Bank of China and the State Administration of Foreign Exchange on the Management of Domestic Securities Investment by RMB Qualified Foreign Institutional Investors

The Shanghai headquarters, branches, business management departments of the People’s Bank of China (PBC), and central sub-branches of the PBC in the capital cities of provinces (autonomous regions) and in sub-provincial cities; the branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government, and the branches of the SAFE in cities specifically designated in the state plan; China Development Bank, all policy banks, state-owned commercial banks, and joint-stock commercial banks and Postal Savings Bank of China,

In order to regulate the management of domestic securities investment by RMB qualified foreign institutional investors (RQFIIs), relevant issues are notified as follows, in accordance with the Measures for the Pilot Program on Domestic Securities Investment by RMB Qualified Foreign Institutional Investors (Decree No. 90 of the China Securities Regulatory Commission, the People’s Bank of China, and the State Administration of Foreign Exchange), and relevant provisions:

I. The PBC, SAFE and their branches and sub-branches shall supervise, manage and inspect RQFIIs' investment quota (investment quota), capital account, capital receipts and payments in accordance with the law.

II. An RQFII approved by the China Securities Regulatory Commission (CSRC) to invest in domestic securities markets shall entrust its domestic custodian (custodian) with handling the procedures set forth in the Circular.

An RQFII can mandate no more than three custodians. In the event of many custodians, the RQFII shall designate one custodian as the primary rapporteur (Only one custodian, if available, is the primary rapporteur as default) to be responsible for going through investment quota record filing, approval application and main information registration on behalf of the RQFII.

III. The SAFE shall organize record filing or approval management with regard to the investment quota of a single RQFII.

The RQFII, after obtaining the qualification from the CSRC, may obtain an investment quota (basic quota) no higher than a certain proportion of its assets or the securities assets under management ("asset size") through record filing; application of an investment quota higher than the basic quota is subject to approval by the SAFE.

The investment quotas to institutions such as overseas sovereign wealth funds, central banks and monetary authorities are not required to be within a certain proportion of assets. They may obtain an investment quota based on their needs to invest in domestic securities markets, and will be subject to record filing management.

IV. Criteria of basic quotas for RQFIIs:

1. Where the assets or AUM of an RQFII or the group it is subordinated to are located overseas, the formula is: equivalent of USD 100 million + average asset size over the past three years 0.2% - quota for the QFII already obtained (in RMB terms, "QFII quota").

2. Where the assets or AUM of an RQFII or the group it is subordinated to are located in China, the formula is: RMB 5 billion + asset size of the previous year80% - QFII quota already obtained (in RMB terms).

The foreign exchange rate involved above shall be calculated based on the conversion rates of various currencies against the USD published by the SAFE on the day of application for the previous month.

The PBC and SAFE may adjust these criteria in consideration of balance of payments, and development and liberalization of capital markets.

V. For record filing of an investment quota within the basic quota for an RQFII, the following submissions shall be provided to the primary rapporteur:

1. Description of the record filing of an investment quota, and the filled-out Registration Form for RMB Qualified Foreign Institutional Investors (see Appendix 1)

2. Audited balance of sheet of the RQFII for the past three years or the previous year (or audit report on securities assets under management, etc.)

3. Photocopy of qualification certificate from the CSRC.

The primary rapporteur shall earnestly perform his/her responsibilities, carefully reviewing the materials evidencing the RQFII's assets size and QFII quota already obtained, and verifying the basic quota and the investment quota intended for record filing by relevant standards and based on the distribution of assets of its own or the group it is subordinated to, and collectively submit the record filing materials for the RQFII quota to the SAFE prior to the 10th day of every month (see Appendix 2 for format). The SAFE shall confirm the record filing materials and give feedback to the primary rapporteur.

VI. For application for an investment quota beyond the basic quota for an RQFII, the following submissions shall be provided to the SAFE through the primary rapporteur:

1. Written applications of the primary rapporteur and the RQFII, detailing the reasons for increasing the quota and the use of existing quota.

2. Information of Record Filing Form for RQFII's Custodian (see Appendix 3 for format).

3. Audited balance of sheet of the RQFII for the past three years or the previous year (or audit report on securities assets under management, etc.)

(4) Other materials required by the SAFE.

An RQFII shall properly distribute the quotas between the primary rapporteur and other custodians, and effectively implement the requirements on quota management.

The SAFE will regularly publish the information on the RQFIIs' investment quotas at its website, www.safe.gov.cn.

VII. Where an RQFII that has obtained its investment quota before this Circular is issued applies for an additional investment quota, the following procedures shall be complied with:

1. The investment quota already obtained is within the basic quota: if the quota already obtained plus the extra quota applied for is within the basic quota, Article V herein shall be followed in record filing; if the quota already obtained plus the extra quota applied for is beyond the basic quota, application shall be made to the SAFE for approval in accordance with Article VI herein.

2. Where the investment quota already obtained is beyond the basic quota, application shall be made to the SAFE for approval in accordance with Article VI herein.

VIII. The investment quota for RQFIIs is subject to balance management. This means that the RQFII's accumulated net inward remittances shall not surpass the already filed or approved investment quota.

IX. Except open-end funds, the lock-up period of the principal of other products or funds of the RQFII is 3 months. The lock-up period shall be calculated as of the date when the RQFII's accumulated inward remittances as investment principal hits RMB 100 million.

The aforesaid lock-up period refers to the period in which RQFIIs are prohibited from remitting the principal abroad.

X. No RQFII shall sell or transfer the investment quota in any form to any other institution or individual.

In case that an RQFII fails to effectively use the investment quota within one year following the day the quota is filed or approved, the SAFE shall have the right to recover the investment quota not yet used, in all or in part.

XI. RQFIIs shall open a basic RMB deposit account for foreign institutions, in accordance with the Management Measures for RMB Bank Settlement Account for Foreign Institutions (Yinfa No. 249 [2010]), and the Circular of the People's Bank of China on Opening and Using RMB Bank Settlement Account for Foreign Institutions (Yinfa No. 183 [2012]).

After opening a basic RMB deposit account, the RQFII shall open with a domestic commercial bank with the qualification for a QFII custodian a special deposit account for trading funds in the securities market of an exchange, and a special deposit account for settlement of trading funds in the interbank bonds markets, to be used for investing in the securities market of an exchange and the interbank bonds markets. Any RQFII who participates in stock index futures trading may open a special deposit account with a futures margin deposit and custodian bank for the settlement of the deposit of stock index futures.

When opening such an account, the RQFII shall distinguish self-owned funds and AUM and open a separate account for each; A separate account for each open-end fund shall be opened.

XII. An RQFII shall submit the following materials for opening a special deposit account:

1. Photocopy of the CSRC's qualification certificate for RQFIIs.

2. Record filing information or reply from the SAFE on quota.

3. Written custody qualification documents from a custodian bank.

4. Custody agreement between the RQFII and custodian bank.

5. Other documents required by the PBC.

RQFIIs shall refer to the provisions in the Announcement No. 3 [2016] of the People’s Bank of China in investing in the interbank bonds markets. To open a special deposit account for settlement of trading funds in the interbank bonds markets, an RQFII shall also present the record filing notice for entry into the interbank bonds markets, and the written document on the custodian's qualification for commissioned settlement in the interbank bonds markets.

XIII. The scope of receipts into an RQFII's special deposit account covers investment principal remitted from overseas by the RQFII, its gains from sales of securities, cash dividends, interest income, funds transferred from other special deposit accounts opened under this Circular, and other receipts prescribed by the PBC and SAFE.

The scope of payments from an RQFII's special deposit account covers payment for securities bought, principal remitted outward, returns on investment, payment of investment-related taxes, funds transferred to other special deposit accounts opened under this Circular, and other spending prescribed by the PBC and SAFE.

XIV. No transfer shall be allowed between an RQFII's special deposit accounts and other accounts it opened in China without approval; no transfer shall be allowed between the account for self-owned funds, the account for client funds and each account for open-end funds.

Without approval, the funds in the RQFII's special deposit account shall not be used for purposes other than domestic securities investment. No cash shall be drawn from the RQFII's special deposit account.

XV. The deposit rate of the funds in the bank settlement account an RQFII opens under this Circular is subject to the provisions developed by the PBC.

XVI. In case of the following cases, an RQFII shall realize its assets and close its accounts within one month, with the corresponding investment quota nullified:

1. Its qualification has been revoked by the CSRC.

2. The SAFE cancels the investment quota of the RQFII in accordance with the law.

3. Other circumstances prescribed by the PBC and SAFE.

XVII. For the open-end funds initiated by an RQFII, its custodian may handle the inward and outward remittances in RMB for it every day, based on the netting subscribed or redeemed. For other products or funds, the RQFII may entrust a custodian with handling the inward and outward remittances after the lock-up period expires.

The custodian may handle the outward remittance of the realized accumulated income for the RQFII, based on the RQFII's written application or instruction, special audit report on returns on investment issued by Chinese certified accountants, and tax clearance or tax record filing certificates, if any.

XVIII. A custodian, when handling inward and outward remittances for an RQFII, shall conduct the authenticity and compliance review of related receipts and payments, and perform its obligations of anti-money laundering and anti-terrorism.

XIX. RQFIIs shall apply for a special institution code and undergo RQFII main information registration with the foreign exchange authority that governs the primary rapporteur within 10 working days after obtaining the investment quota for the first time via the primary rapporteur. Those that have obtained the special institution code in going through other cross-border or foreign exchange receipts and payments need not apply again.

The custodian shall report the regulation and statistics data of the RQFII in accordance with the Circular of the State Administration of Foreign Exchange on Adjusting the Way of Data Reporting for QFIIs (Huifa No. 45 [2015]).

XX. Where one of the following circumstances occurs to an RQFII, the primary rapporteur shall apply to the SAFE for alteration registration within 5 working days:

1. Major information of the RQFII such as its name and custodian changes.

2. Other circumstances prescribed by the PBC and SAFE.

In case of the change of the primary rapporteur, the new primary rapporteur shall go through alteration registration for the RQFII.

Where the RQFII or its major shareholders or actual controller face significant penalties by other regulatory authorities (including foreign authorities), and the penalties have a strong impact on the RQFII's investment operations, or lead to suspension or cancellation of its business qualifications, the primary rapporteur shall immediately report to the PBC and the SAFE.

XXI. The custodian shall report an RQFII's account opening and cancellation, investment quota, cross-border capital receipts and payments, and asset allocation for domestic securities investment to the RMB cross-border receipts and payments information management system within 5 working days after the deal is made.

XXII. The materials submitted as requested by this Circular shall be in Chinese. Should there be counterparts in both Chinese and a foreign language, the Chinese text shall prevail.

XXIII. This Circular will come into force as of the date of issuance. In the meanwhile, the Circular of the People's Bank of China on Implementing the Pilot Program on Domestic Securities Investment by RMB Qualified Foreign Institutional Investors (Yinfa No. 105 [2013]), the Circular of the State Administration of Foreign Exchange on the Pilot Program on Domestic Securities Investment by RMB Qualified Foreign Institutional Investors (Huifa No. 9 [2013]) and the Circular of the Capital Account Management Department of the State Administration of Foreign Exchange on Issuing the Operating Guidance on Managing Investment Quotas of RMB Qualified Foreign Institutional Investors (Huizihan No. 2 [2014]) will be appealed.

Appendices:

1. Registration Form for RMB Qualified Foreign Institutional Investors

2. Investment Quota Form

3. Information Record Filing Form for RQFII's Custodian

 

People's Bank of China, State Administration of Foreign Exchange

August 30, 2016

 




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State Administration of Foreign Exchange
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