Asia-focused asset managers are hurrying to digest information released by regulators in China and Hong Kong about plans to allow funds to be passported between both markets.
Mutual fund recognition will begin on July 1, say regulators, with an overall quota of 600 billion renminbi ($97 billion). Hong Kong fund managers will have to apply to the China Securities Regulatory Commission (CSRC) for permission to distribute their funds on the mainland while Chinese mainland managers will apply to the Securities and Futures Commission (SFC) in Hong Kong.
"Regulators from both markets deserve praise for creating this initial framework for a strong cross-border regulatory regime, and for their careful preparations to ensure a smooth implementation," says Qiumei Yang, Asia-Pacific chief executive for asset manager ICI Global.
Asset managers are optimistic about the scheme, which allows them to increase their potential distribution reach and potentially increase efficiency. However, there are challenges to overcome.
"Different legal frameworks are the major hurdles," says RBC Investor & Treasury Services in a statement. "Whilst Hong Kong and China are ostensibly a single country, both still fall under different regulators with different set of requirements."
According to Z-Ben Advisors, a consultancy based in Shanghai, the regulatory imbalance will be to the advantage of mainland fund managers, which, it predicts, will have an easier time obtaining Hong Kong distribution than Hong Kong firms will on the mainland.
The consultancy also predicts that the quality of relationships at mainland Chinese joint-venture companies will be tested.
"A very great many questions remain to be answered about [mutual recognition]'s operational details," says the firm, in a statement. "In our opinion, many fund management companies will be forced to hit-and-hope if they intend to have funds available for sale on the programme's launch date."
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