Introduction

The People’s Bank of China published on 24 January 2024 its revised Implementation Arrangements for the Cross-boundary WMC Pilot Scheme in the GBA (Implementation Rules) (《粵港澳大灣區 “跨境理財通” 業務試點實施細則》) so as to enhance the Cross-Boundary Wealth Management Connect Pilot Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area (“Cross-Boundary WMC”).

In light of the above, the Securities and Futures Commission (“SFC”) has issued a set of guidance for licensed corporations (“LCs”) which intend to participate in the Northbound Scheme and/or the Southbound Scheme of the Cross-Boundary WMC. This article will highlight some important aspects mentioned in the guidance, including eligible criteria for participating LCs, partnership arrangement with mainland broker, eligible criteria for investors, closed-loop fund flow arrangements and promotion and sales arrangement.

Eligible criteria for participating LCs

The following requirements have to be satisfied by LCs which intend to participate in the Northbound Scheme and/or the Southbound Scheme:

1.       Financial resources: Both shareholders’ funds and paid-up capital of the LCs are not less than HK$100 million;

2.       Licence: the LC holds a licence granted by the SFC to conduct Type 1 regulated activity;

3.       Experience: the LC has at least 3 years of experience in distributing investment products i.e. funds and/or bonds;

4.       Transaction volume: the LC has a transaction volume in investment products (i.e. funds and/or bonds) of not less than HKD500 million during any 12-month period in the past 3 years; and

5.       Systems of controls: the LC has implemented internal controls, operating procedures and systems and have sufficient operational capabilities and financial resources to conduct the business in a way in compliance with the applicable requirements, in particular the “closed-loop fund flow arrangement” as explained below.

Prior to the launching of any Cross-boundary WMC related activities, eligible LCs should:

1.       enter into partnership with an eligible Mainland broker and work closely to make sure all preparatory work is properly performed;

2.       prepare adequate systems, internal control measures and operating procedures in accordance with the requirements set out in the guidance; and

3.       submit, among others, their business plan and self-assessment report to the SFC to demonstrate their operational readiness.

Partnership arrangement with Mainland broker(s)

For both Northbound Scheme and Southbound Scheme services, participating LCs should have partnership arrangements with one or more eligible Mainland broker (“Partner Broker”). Eligible Mainland broker refers to a Mainland broker that has been confirmed by the relevant Mainland regulatory authorities that is eligible for providing Cross-boundary WMC services.

Further, it is the duty of the participating LCs to enter into a written partnership agreement with the Partner Broker which sets out the roles and responsibilities of the participating LC and the Partner Broker. Participating LCs have to obtain a no objection notification from the SFC before they may enter into or terminate the partnership arrangement with their Partner Broker(s).

Under the Northbound Scheme, it is the Partner Brokers which undertake the sale of investment products. Participating LCs may provide assistance to Hong Kong investors in opening dedicated investment account with Partner Brokers and handling cross-boundary fund remittance.

Under the Southbound Scheme, the participating LCs have to put in place sufficient procedures and controls to make sure that the Partner Brokers would provide assistance to the participating LCs in, among others:

1.       verification of the eligibility of the Mainland investors in participation of the Southbound Scheme;

2.       checking whether the Mainland investor has only one investment account opened with an eligible Hong Kong Bank and/or one investment account opened with a participating LCs under the Southbound Scheme;

3.       monitoring the usage of individual investment quota by the Southbound Scheme clients; and

4.       handling fund deposits and withdrawals of the Southbound Scheme clients.

Eligible investors

Under the Northbound Scheme, eligible Hong Kong investors are all Hong Kong residents who hold Hong Kong identity cards, including both permanent and non-permanent residents. Investment must be made in their personal capacity but not in joint names or in the names of a body corporate. Hong Kong investors are also not allowed to authorise any third party to operate their accounts. It is the duty of the participating LCs to verify the eligibility of Hong Kong investors to participate in the Northbound Scheme.

Under the Southbound Scheme, Mainland investors are subject to the criteria set by the regulatory authorities in the Mainland. Likewise, they should not invest in joint names or in the names of a body corporate, and should not authorise any third party to operate the account. Mainland investors should be a client of the Partner Broker of the participating LC. It is the duty of the Partner Broker to verify whether the Mainland investor is eligible to participate in the Southbound Scheme. A participating LC should only regard an investor as eligible after receiving confirmation from their Partner Broker.

Closed-loop fund flow arrangement

The guidance set out a detailed framework and steps to be followed to create a closed-loop fund flow arrangement.

Under the Northbound Scheme, participating LCs have to open a new or designate an existing segregated account solely for Cross-boundary WMC purpose with a Hong Kong bank which has launched business under the Cross-boundary WMC (“Hong Kong omnibus account”). A participating LC may only open or designate one account with one Hong Kong bank as Hong Kong omnibus account.

Likewise, the Partner Brokers have to open a new or designate an existing segregated account solely for Cross-boundary WMC purpose with a Mainland bank which has launched business under the Cross-boundary WMC (“Mainland omnibus account”).

The Participating LC should pair their Hong Kong omnibus account with the Mainland omnibus account of their Partner Broker. The Hong Kong omnibus account should solely be used for the purpose of remitting funds from the Northbound Scheme clients to the Mainland omnibus account of their Partner Brokers for Cross-boundary WMC investment purposes.

The arrangement under the Southbound Scheme is largely the same, with the Mainland omnibus account playing the role of remitting the funds from the Southbound Scheme clients to the Hong Kong omnibus account of the participating LCs for Cross-boundary WMC investment purposes.

Promotion and sales

Under the Northbound Scheme, a participating LC may by appropriate channels in Hong Kong, display and provide factual representations to the public on the Northbound Scheme services provided by the participating LCs and general information about the Cross-boundary WMC. A participating LC may also organise briefings and seminars in Hong Kong for the Hong Kong public to introduce the above content.

Under the Southbound Scheme, a participating LC may display and provide in Hong Kong (i) general information about the Cross-boundary WMC, (ii) factual representations on the Southbound Scheme services provided by the participating LCs and (iii) broad description of the scope and categories of investment products under the Southbound Scheme.

A participating LC may also provide filtering function on their mobile platforms, websites and other electronic channels to allow the Mainland public to identify, in a self-directed manner, the eligible investment products provided by the participating LCs under the Southbound Scheme. A participating LC may also provide factual information on the services and individual investment products under the Southbound Scheme to an individual Mainland investor upon his request, and may respond to his enquiries on the services and investment products provided by the participating LCs under the Southbound Scheme. Participating LC may also send staff to participate in briefings and seminars organised by the Partner Brokers on the Mainland for the public to provide explanation of the information mentioned in the immediate preceding paragraph.

For both the Northbound Scheme and the Southbound Scheme, a participating LC must pay caution that the information provided (i) should be factual and fair representations which do not involve any solicitation or recommendation, (ii) should not constitute an offer to the Hong Kong/Mainland public in relation to individual investment products; and (iii) (for Northbound Scheme) should not constitute active marketing of the Partner Broker’s Cross-boundary WMC services to the Hong Kong public (in particular, there should not be any indication which suggests that the participating LC is the representative/agent of the Partner Broker in Hong Kong) or (for Southbound Scheme) constitute active marketing of the participating LCs’ Cross-boundary WMC services to the Mainland public.

 Conclusion

New business opportunities are likely to be created by the Cross-boundary WMC for the financial industries in Guangdong, Hong Kong and Macau. It also facilitates cross-boundary investment within the Greater Bay Area by providing more options of wealth management products to Greater Bay Area residents. In grasping these opportunities, a licensed corporation should be cautious in complying with the requirements set out in the guidance issued by the SFC.

 

 

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2024