'Mutual recognition' platform plan for cross border funds
Updated: 2013-01-24 07:11
By Sophie He(HK Edition)
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Hong Kong and mainland regulators are working on establishing a "mutual recognition" platform that will facilitate the cross-border sales of investment funds, said Alexa Lam, deputy chief executive of the Securities and Futures Commission.
Currently due to mainland's capital controls, Hong Kong-established funds can not directly sell on the mainland, and the same restriction applys to mainland funds in Hong Kong.
"(To) get our funds into the mainland and mainland funds into Hong Kong, we can combine our strengths to establish a very sizable platform," Lam told a seminar in Hong Kong on Wednesday.
She said that in late 2012, authorities from both sides of the border set up a working group to research and discuss the establishment of a "mutual fund recognition" platform.
Without mutual recognition, if a foreign fund wants to get into a domestic market, it has to go through the whole process, including getting the authorization and wooing distributors to sell it, said Lam.
With mutual recognition, many qualifications can be covered by local requirements if the fund obtains authorization from its home country, she said, adding that the move will cut down the time and costs.
Hong Kong has already a mutual recognition platform with Taiwan for Exchange Traded Funds (ETF), and another similar platform with Australia.
But Lam stressed that a mutual fund recognition platform with the mainland would not be about saving costs and time, but rather the opening a brand new revenue stream.
If the mutual fund recognition channel is built, mutual traffic will flow between the two places. And therefore, a Hong Kong-authorized fund will be able to directly sell on the mainland and vice versa, she said.
It will be a great opportunity for Hong Kong funds, due to the huge potential on the mainland market due to its high savings rate, low penetration rate and rapid economic growth, said Lam. Meanwhile, recognized mainland funds coming to Hong Kong would also benefit the city's fund distributors, as they would have many attractive mainland products for investors, both in Hong Kong and internationally, she added.
Lam said this arrangement would be equally beneficial for the mainland, as mainland fund managers will have direct access to international capital, which until now has been restricted, said Lam.
However, there is no time table yet for the mutual fund recognition platform's establishment as it involves a lot of policy issues including the degree of openness of the capital account.
"The pace of integration of financial markets on the mainland and in Hong Kong is accelerating; we can see it from the recently announced expansion of the RQFII scheme as well as this mutual recognition platform for funds," First Shanghai Securities strategist Linus Yip Sheung-chi told China Daily during a telephone interview.
Yip said that the establishment of this platform will increase the liquidity for both Hong Kong and the mainland capital market.
(HK Edition 01/24/2013 page2)