New regulations for QFIIs foreshadow trend of increased foreign investment

On 27 July, the China Securities Regulatory Commission (CSRC) formally issued and implemented the Regulations on Issues Relevant to the Implementation of the Measures for the Administration of Investment in Domestic Securities by Qualified Foreign Institutional Investors, which supercedes the Notice on Issues Relevant to the Implementation of the Measures for the Administration of Investment in Domestic Securities by Qualified Foreign Institutional Investors implemented on 1 September 2006. The notice, which was in force for close to six years, thus became invalid.

The formal issuance of the regulations signifies that with the improvement in the international balance of payments, the CSRC will speed up its examination and approval of qualified foreign institutional investors (QFIIs). According to its website, as at July this year the CSRC had approved a total of 173 QFIIs. It can be anticipated that an increasing number of foreign institutional investors will join the ranks applying for QFII licences.

Through an analysis of the regulations and the notice, we have found that the CSRC is showing a new development trend in the administration of the investment by QFIIs in domestic securities. For example, in order to speed up the approval of QFII qualifications, the CSRC has simplified the previous application procedure. An application: (1) no longer requires submission of the applicant’s articles of association or a draft of the custody agreement to be executed with the custodian, instead requiring the submission of the power of attorney issued to the custodian; and (2) no longer requires the provision of audited financial statements for the most recent three years, instead requiring the submission of the audited financial statements for the past year.

Kevin Xu is a partner and Samuel Gao is an associate at Martin Hu & Partners (MHP Law Firm)