Principal legal risks faced by asset management institutions

The incidence of asset management institution (AMI) risk events has been frequent in recent years, with many seemingly flourishing AMIs suffering a major setback on their path to growth. This column proposes to take a look at the principal legal risks faced by AMIs and makes suggestions of reasonable risk prevention measures for AMIs.

PRINCIPAL LEGAL RISKS

Offer promotion risks. It is extremely easy for AMIs to violate laws or regulations when raising funds. Taking private funds as an example, pursuant to the Administrative Measures for the Offering Activities of Private Investment Funds, when a private fund institution is making an offering, it is required to complete a number of procedures, such as confirmation of the specific targets, fund risk rating, investors suitability review and matching, risk warning, check of the lawfulness of the fund sources, qualified investor confirmation, etc., and failure to complete any of them can result in the assessment of penalties by the administrative or regulatory authorities. If investors are caused to incur a loss as a result thereof, the AMI may be liable for damages, and if there is a suspicion of taking deposits from people illegally, a criminal offence may even be constituted.

In practice, cases of penalties imposed for violating laws or regulations in the promotion of offerings are becoming more and more frequent, and large private offerers have not be exempted. For example, when Shaanxi Jinkaihong Investment Management was selling units of a limited partnership fund to investors, an investor had a third party subscribe for the fund on his behalf in the amount of RMB300,000 (US$45,187.5) and the manager, despite being well aware that his initial investment amount was less than RMB1 million, disqualifying him as an investor, nevertheless sold him the fund, for which it was assessed the maximum penalty by the CSRC.

Sherry Ma is the managing partner of Co-effort Law Firm