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Mutual Recognition of Funds (MRF)
What is MRF?
Mutual Recognition of Funds (MRF) between mainland China and Hong Kong is a scheme jointly launched by the China Securities Regulatory Commission (CSRC) and Hong Kong Securities and Futures Commission (SFC). Under the scheme, eligible Mainland and Hong Kong funds can be distributed in each other’s market through a streamlined vetting process.
How does MRF work?
MRF operates on the principles that, in respect of a fund that has been authorised by or registered with the relevant authority in one jurisdiction (home jurisdiction), it is generally deemed to have complied in substance with the relevant requirements of the other jurisdiction (host jurisdiction), and thus it will enjoy a streamlined process for the purpose of authorisation for offering to the public in the host jurisdiction.
There are, however, areas where regulations and market practices in the Mainland and Hong Kong differ, and may not be catered for a fund’s offering in the host jurisdiction. To ensure proper investor protection and consistency with the requirements of existing SFC-authorised funds, the SFC has set out the additional authorisation requirements for Mainland funds that seek to be distributed in Hong Kong. Likewise, the CSRC also issued separate rules regarding the approval of eligible Hong Kong funds for offering to the public in the Mainland.
The management firm of the fund shall ensure investors of both the home jurisdiction and host jurisdiction receive the same treatment and that treatment should be fair, including in respect of investor protection, exercise of rights, compensation and disclosure of information.
What new opportunities are avaiable to investors under MRF?
The MRF provides a new channel for Hong Kong investors to access the Mainland market via investing in the funds managed by fund companies in the Mainland. Investors in Hong Kong will have more choices of fund products and they can make use of the different types of Mainland funds to further diversify their portfolios.
What are the pre-requisites for a fund to be eligible for the MRF scheme?
At the initial stage, only regular equity funds, bond funds, mixed funds, unlisted index funds and physical index-tracking exchange traded funds will be eligible for the MRF scheme.
Mainland fund managers that wish to apply for SFC authorisation of their funds for distributing in Hong Kong have to meet the following requirements:
- the fund is established and managed and operates in accordance with Mainland laws and regulations and its constitutive documents;
- the fund is a publicly offered securities investment fund registered with the CSRC under the Securities Investment Fund Law of the People's Republic of China;
- the fund must have been established for more than one year;
- the fund must have a minimum fund size of not less than RMB200 million or its equivalent in a different currency;
- the fund must not primarily invest in the Hong Kong market; and
- the value of shares/units in the fund sold to investors in Hong Kong shall not be more than 50% of the value of the fund’s total assets.
Likewise, SFC-authorised Hong Kong domiciled funds managed by SFC-licensed managers in Hong Kong that seek to enter the Mainland market should also meet similar corresponding criteria set out by the CSRC.
What are the key differences among Recognised Mainland Funds, SFC-authorised RQFII funds and other SFC-authorised funds?
|MRF - Recognised Mainland Funds||SFC-authorised RQFII funds||Other SFC-authorised funds|
|Types of funds||Regular equity funds, bond funds, mixed funds, unlisted index funds and physical index-tracking exchange traded funds||Regular equity funds, bond funds, mixed funds||Not confined to specific types of funds so long as it complies with the requirements in the Code on Unit Trusts and Mutual Funds (UT Code)|
|Geographical investment restriction||Must not primarily invest in the Hong Kong market||Direct investment in the Mainland securities markets through RQFII investment quota||No specific geographical investment restriction so long as it complies with the UT Code requirements|
|Eligibility requirements (for example, requirements on minimum fund size, track record and Hong Kong investor participation)||Yes||No such requirement so long as the fund complies with the UT Code||No such requirement so long as the fund complies with the UT Code|
|Disclosure frequency of financial reports||Annual, interim and quarterly reports||Annual and interim reports||Annual and interim reports|
|Language requirement for constitutive documents and financial reports||Simplified Chinese (Upon request, specific information should be made in English and/or traditional Chinese)||English for constitutive documentsEnglish and/or Chinese for financial reports||English for constitutive documentsEnglish and/or Chinese for financial reports|
|Redemption fee||Fixed redemption fee||No specific requirement||No specific requirement|
|Domicile||Mainland||Hong Kong||Hong Kong or other countries like Luxembourg, Cayman Islands, Ireland|
|Quota||There is an aggregate quota for the MRF scheme which applies to whole market in respect of in and out fund flows but no individual quota at management firm level||Quota at both RQFII programme level in aggregate and individual RQFII licence holders level to make investments directly in the Mainland securities markets||No specific requirement unless there is particular quota limit as set by individual fund|
|Manager||CSRC-licensed management firms||Qualified SFC-licensed management companies such as fund companies with major operation in Hong Kong and subsidiaries of Mainland fund/securities/insurance/banking companies.||Qualified SFC-licensed management companies|
|Underlying investments||Direct investment in the Mainland securities markets without any quota requirement.||Direct investment in the Mainland securities markets through RQFII investment quota||No specific requirement so long as the fund complies with the UT Code|
|Local investor participation||Value of shares/units in the Recognised Mainland Funds sold to investors in Hong Kong shall not be more than 50% of the value of the Recognised Mainland Fund’s total assets||No restriction||No restriction|
What are the key risks of Recognised Mainland Funds?
Recognised Mainland Funds are subject to the risks which are applicable to investment funds in general. In addition, Recognised Mainland Funds are also subject to the key risks associated with the MRF arrangement including:
- Quota restrictions
- Failure to meet the eligibility requirements on an ongoing basis
- Different market practices between Mainland and Hong Kong
- Risks relating to Mainland tax liability
- Investment risk
- Concentration risk/Mainland market risk
- Various currency risks relating to RMB
- Risks relating to the Mainland equity and bond markets
Investors are advised to read and understand the risks associated with Recognised Mainland Funds from the respective offering documents.
Mutual Recognition of Funds Video
View transcriptVideo in Cantonese
Risk Disclosure Statement:
- Investment involves risk. The prices of units/ shares of collective investment schemes fluctuate, sometimes dramatically and may become valueless. Investors may not get back the amount they have invested. It is as likely that losses will be incurred rather than profit made as a result of buying and selling unit trusts or mutual funds. Past performance is no guide to its future performance.
- Investor should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors and latest financial results information carefully and is advised to seek independent professional advice before making any investment decision. Investors should ensure they fully understand the risks associated with unit trusts or mutual funds and should also consider their own investment objective and risk tolerance level.
Risks Associated with the Recognised Mainland Funds:
- Quota restrictions: The Mainland-Hong Kong Mutual Recognition of Funds (MRF) scheme is subject to an overall quota restriction. Subscription of units in the Fund may be suspended at any time if such quota is used up.
- Failure to meet eligibility requirements: If a Recognised Mainland Fund ceases to meet any of the eligibility requirements under the MRF, it may not be allowed to accept new subscriptions. In the worst scenario, the Securities and Futures Commission may even withdraw its authorization for the Fund to be publicly offered in Hong Kong for breach of eligibility requirements. There is no assurance that the Fund can satisfy these requirements on a continuous basis.
- Mainland tax risk: The tax arrangement on Mainland tax relating to investment in a Recognised Mainland Fund is currently unclear. Investors may be subject to uncertainties in the Mainland tax liabilities.
- Different market practices: Market practices in the Mainland and Hong Kong may be different. In addition, operational arrangements of Recognised Mainland Funds and other public funds offered in Hong Kong may be different in certain ways. For example, a Recognised Mainland Fund may only accept subscriptions or redemption of units on a day when both Mainland and Hong Kong markets are open, or it may have different cut-off times or dealing day arrangements versus other Hong Kong funds. Investors should ensure that they understand these differences and their implications.
- Investment risk: The Fund is an investment fund. There is no guarantee of the repayment of principal or payment of dividend or distribution. Further, there is no guarantee that the Fund will be able to achieve its investment objectives and there is no assurance that the stated strategies can be successfully implemented.
- Concentration risk / Mainland market risk: The Fund invests primarily in securities related to the Mainland market and may be subject to additional concentration risk. Compared to investment in other markets, investing in the Mainland may give rise to different risks including political, policy, tax, economic, foreign exchange, legal, regulatory and liquidity risks.
- RMB currency and conversion risks: RMB is currently not freely convertible and is subject to exchange controls and restrictions. Non-RMB based investors are exposed to foreign exchange risk and there is no guarantee that the value of RMB against the investors’ base currencies (for example HKD) will not depreciate. Any depreciation of RMB could adversely affect the value of investor’s investment in the Fund. Investors may not receive RMB upon redemption of investments and/or dividend payment or such payment may be delayed due to the exchange controls and restrictions applicable to RMB.
Risk Disclosure Statement for RMB Investment:
Risk relating to Renminbi – You should note that the value of Renminbi against other foreign currencies fluctuates and will be affected by, amongst other things, the PRC government's control (for example, the PRC government regulates conversion between Renminbi and foreign currencies), which may adversely affect your return under this product when you convert Renminbi into your home currency. Renminbi is not a freely convertible currency. Any conversion of Renminbi through banks in Hong Kong may be subject to certain restrictions prevailing at the relevant time.
- This webpage does not constitute any offer, invitation or recommendation to any person to enter into any transaction described therein or any similar transaction, nor does it constitute any prediction of likely future price movements. Investor should not make investment decisions based on this webpage alone.
- This webpage has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.