Pilotin Wealth Management Connect – AnoM88 game APKr Trial of Relaxation of Capital Control for M88 game APK Greater Bay Area

On June 29, 2020, M88 game APK People’s Bank of China, M88 game APK Hong Kong Monetary Authority, and M88 game APK Monetary Authority of Macao decided to implement M88 game APK cross-boundary wealth management connect pilot scheme (“WM Connect”) in M88 game APK Greater Bay Area of Guangdong, Hong Kong and Macao (“Greater Bay Area”) and issued a joint announcement (“Announcement”) on matters concerning M88 game APK WM Connect. M88 game APK date of its formal launch and detailed rules for implementation remain to be specified. Below we set forth both our interpretation of M88 game APK Announcement as well as a look ahead at M88 game APK pilot.

I. What is M88 game APK WM Connect? How will M88 game APK WM Connect contribute throughout M88 game APK course of relaxing China’s capital control?

Currently, M88 game APK WM Connect is restricted to M88 game APK Greater Bay Area (Guangdong, Hong Kong and Macao collectively referred to as M88 game APK “Two Places”, and separately referred to as M88 game APK “Mainland” and “Hong Kong and Macao”) and comprised of a southbound component (“Southbound Connect”) and a northbound component (“NorthboundConnect”). Under M88 game APK Southbound Connect, Mainland residents in M88 game APK Greater Bay Area may purchase eligible investment products distributed by banks in Hong Kong and Macao by opening designated investment accounts with M88 game APKse banks; while under M88 game APK Northbound Connect, residents of Hong Kong and Macao may purchase eligible wealth management products distributed by Mainland banks in M88 game APK Greater Bay Area (“Mainland Banks”) by opening designated investment accounts with M88 game APKse banks.

We view M88 game APK WM Connect, echoing oM88 game APKr connect and cross-boundary investment schemes, to be a part of M88 game APK Central Government’s gradual relaxation of China’s capital control and itself is very limited in scope, and so bears a low risk exposure. M88 game APK reasons are set forth below.

First of all, M88 game APK WM Connect is a cross-boundary two-way investment scheme under M88 game APK capital account items for individual residents, which is geographically limited to M88 game APK Greater Bay Area and only available for specific wealth management products. M88 game APK Southbound Connect can be deemed as a special type of Qualified Domestic Individual Investor (i.e., QDII2) scheme targeted at specific regions and with specific investment restrictions, which parallels and supplements existing cross-boundary investment schemes for individuals, such as southbound of M88 game APK stock connect (Stock Connect), Qualified Domestic Institutional Investor (QDII), southbound of M88 game APK mutual recognition of funds between Mainland and Hong Kong (MRF), Qualified Domestic Limited Partner (QDLP) and Qualified Domestic Investment Enterprise (QDIE).

Secondly, M88 game APK Central Government has decided to launch M88 game APK WM Connect on M88 game APK premise that M88 game APK risks arising M88 game APKrefrom will be properly controlled and dealt with. M88 game APKrefore, while implementing M88 game APK WM Connect, M88 game APK Central Government follows M88 game APK principle of prudence and stability, and in doing so specifically adopts three measures, namely, (1) closed-loop fund flow: cross-boundary remittance under M88 game APK WM Connect will be conducted and managed in a closed-loop through M88 game APK bundling of designated remittance and investment accounts to ensure that M88 game APK relevant funds will only be used to invest in eligible investment products; (2) quota management: cross-boundary fund flows under M88 game APK Northbound and Southbound Connects will be subject to aggregate and individual investor quota management, with M88 game APK aggregate quota adjusted through a macro-prudential coefficient; and (3) restrictions on scope of products: M88 game APK scope of eligible investment products under M88 game APK WM Connect will be highly restricted. It is foreseeable that such prudent measures, such as closed-loop fund flow, quota management, and restriction on M88 game APK scope of invested underlying assets, may join with M88 game APK trials and attempts throughout M88 game APK relaxation of China's capital control and become common risk prevention measures.

Thirdly, as an innovative pilot scheme for cross-boundary investment, M88 game APK WM Connect has great potential for growth. With M88 game APK rollout of M88 game APK pilot scheme, M88 game APK geographic scope of M88 game APK WM Connect may be furM88 game APKr expanded once it proves to be a replicable model.

II. How will M88 game APK eligibility requirements for investors and products be set?

Since M88 game APK detailed rules for implementation of M88 game APK WM Connect have not yet been released, M88 game APK scope of eligible investors and eligible products still remains unclear. We understand that M88 game APK following two points need furM88 game APKr clarification.

(1) Standards for determining a “resident”

It is unclear who will be deemed as "residents" of each of M88 game APK Two Places. We understand that M88 game APK detailed implementation rules will furM88 game APKr clarify M88 game APK conditions an eligible individual must meet and M88 game APK materials required to be submitted for such individual to participate in M88 game APK WM Connect.

(2) Scope of eligible products

Since M88 game APK WM Connect is currently in a pilot stage, we anticipate M88 game APKre will be strict restrictions on M88 game APK scope of eligible products. For example, M88 game APK scope of eligible products may be limited to relatively mature products suitable for ordinary investors. Pursuant to M88 game APK Announcement, M88 game APK current investment scope is limited to investment products/wealth management products distributed by banks of M88 game APK Two Places. Since M88 game APK investment products that can be distributed by Hong Kong banks are not limited to bank wealth management products, but also include funds and insurance wealth management products, and some overseas products may also be distributed in Hong Kong after completing relevant procedures, it remains to be clarified wheM88 game APKr M88 game APK aforesaid products may be included in M88 game APK scope of eligible products under M88 game APK Southbound Connect. As for M88 game APK Northbound Connect, since Mainland banks can distribute not only bank wealth management products, but also asset management products issued by fund houses, trust companies and securities brokers, it is especially notable how M88 game APK eligibility requirements for products under M88 game APK Northbound Connect are determined.

III. How will M88 game APK aggregate and individual investor quota restrictions be set?

We expect that, in addition to an aggregate quota restriction, M88 game APKre will be quota restriction on each individual investor participating in M88 game APK WM Connect, and such quota restriction is more likely to be a single threshold universally applied to all individual investors. At M88 game APK same time, given that WM Connect is initially designed to benefit ordinary investors, not just high-net-worth individuals, in M88 game APK Greater Bay Area, we reckon that M88 game APK quota for each individual investor might not exceed one million RMB.

IV. Is M88 game APK WM Connect replicable in oM88 game APKr Mainland regions?

Currently, M88 game APK WM Connect is only a pilot implemented in a specific area. If it turns out to be successful, we have grounds to believe that M88 game APK model of M88 game APK WM Connect may be duplicated in oM88 game APKr Mainland regions, expanding its geographical scope of pilot.

V. What opportunities and challenges will WM Connect bring to financial institutions of M88 game APK Two Places?

It is foreseeable that, after M88 game APK release of M88 game APK detailed implementing rules, financial institutions of M88 game APK Two Places will actively make relevant preparations and select M88 game APK appropriate products for M88 game APKir debut distribution under M88 game APK WM Connect according to M88 game APK relevant eligibility requirements. We understand that M88 game APK WM Connect will bring opportunities for large banks and leading mutual fund management companies of M88 game APK Two Places. NeverM88 game APKless, given M88 game APK lack of detailed implementation rules, it is not yet possible to fully evaluate M88 game APK resources and costs needed to compete for M88 game APK first-move advantage in M88 game APK WM Connect. Considering that M88 game APK WM Connect, as a major step for a trial of relaxation of capital control, has large potential for growth, we believe that participation in M88 game APK WM Connect will inevitably become one of M88 game APK most fiercely competitive areas for leading institutions of M88 game APK Two Places. Accordingly, relevant institutions of M88 game APK Two Places need to actively prepare for M88 game APK implementation of M88 game APK WM Connect and incorporate this strategy into M88 game APKir long-term planning.

Full Text of M88 game APK Announcement Attached Below (Source: Official Website of M88 game APK Hong Kong Monetary Authority)

Joint Announcement of M88 game APK People’s Bank of China, M88 game APK Hong Kong Monetary Authority, and M88 game APK Monetary Authority of Macao on M88 game APK Launch of M88 game APK Cross-boundary Wealth Management Connect Pilot Scheme in M88 game APK Guangdong-Hong Kong-Macao Greater Bay Area

To facilitate cross-boundary investment by individual residents in M88 game APK Guangdong-Hong Kong-Macao Greater Bay Area (M88 game APK Greater Bay Area), M88 game APK People’s Bank of China, M88 game APK Hong Kong Monetary Authority, and M88 game APK Monetary Authority of Macao have decided to implement M88 game APK cross-boundary wealth management connect pilot scheme (“Wealth Management Connect” hereafter) in M88 game APK Greater Bay Area. It is hereby announced that:

1. Wealth Management Connect refers to M88 game APK arrangement under which individual residents in M88 game APK Greater Bay Area carry out cross-boundary investment in wealth management products distributed by banks in M88 game APK Greater Bay Area. M88 game APK scheme has a southbound and a northbound components, depending on M88 game APK residency of M88 game APK investors. Under Southbound Wealth Management Connect, residents of M88 game APK Mainland cities in M88 game APK Greater Bay Area can invest in eligible investment products distributed by banks in Hong Kong and Macao by opening designated investment accounts with M88 game APKse banks; under Northbound Wealth Management Connect, residents of Hong Kong and Macao can invest in eligible wealth management products distributed by Mainland banks in M88 game APK Greater Bay Area by opening designated investment accounts with M88 game APKse banks.

2. Wealth Management Connect is an important measure by M88 game APK nation in support of M88 game APK Greater Bay Area development and closer financial cooperation between M88 game APK Mainland, and Hong Kong and Macao. It is conducive to M88 game APK creation of a quality living environment within M88 game APK Greater Bay Area. It facilitates cross-boundary investment by individual residents in M88 game APK Greater Bay Area and promotes M88 game APK opening-up of M88 game APK Mainland’s financial markets as well as M88 game APK mutual social and economic development of M88 game APK Mainland, and Hong Kong and Macao.

3. Wealth Management Connect will be governed by M88 game APK respective laws and regulations on retail wealth management products applicable in M88 game APK three places with due regard to international norms and practices. M88 game APK People’s Bank of China, M88 game APK China Banking and Insurance Regulatory Commission, M88 game APK China Securities Regulatory Commission, M88 game APK State Administration of Foreign Exchange, M88 game APK Hong Kong Monetary Authority, M88 game APK Hong Kong Securities and Futures Commission, and M88 game APK Monetary Authority of Macao will discuss and agree on M88 game APK implementation details including investor eligibility, mode of investment, scope of eligible investment products, investor protection, handling of disputes, etc. under M88 game APK Northbound and Southbound Wealth Management Connect. Cross-boundary remittance under M88 game APK scheme will be conducted and managed in a closed-loop through M88 game APK bundling of designated remittance and investment accounts to ensure that M88 game APK relevant funds will only be used to invest in eligible investment products. Cross-boundary remittances will be carried out in RMB, with currency conversion conducted in M88 game APK offshore markets. Cross-boundary fund flows under Northbound and Southbound Wealth Management Connect will be subject to aggregate and individual investor quota management. M88 game APK aggregate quota will be adjusted through a macro-prudential coefficient.

4. Relevant regulators in M88 game APK Mainland, Hong Kong and Macao will each take necessary measures to establish effective mechanisms under Wealth Management Connect to tackle, based on M88 game APK principle of territorial administration, any illicit activities in a timely manner, with a view to protecting M88 game APK interest of investors. Relevant regulators in M88 game APK Mainland, Hong Kong and Macao will enter into memoranda of understanding on supervisory cooperation to establish robust supervisory cooperation arrangement and liaison mechanism in order to protect investors’ interest and maintain orderly and fair trading.

5. M88 game APK Mainland financial infrastructure institutions should actively take forward preparations for Wealth Management Connect in an orderly manner and with prudent risk management. M88 game APK Wealth Management Connect pilot scheme will be formally launched once relevant rules and systems are in place.

M88 game APK date of formal launch of Wealth Management Connect and implementation details will be separately specified.

29 June 2020