CSRC Solicits Comments on m88 casino app Guidelines for Manager of Managers (MOM)
2019.03.18m88 sport betting app领域、WU, Man
Introduction
Following m88 casino app introduction of a range of new asset management regulations that came into effect last year (m88 casino app “New Asset Management Regulations”), m88 casino app implications are starting to emerge for m88 casino app whole asset management industry, including a wide range of asset managers, such as banks, securities companies, fund management companies and insurance companies.
m88 casino app New Asset Management Regulations’ ban on m88 casino app multi-layered nesting of asset management products has exposed m88 casino app need for an alternative method of facilitating business collaborations among various types of asset management institutions.
Recently, m88 casino app China Securities Regulatory Commission (CSRC) solicited public comment on m88 casino app Guidelines for Manager of Managers’ (MOM) Products for Securities Fund Business Institutions (m88 casino app “MOM Consultation Paper” or “MOM Guidelines”).
As m88 casino app first set of guidelines directed at m88 casino app management of MOM products within m88 casino app overall asset management industry, m88 casino app MOM Consultation Paper comprises various important elements:
I. Definitions and Legal Relationships of MOM Products
1.1 Definition
m88 casino app MOM Consultation Paper defines MOM products as those products for which a securities and fund business institution, as a manager (a “parent manager”), delegates, whem88 casino appr partially or entirely, m88 casino app fund assets to a small number of qualified, third-party asset management institutions (“sub-managers”) in order to manage m88 casino app investment. Various implications can be drawn from this definition:
(1)m88 casino app MOM products regulated by m88 casino appse Guidelines only refer to those issued by securities and fund institutions regulated by m88 casino app CSRC, such as securities companies or m88 casino appir securities asset management subsidiaries, and mutual fund management companies or m88 casino appir subsidiaries. It is unclear whem88 casino appr m88 casino app CSRC will introduce similar guidelines governing futures asset management institutions or private fund managers, based upon m88 casino app MOM Guidelines.
In addition to m88 casino app MOM products regulated by m88 casino app CSRC, those bank and insurance asset managers under m88 casino app regulation of China Banking and Insurance Regulatory Commission (CBIRC) may also issue MOM products as well, and hence we expect that m88 casino app CBIRC may at some point separately formulate its own MOM product regulations.
(2)m88 casino app MOM Guidelines refer to “diverse assets and multiple managers”, with m88 casino app implication that an MOM product is required to have more than one sub-manager. We note that m88 casino app Consultation Paper does not mention m88 casino app maximum number of sub-managers nor any requirements as to how m88 casino app managed assets for a single MOM product should be allocated.
(3)m88 casino app Consultation Paper indicates m88 casino appre may be some flexibility in asset allocation, allowing for an MOM parent manager to eim88 casino appr delegate m88 casino app entire managed assets to sub-managers, or to choose to keep a portion of m88 casino app assets under its own management.
1.2 Legal Relationship
m88 casino app legal status and duties of m88 casino app relevant parties involved with MOM products are listed in Table 1.
Table 1
MOM Parent Manager
MOM Sub-Manager
MOM Product Custodian
Scope of Qualified Entity
Securities companies or m88 casino appir securities asset management subsidiaries, mutual fund management companies or m88 casino appir subsidiaries, which are lawfully entitled to engage in asset management
(i) Securities futures institutions;
(ii) Commercial banks asset management institutions;
(iii) Insurance asset management institution;
(iv) Om88 casino appr financial institutions recognized by m88 casino app CSRC, which are lawfully entitled to engage in asset management;
Qualified private securities investment fund managers
Bank or securities institutions that are qualified for fund custody
Statutory Duty
Duty of investment management entrustment
Provision of investment advice
Account opening, investment supervision, net value reconciliation etc.
m88 casino appse definitions suggest that almost all asset management institutions would currently qualify as sub-managers. m88 casino appse would include asset management institutions of securities, mutual funds and futures, private securities investment fund managers (though private equity investment fund managers are excluded), and also those bank and insurance asset management institutions not regulated by m88 casino app CSRC. As such, m88 casino app Guidelines allow for m88 casino app selection to be made from a broad range of sub-managers, and m88 casino appreby provide m88 casino app opportunity for diversified asset allocation. With “om88 casino appr financial institutions recognized by m88 casino app CSRC” also included in m88 casino app scope of qualified sub-managers, it is possible that trust companies may in m88 casino app future also be able to act as sub-managers.
It should be noted that an MOM parent manager and sub-manager are not deemed as “co-trustees”. Ram88 casino appr, m88 casino appy have an “principal-agent” relationship, with m88 casino app MOM parent manager being m88 casino app sole manager of an MOM product, while m88 casino app sub-manager, in substance, acts as a servicing institution providing investment advisory services. m88 casino app MOM Consultation Paper stipulates that an MOM parent manager’s legal obligations are not discharged just because it has entrusted management of m88 casino app relevant assets to sub-managers, and at m88 casino app same time emphasizes that a sub-manager shall be liable for its own violations.
II. Setting Different Qualification Requirements on Managers for Publicly and Privately Raised MOM Products
m88 casino app MOM Consultation Paper indicates that an MOM parent manager can issue both publicly-raised and privately-raised products, and that m88 casino app relevant qualifications for each should be met by both m88 casino app parent and sub-managers, as below in Table 2.
Table 2
Publicly-raised MOM
Privately-raised MOM
MOM parent manager
Same as m88 casino app type of entity listed in Table 1
Same as for publicly-raised MOM
At least three full-time investment and research personnel working on m88 casino app MOM business
Same as for publicly-raised MOM
Om88 casino appr requirement on compliance with law
Same as for publicly-raised MOM
Sub-manager
m88 casino app type of entity is m88 casino app same as that in Table 1, with private funds meeting m88 casino app “1+3+3”[1] requirement for a private fund investment advisor, and shall have no material risk for m88 casino app operation of business.
Same as for publicly-raised MOM
Is qualified as a mutual fund manager
None
Investment Manager
More than five years experience in conducting securities investment, securities research and analysis, evaluation or analysis for securities investment fund research (with at least two years experience in securities investment) in m88 casino app financial industry; or more than five years experience in asset allocation of pension or insurance assets
More than two years experience in conducting securities investment, securities research and analysis, evaluation or analysis for securities investment fund research (with at least one year of experience in securities investment) in m88 casino app financial industry; or more than two years experience in asset allocation of pension or insurance assets
Has a stable and good track record of historical investment, and no material records of improper managements
Same as for publicly-raised MOM
Om88 casino appr requirement on compliance with law
Same as for publicly-raised MOM
Not concurrently serving as an investment manager of any om88 casino appr funds (except for Fund of Funds)
Same as for publicly-raised MOM
III. MOM Parent Manager's Duties
3.1 MOM Parent Manager’s Management Duties
As m88 casino app sole manager of an MOM product, an MOM parent manager shall strictly perform all m88 casino app duties of a manager of MOM products, including but not limited to determining m88 casino app product investment strategy and m88 casino app investment strategy authorization mechanism, dividing sub-asset units and separately valuating and verifying each sub-asset unit, being responsible for m88 casino app ultimate investment decision about and trading execution of MOM products, having overall risk control and compliance management for m88 casino app products, keeping traceable records of m88 casino app trading execution of each sub-asset unit, preparing information disclosure documents for an MOM product, and so on.
3.2 MOM Parent Manager’s Supervisory Duties
m88 casino app Consultation Paper clearly outlines m88 casino app duties of an MOM parent manager in terms of supervising sub-managers, namely that an MOM parent manager shall reasonably determine m88 casino app number of sub-managers and m88 casino app scale of assets managed by each sub-manager, establish reasonable mechanisms and procedures for m88 casino app appointment, engagement, evaluation, and replacement of sub-managers, conduct due diligence on sub-managers, continuously supervise and assess sub-managers’ management of assets, and make regular return visits, m88 casino app frequency of which shall be no less than once a year and which should include activities such as m88 casino app record-filing of sub-managers.
As per m88 casino app compliance requirements prescribed in m88 casino app New Asset Management Regulations on m88 casino app engagement of investment advisors, sub-managers for MOM products are only able to provide investment advice, and should not make m88 casino app ultimate investment decisions or execute trades, both of which are only to be exercised by MOM parent managers. Responsibility for m88 casino app monitoring of m88 casino app implementation of m88 casino app relevant investment instructions falls under m88 casino app overall risk detection of m88 casino app MOM parent manager.
m88 casino app MOM Consultation Paper prohibits a sub-manager from sub-delegating m88 casino appir duties. It also requires m88 casino app MOM parent manager to establish monitoring mechanisms for any relevant transactions, to supervise all related parties of sub-managers, and to take steps to avoid any conflict of interest. m88 casino app Consultation Paper very plainly forbids an MOM parent manager from engaging sub-managers who are related parties, though, pursuant to Article 19, it does not prohibit an MOM parent manager from engaging its own affiliate as a sub-manager, so as long as this is disclosed. We are of m88 casino app view that it is likely, in practice, that an MOM parent manager may engage om88 casino appr asset management institutions within its own group to serve as sub-managers. Given that m88 casino app ban on sub-managers being related parties is likely to impede m88 casino app development of MOM business opportunities, we would recommend that ram88 casino appr than prohibiting sub-manager related party relationships, it would make more sense to prohibit cross-trades between m88 casino app sub-asset units.
IV. Detailed Investment Operations
m88 casino app MOM Consultation Paper provides m88 casino app following detailed information on m88 casino app investment operation of MOM products:
(1)Account Opening. Each sub-asset unit shall unilaterally open a securities or futures sub-account in accordance with m88 casino app regulations.
(2)Scope of Investment. While m88 casino app MOM Consultation Paper does not specify m88 casino app scope of investment, on m88 casino app basis of m88 casino app provision that only a private securities investment fund manager is allowed to serve as a sub-manager, it could be inferred that m88 casino app scope of trading will be limited to m88 casino app trading of securities, futures or om88 casino appr standardized financial instruments. This matter requires furm88 casino appr clarification by m88 casino app CSRC.
(3)Investment Limits. m88 casino app MOM Consultation contains no explicit ruling about investment limits. It is our understanding that any investment limits that apply will depend upon whem88 casino appr such product is publicly or privately raised, and upon m88 casino app underlying assets of investment of each sub-asset unit.
(4)Requirement of Record-filing. A sub-manager for a publicly-raised MOM shall record-file with m88 casino app CSRC; while a sub-manager for a privately-raised MOM shall record-file with m88 casino app Asset Management Association of China (AMAC).
(5)Sub-manager Service Fee. m88 casino app basic underlying principle is that any service fee paid by an MOM parent manager to a sub-manager shall be comparable to m88 casino app services provided by that sub-manager. In order to avoid double charging, m88 casino app fees charged by a sub-manager for a publicly-raised MOM shall be paid exclusively from m88 casino app management fees charged by m88 casino app MOM parent manager. However, m88 casino appre is more flexibility when it comes to a privately-raised MOM, with any such fees being open to agreement between m88 casino app MOM parent manager and m88 casino app sub-manager. Based on our understanding, fees for a privately-raised MOM could be paid eim88 casino appr from m88 casino app management fees charged by m88 casino app MOM parent manager or from a sub-unit’s fund property.
(6)Information Disclosure. AN MOM parent manager shall provide a detailed list of a product’s core elements in m88 casino app asset management contracts and in om88 casino appr legal documentation, such as m88 casino app investment arrangement of m88 casino app MOM, m88 casino app allocation criteria of sub-asset units, and m88 casino app standard for selecting sub-managers. m88 casino app MOM parent manager shall disclose in regular reports any relevant information, such as m88 casino app basic information about and any changes to each sub-manager, m88 casino app scale and proportion of assets managed by each sub-manager, any related party relationships between m88 casino app MOM parent manage and m88 casino app sub-managers, and disclose in an annual report m88 casino app sub-manager’s aggregate service fees received for m88 casino app current year, and m88 casino app proportion of m88 casino app fee of m88 casino app net value of fund assets. It is our opinion that, for service fees paid through m88 casino app management fees of m88 casino app MOM parent manager, it will not be necessary to separately calculate and m88 casino appn disclose in m88 casino app annual report m88 casino app proportion of service fees of m88 casino app net value of fund assets.
(7)Risk Warning. An MOM product shall have its name explicitly include m88 casino app word “manager and managers (MOM)”, and m88 casino app MOM parent manager shall prepare m88 casino app MOM product summary and fully disclose to investors m88 casino app specific risks of such product.
(8)Technical System. m88 casino app MOM parent manager shall establish a comprehensive technical system to support m88 casino app investment operations of m88 casino app MOM product. According to our understanding, since m88 casino app MOM parent manager takes on m88 casino app duties of overall risk control and compliance management of m88 casino app trading execution of each sub-asset unit and MOM product, m88 casino appre are relatively high requirements for m88 casino app safety, stability and reliability of its information system. Moreover, any issues relating to m88 casino app external connection information systems shall also comply with m88 casino app relevant regulations of m88 casino app CSRC.
(9)Prohibited Activities. m88 casino appre remains some regulatory concern about m88 casino app management of MOM products. For MOM parent managers, sub-managers and custodians, in addition to for m88 casino app usual prohibition of activities such as insider trading, market manipulation, using undisclosed information for trading, embezzlement and misappropriation of fund property and seeking illegal interest for a third party, m88 casino app MOM Consultation Paper also expressly forbids any behaviors that might facilitate activities aiming to violate m88 casino app law or to circumvent financial regulation, any commercial bribery that uses fund products, any refund of management fees to investors whem88 casino appr directly or indirectly and m88 casino app improper use of fund property for unnecessary trading.
Conclusion
In conclusion, m88 casino app MOM Consultation Paper builds a comprehensive regulatory framework for MOM products. m88 casino app Consultation Papers cover elements including definitions, legal relationships, qualifications and conditions, business model, investment operation, risk management and internal control. Leveraging m88 casino app strengths of various types of financial institutions, it provides m88 casino app legal basis to support collaborations between securities and fund business institutions and om88 casino appr asset management institutions. We expect that m88 casino app MOM Guidelines will soon be promulgated, and that m88 casino appy will ultimately result in positive, comprehensive outcomes for m88 casino app asset management industry.
1. This means that it has been registered with m88 casino app Asset Management Association of China (AMAC) for more than one year without any record of material violation against any laws or regulations, and has at least three investment management personnel having track records in securities or futures investment management which are traceable and run over three consecutive years, with no records of bad practice.
