On 27 June 2018, the China Security Regulatory Commission (the CSRC) issued the Interim Provisions for Securities and Funds Operators to Use Securities Investment Consulting Services from Hong Kong Institutions (the Interim Provisions), which took effect on 1 July 2018. These Interim Provisions enable further cooperation between professional financial service providers in both mainland China and Hong Kong markets.
Since 2016, CSRC has allowed qualified HK institutions to issue research reports to PRC investors on HK stocks in the name of its PRC affiliates (e.g. its securities joint venture subsidiary, its securities investment advisory joint venture subsidiary, or its parent company in China). The Interim Provisions introduce two new types of services which can be offered by qualified HK institutions to PRC investors relating to the HK stock market under the relevant mainland-Hong Kong Stock Connect scheme (Southbound Investment):
- A qualified HK institution is permitted to issue the advisory research report relating to the Southbound Investment in its own name and authorise PRC securities companies or their subsidiaries to forward the report to their clients (Research Report Service); and
- A qualified HK institution is permitted to be engaged by PRC securities companies or fund managers to provide investment advisory services relating to the Southbound Investment made by the securities investment funds managed by such PRC securities companies or fund managers (Investment Advisory Service).
In order to become a qualified institution to provide the above services, the HK institutions, amongst others, need to obtain the requisite licence/permit issued by the Securities and Futures Commission in Hong Kong. Also, where a qualified HK institution is being engaged to provide the Investment Advisory Service it must file its basic information with the China Asset Management Association.
The Chinese Government has allowed qualified institutional investors to make investments in overseas financial products for more than a decade. These existing regimes more or less have permitted qualified overseas financial services providers to offer investment advisory services to qualified domestic institutional investors. However, the Interim Provisions add a further dimension, qualified individuals may also become investors in HK stocks falling within the Southbound Investment. Given this the Interim Provisions may be deemed as a big step forward for qualified foreign financial services providers who offer the foregoing mentioned services to PRC individual investors.