Recently, the People's Bank of China and the State Administration of Foreign Exchange jointly issued a notice to revise the "Regulations on the Management of Domestic Securities and Futures Investment Funds for Overseas Institutional Investors" (hereinafter referred to as the "Regulations"), further optimizing the cross-border fund management of qualified overseas institutional investors and RMB qualified overseas institutional investors (QFII/RQFII). The Regulations shall come into effect on August 26, 2024.
The newly revised "Regulations" mainly include: firstly, further simplifying the business registration procedures. Clarify that QFII/RQFII business registration is handled through the main reporter (custodian) on the State Administration of Foreign Exchange's digital foreign exchange management platform, and clarify the matters of change registration and cancellation registration. The second is to further optimize account management. Merge RMB special deposit accounts used for securities trading or derivative trading, reduce the number of accounts required for operating entities to carry out different types of investments, and lower their cost burden. The third is to further improve exchange management. Optimize the management of QFII/RQFII cross-border fund flows, improve the principles of currency management for outbound and inbound transactions, and facilitate the allocation of domestic securities assets by overseas institutional investors. The fourth is to unify the foreign exchange risk management model of QFII/RQFII and direct entry into the interbank bond market (CIBM). On the premise of following the principles of actual trading and hedging, it is clarified that QFII/RQFII can handle spot foreign exchange settlement and sale and foreign exchange derivative transactions through more channels such as domestic financial institutions with foreign exchange settlement and sale business qualifications other than custodians, interbank foreign exchange markets, etc.
A person close to the central bank told reporters that the "Regulations" will help establish concise and unified rules for managing funds in onshore open channels for securities investment, improve the convenience level of QFII/RQFII investment in China's capital market, and further enhance the quality of capital account opening.
Beneficial for attracting more long-term capital
The above-mentioned individuals close to the central bank pointed out that this policy revision aims to better coordinate development and security, and promote high-level opening of the domestic financial market.
Firstly, it helps to construct concise and consistent cross-border securities investment channel fund management rules in an orderly manner. With the steady progress of the opening of the domestic financial market, the People's Bank of China and the State Administration of Foreign Exchange have further promoted the fund management rules involved in foreign investors' investment in China's capital market through QFII/RQFII channels and investment in China's bond market through CIBM channels, and orderly promoted the gradual unification of the fund management rules of the two channels.
According to its introduction, after the adjustment of the scope of income and expenditure of QFII/RQFII special accounts and the way QFII/RQFII institutions conduct spot foreign exchange settlement and sale and foreign exchange derivative product trading, the registration, exchange, foreign exchange risk management and other rules of QFII/RQFII and CIBM channels have been basically unified. The fund management rules that foreign investors need to follow when entering the Chinese capital market and bond market are more concise.
The second is to demonstrate my firm determination to expand opening up to the outside world. The Third Plenary Session of the 20th Central Committee of the Communist Party of China emphasized the need to improve the high-level system and mechanism for opening up to the outside world. The qualified foreign investor system is an important institutional arrangement for the opening up of China's financial market and has attracted much attention from foreign investors. In the current external environment, further simplifying the management requirements for domestic securities investment funds for overseas investors once again demonstrates China's firm determination to expand its opening-up to the outside world, which is conducive to enhancing the investment confidence of overseas institutional investors and attracting more long-term capital in the future.
Thirdly, it is conducive to further improving the convenience level of QFII/RQFII. In order to implement the requirements of the Central Financial Work Conference on "steadily expanding institutional opening-up in the financial sector and improving cross-border investment and financing facilitation", the revision of regulations, on the premise of effective risk prevention and control, appropriately relaxes the restrictions on currency remittance, simplifies registration and exchange procedures, simplifies accounts, etc., further enhancing the convenience level of foreign investors investing in China's capital market through QFII/RQFII channels.
20 years of active exploration
The qualified foreign investor system refers to allowing foreign institutional investors who meet certain conditions to open funds and securities accounts in China, transfer foreign currency or local currency from overseas, and carry out securities investment systems that comply with regulations. Approved by the State Council, China implemented the Qualified Foreign Institutional Investor (QFII) system in 2002 and the Renminbi Qualified Foreign Institutional Investor (RQFII) system in 2011.
The QFII and RQFII systems are basically the same in terms of regulatory framework and process, investment operation mode, etc., except for the different currencies involved in outgoing and incoming transactions. The QFII/RQFII system has played an important role in promoting the opening up of China's capital market to the outside world under the premise of controllable risks.
Since the implementation of the QFII/RQFII system, the People's Bank of China and the State Administration of Foreign Exchange have been committed to continuously improving and optimizing the relevant fund management system. They have revised the relevant foreign exchange management regulations three times in 2009, 2016, and 2018 respectively, steadily relaxing exchange restrictions and simplifying the quota management process.
In September 2019, with the approval of the State Council, the QFII/RQFII investment quota restrictions were officially lifted, including total quota restrictions, quota management requirements for individual institutions, and restrictions on RQFII pilot countries and regions.
In May 2020, the People's Bank of China and the State Administration of Foreign Exchange issued the "Regulations on the Management of Domestic Securities and Futures Investment Funds for Overseas Institutional Investors", which clarified the requirements for fund management and registration after the cancellation of the quota.
In November 2023, the People's Bank of China and the State Administration of Foreign Exchange revised the "Regulations on the Management of Domestic Securities and Futures Investment Funds for Overseas Institutional Investors", forming the "Regulations on the Management of Domestic Securities and Futures Investment Funds for Overseas Institutional Investors (Draft for Comments)" and publicly soliciting social opinions, aiming to implement the deployment requirements of the Central Financial Work Conference on "strengthening market rules, creating a unified and coordinated financial market, promoting long-term capital formation", further promoting the high-level opening of the "onshore mode" of the domestic financial market, improving the convenience level of QFII/RQFII investment in the Chinese capital market, and gradually building concise and unified securities investment onshore open channel fund management rules.
Industry insiders also told reporters that after the implementation of the new regulations, it will help shorten the process for foreign institutional investors to enter the market, improve their fund management efficiency, and further activate the domestic foreign exchange market. It is expected to attract more foreign institutions to deeply participate in the domestic securities market.