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China’s securities watchdog revising investment-fund laws to boost accountability, confidence in line with 9 guidelines

  • The role of fund managers and custodians will be strengthened, and the cost of rule violations will increase substantially, a lawyer says
  • ‘Likely rise of institutional capital and ETFs could boost the “quality premium” for large-cap stable growers,’ according to Goldman Sachs

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A Chinese national flag flutters outside the China Securities Regulatory Commission building on Financial Street in Beijing, on July 9, 2021. Photo: Reuters
Yuke Xiein Beijing

China’s stock-market watchdog is actively revising the country’s long-standing securities investment fund law, with analysts anticipating increased accountability for fund managers and greater confidence among overseas investors.

The work by the China Securities Regulatory Commission (CSRC) is a direct response to the nine guidelines recently unveiled by the country’s cabinet, which aim to mitigate risks in the capital markets. The proposed revisions are also expected to enhance the protection of investors’ legal rights, they said.

“The role of fund managers and custodians will be further strengthened, and the cost of illegal activities and rule violations will increase substantially,” said Su Jinyu, an associate at Jingtian & Gongcheng, a Beijing-based law firm.

“The revised securities investment fund law could further enhance the protection system for small and medium-sized investors by clearly stipulating fund managers’ suitability obligations.”

Pedestrians touch the Bund Bull in Shanghai on February 19, 2024. Photo: Bloomberg
Pedestrians touch the Bund Bull in Shanghai on February 19, 2024. Photo: Bloomberg

Suitability obligations require financial institutions to sell suitable products to clients to prevent issues relating to information asymmetry.

The State Council’s rules around private investment funds, unveiled in July 2023, stipulated that “the administrative measures for foreign-funded privately offered fund managers shall be formulated by the securities regulatory authority of the State Council together with the relevant departments under the State Council.”

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