2020.04.14 XIE, Qing (Natasha)、QIN, Tianyu
April 1, 2020 marked the formal removal of all limits on the foreign ownership in securities companies and fund management companies (FMC), and on the same day this sentiment was echoed in the publication on the website of the China Securities Regulatory Commission (CSRC) that both Blackrock and Neuberger Berman have filed an application with the CSRC for setting up their wholly-owned FMCs. Just one day later, the joint venture between Vanguard and Ant Financial launched its fund investment advisory platform “Bang Ni Tou” (in Chinese, 帮你投).
Here below is a quick update of recent developments on foreign institution’s entering into China financial market.
Foreign-Owned Securities Companies, FMCs and Futures Companies
1. Foreign-Owned Securities Companies
No.
Foreign Investors
Company Name
Method for Holding Controlling Stakes
1
UBS Group AG
UBS Securities Co. Limited
Acquired equity from two other shareholders (14% and 12.01% respectively), resulting a holding of 51% equity upon acquisition.
2
Morgan Stanley
Morgan Stanley Huaxin Securities Co., Ltd.
Acquired equity from China Fortune Securities Co., Ltd. and Morgan Stanley Asia Limited (2% and 49% respectively), result a holding of 51% equity upon acquisition.
3
Goldman Sachs Group, Inc.
Goldman Sachs Gaohua Securities Co., Ltd.
Acquired equity equivalent to RMB 264,000,000 and subscribed newly-issued equity equivalent to RMB 293,877,551, resulting a holding of 51% equity upon acquisition and subscription.
4
J.P. Morgan International Finance Limited
J.P. Morgan Securities (China) Company Limited
Newly-established with a 51% shareholding
5
Nomura Holdings, Inc.
Nomura Orient International Securities Co., Ltd.
Newly-established with a 51% shareholding
2. Foreign-Owned FMCs
No. | Foreign Investor | Company Name | Method for Holding Controlling Stakes |
1 | BlackRock Financial Management | / | Newly-established, wholly-owned. |
2 | Neuberger Berman Investment Advisers LLC | / | |
3 | JP Morgan Fleming Asset Management (UK) Limited (“JP Morgan”) | China International Fund Management Co., Ltd. (“CIFM”) | JP Morgan announced that it has reached a preliminary commercial consensus with Shanghai International Trust Co., Ltd. ("Shanghai International Trust") to acquire 51% of equity of CIFM from Shanghai International Trust, thereby obtaining 100% equity in CIFM. |
3. Foreign-Owned Futures Companies
According to the CSRC website, JPMorgan Chase Futures Co., Ltd., in which J.P. Morgan Broking (Hong Kong) Limited now holds 49%, has applied to change its controlling shareholder, which is currently under review by the CSRC.
Bank Wealth Management Subsidiaries
Amundi Asset Management, a wholly owned subsidiary of Amundi, and Bank of China Wealth Management, a wealth management subsidiary of Bank of China, have received an approval from the China Banking and Insurance Regulatory Commission (CBIRC) to set up an asset management joint venture company. Moreover, Blackrock and Temasek reportedly will set up an asset management joint venture company with China Construction Bank.
Fund Investment Advisory Business
On April 2, 2020, Xianfeng Linghang Tougu (Shanghai) Investment Consultancy Company Limited (“Vanguard/Ant JV”), the joint venture between Ant (Hangzhou) Fund Sales Co., Ltd. and Vanguard Investment Management (Shanghai) Limited, officially launched its fund investment advisory platform “Bang Ni Tou” on Alipay to conduct fund investment advisory service business. Fund investment advisory services are still conducted under pilot programs in China. Reportedly thus far a total of 18 institutions – including fund management companies (subsidiaries), third-party distribution institutions, banks and securities companies – have been granted approvals for their pilot programs in fund investment advisory services, among which, only Vanguard/Ant JV is foreign-invested.
Pursuant to the Circular on Investment Advisory Business Pilot Program for Public Securities Investment Funds (“Circular”) issued by the CSRC on October 25, 2019, institutions that obtain a pilot approval for conducting the fund investment advisory business may provide discretionary fund investment advisory services, that is, such pilot institutions may provide discretionary management services for their clients’ fund accounts, advise their clients on fund portfolio strategies in accordance with the entrustment agreements and charge investment advisory fees. The main features of fund investment advisory services are as follows:
a)Client: Individual investor;
b)Discretionary Management: A pilot institution may decide the scope of the underlying fund types, quantities and trading time on behalf of the client within the scope of the authorization designated by the client and in accordance with the investment portfolio strategies agreed upon with the client; and may apply for the purchase, redemption and transfer of the fund units on behalf of the client.
c)The investment targets proposed by the fund portfolio strategies shall be limited to public funds or similar products recognized by the CSRC.
An institution that intends to offer fund investment advisory services shall first obtain the pilot qualification from the CSRC and then pass the on-site inspection conducted by the local bureau of the CSRC where it resides.
Our Observations
At present, all limits on the foreign ownership of securities companies, FMCs and futures companies have been officially removed. Additionally, the CBIRC is encouraging foreign investors to form joint ventures with banks for the wealth management businesses. At a press conference with the State Council Information Office on March 22, 2020, LI Chao, the vice chairman of the CSRC, pointed out that the opening-up of the capital market involves access to both capital markets and licenses to establish regulated entities, and China will stay on the path of opening-up. We expect that in the future, more foreign asset managers may participate in the opening up of China's financial market through the establishment of wholly foreign-owned or joint venture securities companies, FMCs, futures companies, as well as bank wealth management subsidiaries.
