Overview of MRF
Mutual Recognition of Funds (MRF) between mainland China and Hong Kong is a scheme jointly launched by the China Securities Regulatory Commission (CSRC) and Hong Kong Securities and Futures Commission (SFC). Under the scheme, eligible Mainland and Hong Kong funds can be distributed in each other’s market through a streamlined vetting process.
The CSRC and SFC have set out eligibility requirements, application procedures, operational and regulatory arrangements of the MRF. They have also established a cooperation mechanism for cross-border regulation and enforcement as well as a framework for exchange of information and regulatory cooperation to ensure that Mainland and Hong Kong investors will have equal protection. MRF has been implemented since 1 July 2015 and the initial investment quota will be RMB300 billion for in and out fund flows each way.
How does MRF work?
MRF operates on the principles that, in respect of a fund that has been authorised by or registered with the relevant authority in one jurisdiction (home jurisdiction), it is generally deemed to have complied in substance with the relevant requirements of the other jurisdiction (host jurisdiction), and thus it will enjoy a streamlined process for the purpose of authorisation for offering to the public in the host jurisdiction.
There are, however, areas where regulations and market practices in the Mainland and Hong Kong differ, and may not be catered for a fund’s offering in the host jurisdiction. To ensure proper investor protection and consistency with the requirements of existing SFC-authorised funds, the SFC has set out the additional authorisation requirements for Mainland funds that seek to be distributed in Hong Kong. Likewise, the CSRC also issued separate rules regarding the approval of eligible Hong Kong funds for offering to the public in the Mainland.
The management firm of the fund shall ensure investors of both the home jurisdiction and host jurisdiction receive the same treatment and that treatment should be fair, including in respect of investor protection, exercise of rights, compensation and disclosure of information.
Why is MRF important?
Following the launch of the Shanghai-Hong Kong Stock Connect, the MRF is another major breakthrough further promoting financial development and cooperation between the Mainland and Hong Kong. This is the first time that retail funds outside the Mainland are allowed to be sold in the Mainland and also the first attempt that Mainland retail funds can be marketed in a jurisdiction outside the Mainland. The MRF not only opens up development opportunities for the Mainland and Hong Kong fund markets, but also provides investors in both markets with a more diverse range of fund products.
Although there are already some funds that invest in the Mainland capital market (eg RQFII funds, QFII funds), the MRF provides a new channel for Hong Kong investors to access the Mainland market via investing in the funds managed by fund companies in the Mainland. Investors in Hong Kong will have more choices of fund products and they can make use of the different types of Mainland funds to further diversify their portfolios.