New Amendment for QFII/RQFII Rules
Recently on 26th July 2024, the People’s Bank of China (PBC) and the State Administration of Foreign Exchange (SAFE) jointly released the latest revision of the Provisions on the Administration of Funds for Domestic Securities and Futures Investments of Foreign Institutional Investors (hereinafter as the Provisions). It marks another steady promotion in opening up China’s financial markets to the outside world.
The revision of the Provisions aims to further deepen the reform of foreign exchange management of Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors (QFIIs/RQFIIs), simplify registration procedures, optimize account and exchange management, and unify foreign exchange risk management models.
The Provisions are hereby promulgated and shall be implemented from 26 August 2024 onwards. The major amendments of the revision of the Provisions include:
- Further simplification of business registration procedures.
The focus is on enhancing operational convenience and regulatory transparency to ensure the efficiency and safety of cash flows. The revised provisions clarify that QFIIs/RQFIIs business registration is handled through the principal reporter (custodian) on SAFE’s digital foreign exchange control platform while clarifying the registration of changes and deregistration. This change aims to reduce redundant processes and accelerate the process while ensuring that all data and procedures are transparent and traceable.
- Further optimization of account management.
The revised provisions have reclassified and consolidated the types of accounts, and QFIIs/RQFIIs are now allowed to open a variety of specialized accounts, including foreign currency and RMB-specific accounts, as needed to meet different investment and fund transfer needs. In addition, no arbitrary transfer of funds between these accounts is allowed, ensuring the dedicated use and security of funds.
The consolidation of RMB-specific accounts for securities trading or derivatives trading reduces the number of accounts required to be opened by business entities to carry out different types of investments and lowers their cost burden.
- Further improvement of exchange management.
The provisions allow QFIIs/RQFIIs to flexibly choose the currency of inward remittance according to their actual needs and correctly transfer the funds to the corresponding dedicated account after the settlement of the remittance. Both remittance and inward remittance should be processed uniformly through the dedicated account, which not only increases the flexibility of operation but also provides the regulator with a better ability to monitor the flow of funds.
It optimizes the management of QFIIs/RQFIIs cross-border fund flows, improves the principle of currency management of remittances and inward remittances, and facilitates the allocation of domestic securities assets by foreign institutional investors.
- Unification of foreign exchange risk management regarding direct bond market access (CIBM) models between QFII/RQFII and banks.
On the premise of following the principle of real trading and hedging, QFII/RQFII can handle spot settlement and sale of foreign exchange and foreign exchange derivatives transactions through domestic financial institutions other than the custodian with the qualification of settlement and sale of foreign exchange and the inter-bank foreign exchange market and other more ways. This includes not only trading directly with the custodian or other domestic financial institutions, but also applying to become a member of the China Foreign Exchange Trading Center to enter the inter-bank foreign exchange market directly for trading.
This measure will provide QFIIs/RQFIIs with more diversified foreign exchange risk hedging tools and help them effectively manage the risks that may be brought about by exchange rate fluctuations.
In conclusion
The implementation of the revision of the Provisions complements and improves the existing liberalization policy of China’s capital market. It not only helps to attract more foreign capital into the Chinese market but also enhances the stability and transparency of the market by standardizing fund management. This will promote further integration between China and the global financial market and provide foreign investors with more efficient and safer investment channels.
Some experts believe that the new revision of the Provisions will greatly enhance the attractiveness of the Chinese market to foreign investors, while also promoting the domestic financial system to a higher level of international standards. With the gradual improvement of the implementation details, it is expected that the participation of foreign investors will be significantly increased, thus promoting the long-term healthy development of China’s capital market.
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