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CSRC Carries out a Comprehensive Reform of Its Fund Product Review Regime
2012-12-13


The CSRC recently released and implemented the Notice on Issues Regarding Furthering the Reform of the Fund Review Regime (hereinafter referred to as the “Notice on Furthering the Fund Review Regime Reform”) and detailed rules to implement such Notice, aiming to carry out a comprehensive reform of the fund product review regime.


According to the head of CSRC’s Department of Fund Supervision, in recent years, the CSRC has persistently adhered to the approach of “relaxing control and strengthening supervision”, adopted a series of market-based reform measures to reduce restraints and improve supervision and further optimized the external environment for the development of the industry. In order to further relax the market access of products and facilitate the accelerated development of fund management companies, the Department of Fund Supervision has released and implemented the Notice on Furthering the Fund Review Regime Reform, for the purpose of comprehensively promoting the market-based reform of for the fund product review regime. Meanwhile, the Department of Fund Supervision has also adopted the Guidance for the Completion and Application of Fund Contracts for Securities Investment Funds (for Trial Implementation) as the supplementary measure for the reform of the fund product review regime and will launch the online fund application and review system in the near future.


According to the above official, , the guiding principles for deepening the reform of the fund review regime are as follows: transform the concept of review and abolish the channel system for fund products; simplify review process and shorten the review time limit; launch online review system and reinforce the responsibilities of market entities. The main contents include:


1. Channels for product review are abolished. Companies can decide on their own initiative the amount and type of funds applied for based on market demand.


2. The time limit for product review is shortened and the review of regular products is required to be completed within 20 working days in accordance with the simplified procedures. Regular products subject to the simplified procedures include common stock (hybrid) funds, bond funds, index funds, money funds, startup funds, common QDII products and single-market ETFs. Structured funds, wealth management funds, cross-market (border) ETFs and other fund products with special arrangements are not subject to the simplified procedures for the time being, taking into account the lack of product sophistication and the complex operating mechanism. 


3. The online application and review system is adopted for fund products. As part of its supplementary measures, regulatory departments will release the guidance for completing fund contracts applicable to various regular products (stock funds, hybrid funds, bond funds, index funds, money funds). Furthermore, the online e-application and review system is developed in order to boost review efficiency by electronic means.


4. All parties are motivated to perform their responsibilities and more efforts are made on monitoring and inspecting them. The main responsible entity for the innovation and development of the fund industry are the institutions themselves. Fund management companies should provide authentic, accurate and complete application materials and enhance the internal examination of application documents. As the co-trustee, a custodian bank should carry out a careful reexamination of the product applied for to ensure that it is able to fully perform its duties, for instance, the feasibility of investment operations and the possibility for the supervision of investment styles. Law firms should fully play its role as a professional intermediary, conduct a comprehensive check over the application materials for fund offering and issue clear legal opinions. In addition, investors should read carefully such legal documents as fund contracts, in order to make prudent investment decisions. The regulatory departments will reinforce their efforts on monitoring and inspecting various institutions mentioned above and punish actions that have failed to perform due responsibilities and have in turn lead to violations of rules and material errors in application or risks in product operation. 


5. Fund management companies are encouraged to establish a fund withdrawal mechanism. As the market-based reform of the fund product review regime proceeds, some small scale “mini funds” will undoubtedly emerge in the future. The regulatory departments encourage fund management companies to include in the fund contracts clauses regarding automatic termination or combination based on product features and management cost.


The official stated that, in the area of publicly offered funds, the CSRC will continue to expand fund management companies’ scope of business, relax restraints on investment operations, optimize corporate governance and boost the overall competitiveness of the sector of the public offering of fund. For both institutional access and product innovation, to the extent practicable, the threshold will be lowered and the review will be simplified. More attention will be paid to the inspection of procedures and behaviors and risk control compliance, in order to shift gradually the supervision from the examination and approval-driven mode to the inspection-driven mode