The Association of the Luxembourg Fund Industry (ALFI) and the Asset Management Association of China (AMAC) have completed their joint review of the People’s Republic of China (PRC) and European public fund regimes.
The prime focus of the joint task force was to carry out a review of the rules applied in the People’s Republic of China (PRC) to publicly offered funds (open-ended) and the EU undertakings for collective investment in transferable securities (UCITS) under Luxembourg laws and regulations.
Each association reported its findings and conclusions to the governing body of the other.
The review indicated assets of the UCITS held in custody by a depositary are allowed to be reused, only the reuse of the assets should be executed for the account of the UCITS; the depositary is carrying out the instructions of the UCITS or of the management company on behalf of the UCITS.
The review also affirmed the reuse of UCITS should be for the benefit of the UCITS and in the interest of the unitholders or shareholders. In addition, the transaction should be covered by high-quality and liquid collateral received by the UCITS under a title transfer arrangement.
The joint review further outlined the market value of the collateral should, at all times, amount to at least the market value of the reused assets plus a premium.
In case of insolvency of the depositary and/or of any third party located in Luxembourg to which custody of the assets of the UCITS has been delegated, the assets held in custody are unavailable for distribution among, or realisation for the benefit of, creditors of such a depositary and/or such a third party.
The depositary must fulfil all operations concerning the day-to-day administration of the assets of a UCITS in its custody, in particular, collect dividends, interest and securities due, exercise rights deriving from securities and, in general, carry out any other operations concerning the day-to-day administration of securities and liquid assets which belong to the UCITS.
The joint review also outlined the laws under which the depositary may delegate custody functions to sub-custodians.
AMAC and ALFI have partnered since June 2014, when they entered into a memorandum of understanding for collaboration between the two associations.
As part of the objective to create mutually beneficial opportunities for their members and to foster the exchange of information on the regulatory framework and investor protection practices in their respective jurisdictions, the associations established a joint task force in 2017 to increase understanding of the public fund regime in each country.
Commenting on the conclusions reached by the joint task force, Camille Thommes, director general at ALFI, said: “PRC financial institutions and asset managers are becoming increasingly international. Luxembourg is the key connecting hub in Europe that can help players structure their outbound business and it is a safe place to headquarter China’s banks and investment platforms.”
Lei Hong, chairman of AMAC, commented: “It has been a tremendous experience for both the AMAC and ALFI teams of experts to have an in-depth exchange of views on the respective regulatory frameworks and administrative practices.”
He added: “Our joint task force is proud to make a summary of applicable rules and regulations for publicly offered funds available online for our members in both Chinese and English.”
