China Securities Regulatory Commission (CSRC) issued on 3 August 2018 a consultation paper on Administrative Measures for Information Disclosure of Publicly Offered Securities Investment Funds and associated implementing rules for public opinion consultation. The consultation paper will replace the Administrative Measures on Information Disclosure of Securities Investment Funds, in effect since 1 July 2004 (the 2004 Measures). The consultation paper aims to optimize the information disclosure regime under the 2004 Measures through promoting the timeliness, simplicity and easy accessibility of information disclosed. The cut-off date for submitting feedback on the consultation paper is 2 September 2018.
The key changes under the consultation paper are outlined below.
Optimizing channels for disclosure of information. In view of the fast growth of the internet media, the consultation paper adds the official website of CSRC as a mandatory channel for information disclosure of publicly offered funds, in addition to the existing channels, such as the websites of the fund managers and custodians, and significantly reduces the requirements on disclosures of information via traditional media like newspapers and magazines.
Under the consultation paper: (1) Fund managers and custodians only need to disclose information via one (other than multiple) newspaper or magazine for a single fund; (2) fund managers are now required to publish on designated newspapers or magazines an “indicative public announcement”, instead of the full text, of the prospectus, fund contract, annual report, public announcement on fund listing and trading, summary of mid-term report and quarterly report; (3) fund NAVs need not be disclosed through newspapers or magazines.
Introducing products key facts statement. The consultation paper borrows from the experience of the Securities and Futures Commission of Hong Kong on Products Key Facts Statement (KFS). A KFS is a concise and user-friendly summary, in plain language, of the key features and risks of a fund. Under the consultation paper, a fund manager is required, during the offering period of a fund, to prepare, publish and make available on relevant premises a KFS for the related fund. In this regard, the CSRC has also formulated a KFS template. The KFS will replace the Summary of Fund Prospectus under the 2004 Measures as one of the offer documents.
Responsibilities of “investors-facing institutions”. Under the consultation paper, “investor-facing institutions”, such as fund distributors and brokers of listed funds, are required to assist fund managers in carrying out the fund managers’ obligations to disclose to the investors the relevant information. Fund managers and “investors-facing institutions” shall clearly delineate their respective responsibilities in relation to information disclosure by written agreement between them. Moreover, fund distributors are required under the consultation paper to share investors’ contact information with fund managers.
Other major changes in relation to disclosure. The consultation paper also introduces the following major disclosure related changes:
- Abolishes the requirement that the prospectuses of open-end funds shall be updated every six months.
- Abolishes the requirement that fund manager must disclose fund NAV on the last trading day of each June and December.
- Sets the parameters for disclosures of connected transactions.
- Introduces new significant events that are to be subject to the disclosure requirements. Such significant events include fund liquidation report, termination of fund listing, merger of funds, outsourcing of fund service, change of de-facto controller of the fund manager, the volatility of a fund’s daily NAV exceeding 10%, etc.
- Provides enhanced risk disclosure requirements on complex/high risk funds, such as structured fund.
Once the consultation paper becomes effective, managers, custodians and distributors of publicly offered funds in China should update their internal policies and procedures accordingly, and ensure that the relevant rules are duly implemented in their business operations. Also, fund managers and distributors are advised to revisit their offer documents and client agreements to ensure compliance.
Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at firstname.lastname@example.org