CHINA: CSRC publish FAQ on Beneficial Ownership Under QFII RQFII Regime

Wednesday May 18 2016

The China Securities Regulatory Commission (CSRC) has issued a FAQ recognising the concepts of “nominee holder”, and “beneficial owner of securities”, which clarifies its position on the rights and interests of beneficial owner of securities held in the nominee accounts opened by qualifying foreign institutional investors / renminbi qualified foreign institutional investors (QFII’s / RQFII’s). This follows recent relaxations of the QFII quota’s and funds repatriation controls by the State Administration of Foreign Exchange.

In question 2 to the FAQ’s, the CSRC has confirmed that the concepts of “nominee holder” and “beneficial owner of securities” are recognised under the relevant CSRC rules. Question 2 further stipulates that the legal relationship between the beneficial owner of securities (client) and the QFII / RQFII nominee holder (client’s asset manager), will be determined by legal contracts between the client and the asset manager, and therefore be governed by the laws of the jurisdiction where they were entered into. The CSRC fully respects the provisions of such contracts, including those concerning client’s rights and interests over relevant assets.

Question 3 of the FAQ’s clarifies that a QFII / RQFII may choose to open accounts in the form of “QFII – Client Assets” or “QFII – Client Name” to further demonstrate that assets in such accounts belong to the relevant beneficial owner, and that they are separate from and independent of those of those belonging to the asset manager.

Therefore, to determine the legal relationship between the beneficial owner and the account holder, CSRC now refers to the laws of jurisdiction where the legal contract is entered into. However the FAQ have not indicated whether this will be identified by reference to the choice of governing law or by other means.

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