China initiatives prompt Hong Kong setup for BBH

Brown Brothers Harriman (BBH) has launched a trust company in Hong Kong following the rollout of cross-border initiatives in China.

BBH will be extending its full service offering for global asset managers looking to establish Hong Kong-domiciled funds, including ETFs.

The launch follows the launch of China’s Mutual Recognition of Funds (MRF) in 2015, and Stock Connect in 2014.

MRF opened a new channel for mutual fund investment into and out of Mainland China, and BBH’s new head of its Hong Kong Trustee business, Gabriel Cheung, said it provided an opportunity to the company.

“MRF presents an enticing opportunity for global asset managers and investors,” said Mr. Cheung, “but the provision of strong trustee services that deploy continuous risk-based oversight and asset monitoring is critical to its success, as well as Hong Kong’s success as an international asset management centre.”

MRF scraps the requirement that Hong Kong domiciled managers enter into an equity partnership with a mainland financial institution. However, Hong Kong managers will still need to participate in distribution agreements if they are to realise any success of raising assets on the mainland. Some believe that China does not want UCITS competing with its domestic managers under MRF.

Authorisation of funds under MRF has been slow due to the market volatility in China. However, it appears that the Hong Kong Securities and Futures Commission (SFC) and China Securities Regulatory Commission (CSRC) have started approving more funds albeit slowly.

“As Hong Kong-domiciled funds evolve from a domestic focus to a cross-border character, globally-active fund managers in particular will require new capability sets and consistent and coordinated practices across fund domiciles,” said Scott McLaren, Head of BBH Hong Kong.