Luxembourg Registers First RQFII UCITS Fund

The Luxembourg regulator CSSF has authorized the first Renminbi Qualified Foreign Institutional Investor (RQFII) fund under the Undertakings for Collective Investment in Transferable Securities (UCITS) scheme.

The UCITS can invest 100% of its net assets in mainland China-based companies that are traded on a Chinese stock exchange. It can invest in these A-shares through the use of the RQFII quota granted to its manager by the competent Chinese authorities.

The authorization criteria for the ‘RQFII UCITS’ include the following:

– the fund must be open-.‐ended;
– the experience, competence and qualification of the manager;
– the application of appropriate risk management procedures;
– the correspondent bank of the depository and the segregation of assets at the level of the correspondent bank of the depository.
– requirements of the UCITS directive need to be fully complied with.

Notably, since the latest expansion of the RQFII scheme in March 2013, liquidity in RQFII funds is required. These new rules correspond entirely to the UCITS regulation that also requires liquidity.

The RQFII UCITS scheme will allow foreign fund managers using Luxembourg as their platform to distribute UCITS on a cross border basis. The UCITS are currently distributed in around 70 countries. As of June 2013, 18 asset managers have established RMB funds in Luxembourg with a total of more than RMB 220bn of assets under management.

The subsequent use of the RQFII quota is still subject to authorization of the China Securities Regulatory Commission (CSRC).