Mutual Fund Recognition Agreement
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What is the relevance of mutual recognition between China and Hong Kong and what are the potential opportunities for fund managers outside China and Hong Kong? First, there is no doubt that China represents a material opportunity, given that it is a relatively untapped market. While China`s growth momentum has slowed, its economic growth and absolute prosperity remain strong in mainland China and the underlying fundamental drivers of growth are sustainable. Longer-term trends show that China is significantly increasing its share of global financial flows. What is the outlook for UCITS in Asia? We believe that mutual recognition and the proposed Asian framework could have a significant impact on the role of UCITS in Asia. But we think the downside forecasts are far removed from the mark. The ability to distribute UCITS across the globe means it will remain a platform of choice for companies in Asia and other regions that will help their clients invest globally. In the long term, we expect UCITS to grow alongside – and perhaps in combination with – local and pan-Asian products. It follows that asset managers must remain flexible in the use of UCITS in Asia. The financial supervisory authorities of Luxembourg and Hong Kong have signed an agreement to stimulate the sale of funds on the markets of the other country. Fund managers now believe that the much-anticipated mutual recognition will be activated this year, as they have been assured by the Deputy CEO of the SFC that the implementation of mutual recognition will follow that of Stock Connect.
In its budget proposal for 2015-2016, the SFC said it expected “significant” practical and technical problems in the implementation phase of mutual recognition, which “is now in its final phase, subject to obtaining the necessary authorisations on the continent”. In the initial phase, only ordinary equity funds, pension funds, mixed funds, unlisted index funds and index investment funds are eligible for the MRF programme. BNP Paribas Securities Services may provide services in these markets covered by the MRFs. Bnp Paribas Sercurities Services acts in Switzerland as a fund representative and local paying agent, as well as as a contact point for FINMA and follow-up of distributors; in Hong Kong, through experienced trust and fund management services; in France, as a leading bank in Europe, with the overall capacity to support cross-border distribution services. . . . .
