The regulators agree to issue guidance to banks on product due diligence, investor protection, AML/CFT requirements and personal data protection, among other areas.
The HKMA (Hong Kong Monetary Authority), SFC (Securities and Futures Commission) and AMCM (Monetary Authority of Macao) have entered into an MoU with mainland authorities agreeing to principles of supervisory cooperation under the Wealth Management Connect scheme.
Wealth Management Connect will allow residents of Hong Kong, Macao and major Guangdong cities to invest across borders, subject to an individual quota of CNY 1 million. The establishment of the scheme was part of a policy blueprint for the development of financial markets in the Greater Bay Area, released by mainland authorities last year.
In June, Chinese regulators revealed new details about Wealth Management Connect, saying that implementation will initially cover simple investment products of relatively low risk, and cross-boundary remittances will be conducted and managed in a closed-loop through the bundling of designated remittance and investment accounts.
The new MoU provides a framework for the exchange of supervisory information, enforcement cooperation, and a liaison mechanism, to lay a “good foundation” for the smooth operation of the Wealth Management Connect scheme and protect investors’ interests. The MoU also provides for the establishment of cooperative mechanisms for maintaining orderly and fair trading, and preventing supervisory discord, regulatory arbitrage and other related cross-boundary illicit or non-compliance activities.
The mainland authorities that have signed the MoU include the PBOC (People’s Bank of China), CBIRC (China Banking and Insurance Regulatory Commission), CSRC (China Securities Regulatory Commission), and SAFE (State Administration of Foreign Exchange).
The scheme will be operated on the principle of “regulation by the jurisdiction where the business is conducted”, the MoU says. The signatories of the MoU agree to provide guidance to the banks they supervise on the due diligence that needs to be conducted to understand the nature, risks and complexity of wealth management products offered across borders.
Guidance will also be provided on investor protection measures, AML/CFT requirements, personal data protection, and the management of investment accounts under the scheme, including to prevent the use of cross-border wealth management products for purposes such as pledges and guarantees.
Under the MoU, the regulators have also pledged to provide guidance on how banks should strengthen financial education for investors, including to promote seller and buyer responsibility, product due diligence, and careful investor eligibility and suitability assessments.
The MoU, available here, will take effect upon the launch of the Wealth Management Connect scheme, currently still expected to be early this year.
Separately, HKEX (Hong Kong Exchanges and Clearing) has announced that it is buying a minority stake in the newly-established Guangzhou Futures Exchange, another key part of the policy blueprint for the development of financial markets in the Greater Bay Area.