Guidance from the AMAC comes thick and fast: the rules for filing private fund managers keep tightening

Only a few days after the Questions and Answers on Registration and Filing of Private Funds (No. 14) were published at the beginning of this month, the Asset Management Association of China posted at the back end of its comprehensive reporting platform for asset management business a Note on Points to Observe in Registering a Private Fund Manager (the Note), which addresses several dozen questions, from the papers required for registration to operating conditions, the systems to be put in place, the qualifications of senior officers, the name and business scope of the institution, the legal opinion, and the filing of the first product.

Minton's lawyers have sorted through the Note and selected the most important points to share with readers, in the hope that they will serve as a reference for managers and for the filing of products.

[Operating conditions]

"Where the registered address of the applicant institution and its actual place of business are not in the same administrative district, this does not affect the registration of the private fund manager. The applicant institution shall, however, report the relevant matters truthfully, and the law firm shall make the relevant statement of fact, explaining where the place of business and the registered address of the applicant are respectively situated, and whether it does in fact carry on business at the place of business."

In practice a not inconsiderable number of institutions applying to file as private fund managers do have a registered address different from their actual place of business. The lawyers acting and the institutions themselves had several times telephoned the AMAC to ask whether this affected filing, and the association's staff answered that it would not; but until a formal written answer was issued it was never possible to be sure that there was no effect, greater or smaller. The issue of the official note now clears away a major doubt for institutions in that position. For the lawyer issuing the legal opinion, however, the situation must first be disclosed in full, and the actual place of business and related matters of the institution applying for registration must be further verified and analysed.

[Qualifications of senior officers]

1. Holding the practising qualification

"Under the Announcement on Several Matters concerning the Further Regulation of the Registration of Private Fund Managers and other requirements, for every type of private fund manager carrying on private securities investment fund business, its senior officers (including the legal representative, the executive partner or its appointed representative, the general manager, the deputy general manager and the officer responsible for compliance and risk control) shall all hold the fund practising qualification. For every type of private fund manager carrying on business other than private securities investment fund business, at least two senior officers shall hold the fund practising qualification, and its legal representative, executive partner or appointed representative and the officer responsible for compliance and risk control shall hold it. The officer responsible for compliance and risk control of any type of private fund manager may not carry on investment business.

Under the Questions and Answers on Registration and Filing of Private Funds (No. 9), a fund practising qualification recognised by the association's qualification committee applies only to a private equity fund manager (including a venture capital fund manager)."

Strict supervision of private fund managers, with strict requirements on the senior officers of institutions applying to file as one of its chief levers, is characteristic of the AMAC. The Note stresses once more that all senior officers of a private fund manager carrying on securities investment business must hold the fund practising qualification, and that a private fund manager carrying on business other than securities investment must have at least two senior officers holding it, its legal representative and its officer responsible for compliance and risk control among them. At the same time Minton's lawyers remind institutions applying to file that a fund practising qualification recognised by the association applies only to private equity and venture capital fund managers: that is, the qualification for a securities investment or other investment fund manager can be obtained only by examination, and institutions should arrange this early and allow time to obtain it.

2. Establishing the employment relationship

"The senior officers of a private fund manager shall sign an employment contract with the institution employing them. When a private fund manager registers, or submits an application to change a major matter concerning a senior officer, the employment contract and social insurance record of the officer concerned shall be uploaded."

The other side of establishing an employment relationship is directly connected with whether an employee holds a concurrent post elsewhere. From the Note's renewed emphasis it may broadly be confirmed that the AMAC establishes the employment relationship of the staff of an institution applying to file, and in particular of its senior officers, by "employment contract plus social insurance record". Where the relevant material cannot be produced, the person may not be recognised as working for the institution, or only as holding a concurrent post, which bears on the review of concurrent posts and on the count of the institution's employees and of those holding the fund qualification. Minton's lawyers remind institutions to attend to this requirement, to adjust and rectify the positions held by their staff in good time, and to allow time for recruiting staff and for paying social insurance contributions in arrears.

[Name and business scope]

"The name and business scope of a private fund manager shall contain such words as 'fund management', 'investment management', 'asset management', 'equity investment' or 'venture capital investment'. Registration applications from institutions whose name and business scope do not contain the relevant words will not be accepted."

Minton's lawyers suggest that a private fund manager already incorporated and intending to file should check whether its company name meets the AMAC's requirements and, if it needs to be changed, approach the administration for industry and commerce promptly to discuss and make the change; and that one not yet formally incorporated should go to the administration for industry and commerce in accordance with the requirements to have its name approved and to register.

[The legal opinion]

"The special legal opinion on a change of major matters of a private fund manager shall state a conclusion expressly on each of the matters relating to the change, and shall also provide the relevant supporting material, explaining fully the reason for the change and its reasonableness; shall show that the voting procedure of the general meeting of fund unit holders, of the shareholders' meeting or of the partners' meeting has been carried out as agreed in the fund contract, the articles of association of the fund company or the partnership agreement; and shall show that information has been disclosed to the investors of the private fund promptly, accurately and completely in accordance with the Measures for the Administration of Information Disclosure of Private Investment Funds and as agreed in the fund contract, the articles of association of the fund company or the partnership agreement."

Explaining fully the reason for the change and its reasonableness, and verifying the voting procedure for the change and the disclosure of information, may be said to have become indispensable content of the special legal opinion. From the Guide to the Legal Opinion on the Registration of a Private Fund Manager at the outset to the Questions and Answers (No. 14) and the Note today, the AMAC's requirements for the legal opinion issued by a lawyer have grown steadily clearer and more detailed, and the demands made of the lawyer's due diligence have risen accordingly. The lawyer's performance of that duty is equally an effective control of legal risk, and helps steer the private fund industry towards greater regularity and professionalism.

[Filing of products]

"From 5 February 2016 the association has suspended the filing of applications in which a newly registered private fund manager treats an advisory management fund as the first private fund product it manages, and of applications in which a registered private fund manager that has not yet filed a product treats an advisory management fund as the first private fund product it manages."

The rule that a private fund manager which has not filed a product within six months of filing successfully will have its qualification cancelled is, it is believed, widely known, whereas the requirement that an advisory management fund may not serve as the first private fund product has not sunk in to the same degree. The Note stresses it once more, and institutions are asked to take note.

The above is Minton's lawyers' brief analysis of the points selected from the Note for readers, in the hope that it will help the institutions that wish to apply to file as private fund managers.