China cracks down on PE managers

The Asset Management Association of China (AMAC) has tightened several rules relating to the way information is disclosed, reported and filed by private equity fund managers.

The rules, which were outlined in an official notice issued by AMAC at the beginning of February, will apply equally to private equity and hedge fund managers, and aim to protect investors and prevent financial scams.

As part of the changes, the self-regulatory organization has introduced rules around new private fund registrations and will now require senior managers of the fund to have obtained a “professional qualification for fund industry” – an AMAC qualification that usually requires passing written tests and more than three years related experience.

The rules also include measures to improve the lack of fund products being launched by the country’s registered fund managers. AMAC now requires newly registered fund managers to file products within six months of registering with the association, otherwise the registration will be revoked.

For fund managers registered before the issuance of these rules, registration will be revoked if they fail to file their first fund products within 12 months of the registration or before August 1, 2016, whichever is earlier. However, these fund managers are able to reapply for registration.

The association has also tightened rules around reporting, which currently require fund managers to make quarterly and annual filings with AMAC providing certain updated information of the funds under their management, and to notify AMAC of significant changes in a timely manner. Under tightened rules, if the fund manager fails to file and/or update its quarterly report, annual report or report of material events, AMAC will not accept its filing of new fund product.

In addition, if the fund manager fails to fulfill these reporting obligations twice, the fund manager will be placed in a blacklist for six months, even if they correct the failure earlier.

Fund managers that fail to file audited annual financial reports will also face the blacklist for six months and AMAC will not accept new registration applications from fund managers that fail to submit audited annual financial reports. 

As a part of the new measures, AMAC also stated that a legal opinion from a Chinese law firm will be required for the filing information.

The tightening of regulations comes after a series of high-profile financial scams, such as the Fanya Metal scandal, hit retail investors in China. Last year, hundreds of investors protested after allegedly losing out on billions from high-yielding products, which had been frozen by Fanya after it ran into liquidity problems.

Current private equity regulations require domestic Chinese private equity fund managers to register with AMAC through a designated filing system and apply for AMAC membership, as well as submit filings with the association for private equity funds under its management.