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Cross-Boundary Wealth Management Connect – the Official Launch

posted 2 years ago

The Cross-boundary Wealth Management Connect (“WMC”) in the Guangdong-Hong Kong-Macao Greater Bay Area (“GBA”) of mainland China was officially launched on 10 September 2021. WMC enables residents in the GBA to carry out cross-boundary investments in wealth management products distributed by banks. In this article, we will summarize the key features of WMC.

WMC consists of the Southbound Scheme and the Northbound Scheme. The Southbound Scheme refers to investments by eligible residents of the mainland GBA cities in wealth management products distributed by banks in Hong Kong and Macao. The Northbound Scheme refers to investments by eligible residents of Hong Kong and Macao in products distributed by mainland banks.

At the initial stage, WMC mainly covers relatively simple wealth management products of low-to-medium risk. They include:

  • for the Southbound Scheme, funds domiciled in Hong Kong and authorized by the Securities and Futures Commission, bonds and deposits; and
  • for the Northbound Scheme, public fixed-income wealth management products, equity wealth management products and public securities investment funds.

To be eligible under WMC, the investor must:

  • be resident of one of the 9 mainland GBA cities[1] or hold a Hong Kong Identity Card (as the case may be);
  • invest in his/her personal capacity; and
  • not be assessed as a vulnerable customer, i.e. a customer who has limited ability to understand associated risks of the investment and withstand potential investment losses.

For the Southbound Scheme, investors must also meet the requirements stipulated by the mainland China regulatory authorities, such as requirements on asset and investment experience.[2]

An investor has to open two accounts which should be paired with each other: a dedicated cross-boundary remittance account in the investor’s place of residence, and a dedicated investment account in the other market. Each investor should, at all times, maintain only one such dedicated account in each side.

Notably, under the Northbound Scheme, investors are still required to travel to one GBA city in the mainland to complete the account opening procedures after preliminary approval by the mainland partner banks, which may hinder the rate capital flow under the Northbound Scheme, especially with the current COVID-19 quarantine requirements in place.

Registered institutions under the Securities and Futures Ordinance for carrying on Type 1 regulated activity (dealing in securities) and engaging in retail banking or private banking business (“Hong Kong banks”) may take part in the Northbound Scheme. To do so, a Hong Kong bank has to partner with an eligible mainland bank in the GBA that meets the criteria set by the mainland regulatory authorities, and sign a cooperation agreement clearly setting out each party’s responsibilities and obligations.

The WMC operates a closed-loop funds flow channel established between the banking systems of the two jurisdictions. Under the WMC, cross-boundary remittances should be conducted in RMB through the Cross-border Interbank Payment System and no remittances by other means are allowed. The investor is not allowed to withdraw cash from his investment account or remit money from the investment account to any account.

There will be an initial aggregate quota of RMB150 billion for each of the Northbound and Southbound Schemes. Hong Kong banks and their partner banks should check the usage of the aggregate quota, which is updated each trading day on the websites of the People’s Bank of China (“PBOC”) Guangzhou and Shenzhen branches, before proceeding with remittances under WMC.

There is also an individual investor quota of RMB1 million which means that his net cumulative remittance from a dedicated remittance account to a dedicated investment account under the WMC must not exceed this quota.

A Memorandum of Understanding on the supervisory arrangements of the WMC has been signed by the HKMA, the PBOC and other relevant regulatory authorities. Where there are non-compliance or breaches of the requirements by Hong Kong banks, the HKMA and the PBOC will consider suspension of the banks’ eligibility to engage in the WMC. The HKMA and the SFC may also take supervisory and/or enforcement actions against the relevant Hong Kong banks and/or their relevant personnel.

In terms of investor protection, the relevant mainland and Hong Kong regulatory authorities will supervise the banks’ activities according to the laws, regulations and supervisory regimes of the jurisdiction in which the transactions take place. In relation to complaints about the mainland WMC products, Hong Kong banks should refer the complaints to the mainland partner banks, and take follow-up actions to ensure that the complaint is duly handled and addressed by the partner banks.

The launch of WMC marks an important milestone for the financial industry, as it deepens the connection between mainland China and Hong Kong, and expands cross-boundary investment choices for GBA residents.

[1] The 9 mainland GBA cities are Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing.

[2] http://www.gd.gov.cn/hdjl/hygq/content/post_3516551.html

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