The Asset Management Association of China (AMAC) is consulting the industry about the current trial run of investor suitability requirements for fund investment products, ranging from mutual funds to registered private funds − hedge funds, private equity funds and venture capital funds for non-public investors (in Chinese).
The new rules, in effect 1 July, unify the standard for selling all funds, whether they are sold directly by fund houses or distributed by banks or other third-parties. In the past, separate rules were applied to mutual funds and non-public products.
The requirements aim to protect investors by matching their risk appetite to suitable products.
The new guidelines suggest that retail investors are assigned to five risk categories to match the funds with same or lower risk levels.
Risk categories for retail fund buyers
|
Risk level |
Product types |
|
1 |
Money market funds, short-term bond funds |
|
2 |
Bond funds |
|
3 |
Equity funds, mixed asset funds, convertible bond funds, structured funds (with lower leverage) |
|
4 |
Bond structured funds (with higher leverage) |
|
5 |
Convertible bond or equity structured funds (with higher leverage), commodity funds, private equity funds, venture capital funds |
Source: AMAC
Professional investors are defined as institutions with net assets of at least RMB 10m and financial assets of RMB 5m or above; individuals with either RMB 3m of financial assets or annual salary of at least RMB 300,000. They also need to have at least one year of investment experience.
The definition is roughly the same for those who are eligible to buy private funds.
The new rules might mean that investors cannot buy funds online with a few clicks like they used to.
Meanwhile, the suitability requirements also apply to equity, bond and derivative investments through brokers, according to state-run publication Securities Times.
By putting retail investors again into five risk brackets, only those who can bear medium or higher risks can invest in equities, it said.
Risk categories for retail investors buying equities/bonds
|
Risk level |
Product types |
|
1 |
Sovereign bonds, money market products, bank guaranteed wealth management products |
|
2 |
Local government bonds, policy bank bonds or those with AA+ or higher ratings |
|
3 |
Mainland equities, bonds with AA ratings |
|
4 |
Hong Kong stocks available under Stock Connect, margins, bonds with AA- ratings |
|
5 |
Structured products, over-the-counter products and bonds with AA- or lower ratings |
Source: Securities Times
To compare, in Hong Kong the suitability requirements are only triggered if recommendations or solicitation of investment products are involved.
However, a recent consultation by the Securities and Futures Commission on online distribution of funds proposed that the suitability requirements will apply when selling complex products online, regardless of whether recommendation or solicitation of products are involved, as reported earlier.
