Announcing the Regulations on the Supervision and Administration of Private Investment Funds, Li Qiang signs a State Council order to manage funds
Premier Li Qiang recently signed a State Council order, announcing the Regulations on the Supervision and Administration of Private Investment Funds, which will come into effect on September 1, 2023.
The Central Committee of the Communist Party of China and the State Council attach great importance to the development and risk prevention and control of the private investment fund industry. In recent years, the private equity investment fund industry in China has steadily developed, playing a positive role in increasing the proportion of direct financing and promoting economic development. Develop specialized administrative regulations to regulate the business activities of private investment funds on a legal and standardized track, aiming to encourage the standardized and healthy development of the private investment fund industry, better protect the legitimate rights and interests of investors, and further play a role in serving the real economy and promoting technological innovation. The Regulations consist of 7 chapters and 62 articles, with a focus on stipulating the following content.
One is to clarify the scope of application. Private equity investment funds in different organizational forms such as contractual, corporate, and partnership shall be included in the scope of application. It is stipulated that funds shall be raised through non-public means, investment funds shall be established, or companies or partnership enterprises shall be established in accordance with the law for the purpose of investment activities. These regulations shall apply to private equity fund managers or general partners who conduct investment activities for the interests of investors.
The second is to clarify the obligations and requirements of private fund managers and custodians. It is clearly stated that individuals are not allowed to become private fund managers, their controlling shareholders, actual controllers, directors, supervisors, senior management personnel, and other related entities. Practitioners should receive compliance and professional training in accordance with regulations. Private fund managers are required to complete registration procedures with the institutions entrusted by the State Council's securities regulatory authority in accordance with the law, and clarify the situation of deregistration. List the behaviors prohibited by shareholders, actual controllers, and partners of private fund managers, and clarify the requirements that private fund managers should continuously comply with. Clarify the responsibilities of private fund managers and private fund custodians.
The third is to standardize fund raising and investment operations. Private equity investment funds shall raise or transfer funds to qualified investors, and the cumulative number of investors in a single private equity investment fund shall not exceed the number prescribed by law. Private fund managers should match private investment fund products with different risk levels based on the investor's risk identification ability and risk bearing ability. Strengthen regulatory monitoring of private investment funds after their fundraising is completed. Clarify the scope of private investment fund property investment and the prohibited businesses, and define the investment hierarchy of private investment funds. Standardize the behavior of private fund managers and their practitioners.
The fourth is to make special regulations on venture capital funds. The state provides policy support to venture capital funds, encouraging and guiding them to invest in growth and innovative entrepreneurial enterprises. Strengthen the coordination between supervision and management policies and development policies, clarify the conditions that venture capital funds should meet, and implement differentiated supervision and self-discipline management for venture capital funds that are different from other private investment funds.
The fifth is to strengthen supervision, management, and legal responsibility. The supervision and management of private investment fund business activities shall be carried out in accordance with the principles, policies, and decision-making arrangements of the Party and the state. Clarify the regulatory responsibilities and measures of the securities regulatory authority under the State Council. It is stipulated that the securities regulatory authority of the State Council, in conjunction with relevant departments of the State Council and provincial-level people's governments, shall establish a collaborative mechanism for sharing information, submitting statistical data, and handling risks in the supervision and management of private investment funds. In addition, clear provisions have been made on the legal liability for violations of this regulation.