On May 6, the Guangzhou Branch of the people's Bank of China, the Shenzhen Central Branch, the Guangdong Regulatory Bureau and the Shenzhen Regulatory Bureau of the China Securities Regulatory Commission, the Guangdong Regulatory Bureau and the Shenzhen Regulatory Bureau of the Securities Regulatory Commission jointly drafted the detailed rules for the pilot implementation of Guangdong-Hong Kong-Macau Greater Bay Area's cross-border LiCaiTong business (draft for soliciting opinions), and openly solicited opinions from the public.

The "detailed rules" focus on defining the conditions and threshold for mainland investors to carry out "southbound links", the scope and quota of products available for "northbound links", investor protection mechanisms, and other operational details. The release of the detailed rules means that the official opening of cross-border LiCaiTong is just around the corner. Yu Weiwen, chief executive of the Hong Kong Monetary Authority, said recently that the HKMA hopes to launch cross-border LiCaiTong in the early second half of the year, according to media reports.

In the drafting note on the detailed rules, mainland regulators said that carrying out the pilot project of "cross-border LiCaiTong" is an important measure of financial support for Guangdong-Hong Kong-Macau Greater Bay Area's construction. at the same time, it is also a beneficial attempt for China to promote the convertibility of capital accounts and expand the opening up of financial markets to the outside world. The development of the pilot business is conducive to promoting cross-border investment facilitation in the Dawan area, creating a high-quality living circle of Guangdong-Hong Kong-Macau Greater Bay Area, and further deepening cooperation between Guangdong, Hong Kong and Macao; second, it is conducive to exploring cross-border transactions of individual capital accounts and steadily promoting capital account convertibility; third, it is conducive to broadening the channels for cross-border securities investment by individual residents and expanding the opening up of China's financial market to the outside world.

The investment quota of individual investor is 1 million yuan.

The "cross-border LiCaiTong" business refers to the closed-loop capital channels established by the mainland and Hong Kong and Macao investors in the Greater Bay area of Guangdong, Hong Kong and Macao through the banking system in the region, cross-border investment in eligible investment products or wealth management products sold by each other's banks (hereinafter collectively referred to as "investment products"). "Cross-border LiCaiTong" is divided into "northward communication" and "southward communication". Among them, "northbound connection" means that Hong Kong and Macao investors open personal investment accounts with Guangdong-Hong Kong-Macau Greater Bay Area mainland consignment banks and remit funds through closed-loop capital channels to purchase investment products sold by mainland consignment banks; "Nan Xiangtong" means that Guangdong-Hong Kong-Macau Greater Bay Area mainland investors open personal investment accounts with Hong Kong and Macao sales banks and remit funds through closed-loop capital channels to purchase investment products sold by Hong Kong and Macao banks.

In June 2020, the people's Bank of China, the Hong Kong Monetary Authority and the Macao Monetary Authority decided to launch a pilot project of "cross-border LiCaiTong" business in Guangdong-Hong Kong-Macau Greater Bay Area (hereinafter referred to as "cross-border LiCaiTong").

In the drafting note on the detailed rules, mainland regulators said that Guangdong-Hong Kong-Macau Greater Bay Area had close economic and trade exchanges, frequent personnel exchanges, common cross-border work and life in the region, and great demand for cross-border financial management. On the one hand, individuals in Hong Kong and Macao want to buy wealth management products from mainland banks to further broaden the channels for investment in the mainland; on the other hand, mainland residents hope to buy investment products from banks in Hong Kong and Macao to diversify their personal asset allocation.

Yu Weiwen has said that LiCaiTong's breakthrough is to provide a formal and convenient channel to allow retail investors to directly open and operate investment accounts across borders for the first time, with greater autonomy to choose wealth management products. Following the past experience of Stock Exchange and Bond Stock Exchange, "risk control and gradual progress" is the basic principle for the continuous breakthrough and deepening of the interconnection mechanism. In the initial stage of LiCaiTong, the regulators of the three places will adopt a pragmatic and prudent attitude in designing all aspects. This is reflected in LiCaiTong's implementation framework, including the product range mainly covers low-risk and relatively simple investment products; investors open remittance and investment accounts with banks in the two places respectively, and implement one-to-one binding; RMB cross-border funds implement closed-loop remittance and quota management.

In fact, judging from the relevant requirements of capital transfer, account opening, quota management, and so on, as specified in the detailed rules, the specific operating mechanism of cross-border LiCaiTong is similar to the existing financial cross-border connectivity mechanisms such as the Bond Stock Connect and the Shanghai-Hong Kong Stock Connect. It mainly has the following characteristics:

1. "northbound" and "southbound" business funds are bound one by one through accounts to achieve closed-loop remittance and closed management, and the scope of use is limited to the purchase of qualified investment products.

2. The transfer of funds shall be settled in RMB across borders, and the exchange of funds shall be completed in the offshore market. This means that it will not have a direct impact on the domestic foreign exchange market.

3. The cross-border capital flows of "north-to-north" and "south-to-south" shall be managed by total quota and individual investor quota. This time, it is clear in the detailed rules that the upper limit of net cross-border capital inflow of "North to Tong" and that of "South to Tong" do not exceed the total amount of "cross-border LiCaiTong" business pilot. At present, the total quota of "cross-border LiCaiTong" business pilot is tentatively set at 150 billion yuan. At the same time, quota management will be implemented for individual investors, with an investment quota of 1 million yuan.

Make clear the threshold for mainland investors

As the cross-border LiCaiTong pilot rules drafted by the mainland financial regulatory authorities, the detailed rules focus on the conditions that should be met by mainland investors to carry out "southbound links", the scope of investment products of "northbound links", and the conditions for mainland banks to participate in the pilot project. The policy requirements should be clearly defined by the mainland regulatory authorities.

Specifically, with regard to the conditions for mainland investors to carry out the "southbound Link" business, the detailed rules specify three requirements:

First, it has full capacity for civil conduct

Second, having household registration in 9 cities of Guangdong-Hong Kong-Macau Greater Bay Area or paying social security or personal income tax in 9 cities of Guangdong-Hong Kong-Macau Greater Bay Area for at least 5 years.

Third, have more than 2 years' investment experience, and satisfy that the month-end balance of household financial assets in the last 3 months is not less than 1 million yuan, or the month-end balance of household financial assets in the last 3 months is not less than 2 million yuan.

The detailed rules also emphasize that mainland cooperative banks should earnestly implement the responsibility of examining the business qualifications and sources of funds of mainland investors, and ensure that mainland investors use their own funds to purchase investment products, there is no act of raising funds from others or using other non-self-owned funds to invest.

From the perspective of "northbound access", the pilot project has broadened the channels for mainland residents to invest in overseas financial products. A Hong Kong financial practitioner once told the Securities Times that a large number of large international fund companies have operating institutions in Hong Kong and can sell a variety of investment strategies and regional funds, especially public funds. Mainland residents can buy more funds launched by overseas institutions in the future.

"the asset management industry in Hong Kong is very developed, among which public offering funds are the most common. Public offering funds have stock type and fixed income type, and the flexibility of product maturity and income is very high. The above-mentioned Hong Kong financiers said.

The investment products of "Beixiangtong" are clear, with the exception of cash management.

The funds in the cross-border LiCaiTong pilot project, whether northward or southward, are attractive. For mainland investors, overseas financial investment channels can be expanded; for Hong Kong and Macao residents, wealth management products issued by financial subsidiaries of large mainland banks are also attractive with their relatively sound returns, thus helping to broaden the channels to attract foreign capital inflows.

The detailed rules specify the range of investment products that Hong Kong and Macao residents can subscribe for:

First, mainland wealth management companies (including bank wealth management subsidiaries and joint venture financial companies controlled by foreign parties) are issued in accordance with the relevant management measures of financial management business. and assessed by the issuer and mainland consignment banks as "level I" to "level III" risk of non-capital preservation net financial products.

However, it is worth noting that cash management wealth management products are excluded.

Second, publicly raised securities investment funds rated as "R1" to "R3" risks by mainland public offering fund managers and mainland consignment banks.

The investment products that can be purchased by the "southbound Link" business shall be separately regulated by the administrative departments of Hong Kong and Macao.

In addition, the detailed rules also clearly define the appropriateness of investors, sales and publicity norms of "northbound Communications". For example, in terms of investor appropriateness management, mainland consignment banks should do a good job in sales management, strengthen investor appropriateness management, and evaluate investors' risk tolerance in accordance with the requirements of relevant financial management departments. do a good job in matching the risks of investors and investment products, and fulfill the obligation of information confidentiality. The risk tolerance assessment criteria for Hong Kong and Macao investors should be consistent with those for mainland investors.

"mainland consignment banks shall fully disclose information and risks to Hong Kong and Macao investors, and shall not publicize or promise to protect capital and income, or mislead investors into buying investment products that do not match their risk tolerance. The detailed rules emphasize.