China Law Update

LI (DO NOT DELETE) 2013-9-7 10:05 AM
Securities Investment Funds Law (2012 Amendment) 1
1. Background of the 2012 Amendment
Since Law of Securities Investment Funds was promulgated in
2003, which could not adapt to the rapid development of fund
markets and satisfy the investor’s needs. With respect to the publicly
raised funds, the restrictions have greatly constrained the dynamism
of the publicly raised funds market. Moreover, the non-publicly
raised funds are out of regulate of old law, which leads to the
disorder of the private equity fund market and frequent occurrence of
infringement of investor’s rights.
The revised Law of the People’s Republic of China on Securities
Investment Funds, adopted at the 30th Session of the Standing
Committee of the Eleventh National Peoples Congress of the
People’s Republic of China on December 28, 2012, and came into
effect on June 1, 2013.
2. Major Innovations of the 2012 Amendment
The 2012 Amendment has made a great number of institutional
innovation, which will play an significant part in promoting the
modernization of the investment market. Compared to the 2003 old
law, 55 articles are added as well as 3 articles are deleted in the 2012
First, to realize equal legal status between corporate enterprises
and partnerships enterprises, the 2012 Amendment enlarges the
organization form of fund managers, allowing fund managers can be
from companies or partnerships.2
Second, the 2012 Amendment further perfects the supervision on
publicly raised funds. The 2012 Amendment authorizes the directors,
supervisors, senior managers and other practitioners of the fund
manager of a publicly-raised fund as well as their spouses or
interested parties to investment in securities, on conditions that they
shall report to the fund manager and shall not cause conflict of
interest with the holders of fund units.
1 The revised Law of the Peop le's Republic of China on S ecurities Investment Fu nds, adopted at
the 30th Session of the Standing Committ ee of the Eleventh National People's Congress of the People's
Republic of China on December 28, 2012, and came into effect on June 1, 2013.[herei nafter Securities
Investment Funds Law, 2012 Amendment].
2 Id. art. 12.
3 Id. art. 18.
LI (DO NOT DELETE) 2013-9-7 10:05 AM
The 2012 Amendment prohibited the fund manager of a
publicly-raised fund and any of its directors, supervisors, senior
managers and other practitioners from engaging in insider trading,
including divulging non-public information obtained by virtue of its
position, or making use of such information to engage in or explicitly
or implicitly ask others to engage in related trading activities.4
Third, the 2012 Amendment confirms the legal status of private
equity funds, and creates a series of system in Chapter 10 to regulate,
including qualified investors, fund custody, association registration
for funder manger qualification, prohibition of fund raising
advertisement and model of fund contract.
Taking the regulation of Criminal Law into account, such provision
in the 2012 Amendment realizes the organic convergence with the
Criminal Law Amendment (7).
5 Article 94 provides the
unlimited liability investors regime, allowing and encouraging part of
the fund share holders as fund managers to be responsible for the
management of private equity investment. In the event that the fund
property is insufficient to pay off the debts, such holders shall
assume unlimited joint and several liability.6
Forth, the 2012 Amendment attaches great importance to
protection of the investorsrights and interests. Taking Article 22 for
example, it provides that the shareholders, directors, supervisors and
senior managers of the fund manager of a publicly-raised fund shall
uphold the principle of giving priority to the interests of the holders
of fund units when exercising rights or performing duties.
The 2012 Amendment emphasizes the independence of the fund
property, aiming at maintaining the security of fund assets and the
fundamental interests of fund holders. Article 101 requires that fund
units are independent of the proprietary assets of fund sales agencies,
fund sales payment agencies and fund unit registration institutions.
4 Id. art. 21.
5 Id. arts. 88-96.
6 Id. art. 94.
7 Id. art. 22.
8 Id. art. 101.

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