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China starts regulating private placement funds

(People's Daily Online)

15:47, June 29, 2012

A draft amendment to the Securities Investment Fund Law submitted on June 26 to the Standing Committee of the National People’s Congress, China’s top legislature, will bring private placement funds under legal regulation for the first time, paving the way for greater order and transparency in the sector.

Private placement funds to be placed under legal regulation

Since the launch of the China Growth Enterprise Market in 2009, China’s private placement fund industry has developed rapidly, but a lack of effective regulation and supervision has caused chaos in the industry, presenting a grim outlook for the industry.
“The existing fund law does not cover private placement funds, and thus fails to provide legal guidance on the establishment and operation of such funds,” said Wu Xiaoling, vice chairwoman of the NPC Financial and Economic Affairs Committee, at the 27th meeting of the NPC Standing Committee.

“A handful of criminals even conducted ‘unwarranted funds pooling’ in the name of private placement funds, posing major social and financial risks. Non-standard fundraising and investment practices can easily damage investors’ interests.”

The draft amendment created a legal framework different from the one governing public placement funds, in order to meet the needs of private placement funds.

“Most provisions are derived from common practices in the private placement fund industry,” said Hu Lifeng, head of the Fund Research Center of China Galaxy Securities Company.

“The most significant thing about the standardization and legalization of these practices is that it will provide the industry with clear regulatory basis and agencies.”

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