The RQFII regime differs from the QFII regime in that funds are given access to Chinese markets in the offshore RMB currency rather than in a foreign currency. The RQFII regime was launched in December 2011 and RQFII rules were developed by the China Securities Regulatory Commission (CRSC), the
People’s Bank of China (PBOC – the Chinese Central Bank) and the State Administration of Foreign Exchange (SAFE). Further updates have been made to these rules. In addition to equities (Chinese A-Shares), the investment scope of the RQFII framework has been broadened to cover domestic fixed income instruments (the Chinese Inter-Bank Bond Market).
Under the current framework, the CSRC grants the RQFII qualification to eligible applicants, SAFE administers the investment quotas of RQFIIs, and the PBOC regulates the RMB cash accounts of the RQFIIs. Today, the RQFII regime already covers not only most of the onshore RMB centres but investment quotas have also been granted to other significant hubs including Hong Kong, Singapore, London, France, Korea, Germany, Qatar, Australia, Switzerland, Chile and Luxembourg. Luxembourg joined the RQFII scheme with a RMB 50 billion (US$ 8 billion) initial quota, granted by the PBOC on 29 April 2015, making it the 5th European country to join the cross-border investment scheme. Luxembourg is home to the European headquarters of six of China’s largest banks, acts as China’s primary investment destination in Europe and holds one of the largest portfolios of European investments in China.
On 27 October 2015, the Chinese authorities approved the use a portion of Luxembourg’s RFQII quota by Bank of China (Luxembourg) SA’s Luxembourg-domiciled RMB RQFII Ucits fund. With this approval, the fund was granted access to the Chinese Interbank Bond Market (CIBM), which at RMB 35.3tr ($5.7tr) ranks as the third largest bond market worldwide.
Bank of China (Luxembourg) SA selected CACEIS to provide custody, depositary, fund administration, fund distribution and other related asset services to its Luxembourg RMB RQFII Ucits fund. Bank of China (Luxembourg) SA’s approval from the Chinese financial regulator makes it the first financial institution to take advantage of Luxembourg RQFII investment quota, and with the completion of the full service asset servicing agreement, CACEIS becomes the first Asset Servicing provider to service a RQFII fund that uses the Renminbi quota granted to Luxembourg.
Lihong Zhou, CEO of Bank of China (Luxembourg) SA stated, “We are keen to bring the benefits of the RQFII initiative to our investors. In selecting CACEIS, Bank of China (Luxembourg) SA is proud to have created this winning partnership between two front-running entities in their respective fields. We believe this venture will enable us to significantly advance our goal of building up our own asset management platform whilst bringing great value to both our entities."
Joseph Saliba, Deputy CEO of CACEIS stated, “We are delighted to be in a position to support Bank of China (Luxembourg) SA for the launch of its first Renminbi-related Luxembourg investment product. As a leading European asset servicing provider, CACEIS will leverage its extensive market experience to ensure that Bank of China (Luxembourg) SA is able to invest its Renminbi quota securely and effectively, distribute its products efficiently and provide professional reporting services to its investors.”