Regulation on the Supervision and Administration of Private Investment Funds

Regulation on the Supervision and Administration of Private Investment Funds

Order of the State Council of the People's Republic of China

(No. 762)

The Regulation on the Supervision and Administration of Private Investment Funds, as adopted at the 8th executive meeting of the State Council on June 16, 2023, is hereby issued and shall come into force on September 1, 2023.

Premier: Li Qiang

July 3, 2023

Regulation on the Supervision and Administration of Private Investment Funds

Chapter I General Provisions

Article 1 This Regulation is developed in accordance with the Securities Investment Fund Law of the People's Republic of China (hereinafter referred to as the “Securities Investment Fund Law”), the Trust Law of the People's Republic of China, the Company Law of the People's Republic of China, the Partnership Law of the People's Republic of China, and other applicable laws in order to regulate the business activities of private investment funds (hereinafter referred to as “private funds”), protect the lawful rights and interests of investors and relevant parties, and promote the standardized and sound development of the private fund industry.

Article 2 This Regulation shall apply to the investment activities for the benefit of investors conducted by an investment fund or a company or partnership formed through non-public fundraising for the purpose of engaging in investment activities within the territory of the People's Republic of China, which is managed by a private fund manager or general partners.

Article 3 The state shall encourage the regulated and sound development of the private fund industry and maximize its functions in serving the real economy and promoting scientific and technological innovation, among others.

Those engaged in the private fund business shall follow the principles of free will, fairness, and good faith, protect the lawful rights and interests of investors, and shall not violate laws, administrative regulations, and national policies, go against the public order and good morals, or infringe upon the national interest, public interest, or others' lawful rights and interests.

Private fund managers that manage and use private fund assets, private fund custodians that take custody of private fund assets, and private fund service institutions that provide private fund services shall comply with the provisions of laws and administrative regulations, devote themselves to their duties, and fulfill their obligations of honesty, trustworthiness, prudence, and diligence.

Private fund practitioners shall comply with the provisions of laws and administrative regulations, professional ethics, and the code of conduct and receive compliance and professional competence training as required.

Article 4 Private fund assets shall be independent of the assets of a private fund manager or private fund custodian. The debts incurred by private fund assets shall be repaid with private fund assets only, except as otherwise prescribed by any law.

Investors shall distribute income and bear risks as agreed in the fund contract, company bylaws, or a partnership agreement (hereinafter collectively referred to as the “fund contract”).

Article 5 The supervision and administration of private fund business activities shall comply with the guidelines, policies, decisions, and arrangements of the CPC and the state. The securities regulatory agency of the State Council shall supervise and administer private fund business activities in accordance with laws and this Regulation, and its local offices shall perform duties as authorized.

If the state otherwise provides for the supervision and administration of a private fund initiated or invested with a certain proportion of government funds, such provisions shall prevail.

Article 6 The securities regulatory agency of the State Council shall carry out differentiated supervision and administration of private fund managers according to their business types, size of managed assets, continuous compliance, risk control status, and investor service capabilities, among others, and carry out classified supervision and administration of different types of private funds, such as venture capital investment and other equity investment and securities investment.

Chapter II Private Fund Managers and Private Fund Custodians

Article 7 A private fund manager shall be a legally formed company or partnership.

If the assets of a private fund established in the form of a partnership are managed by general partners, the provisions of this Regulation concerning private fund managers shall apply to the general partners.

Any shareholder or partner of a private fund manager, the controlling shareholder or actual controller of such a shareholder or partner, or the controlling shareholder or actual controller of any other private fund manager shall comply with the rules of the securities regulatory agency of the State Council.

Article 8 Under any of the following circumstances, a person shall not serve as a private fund manager or the controlling shareholder, actual controller, or general partner of a private fund manager:

(1) He or she falls under the circumstance prescribed in Article 9 of this Regulation.

(2) He or she is a private fund manager or the controlling shareholder, actual controller, or general partner of the private fund manager who has been deregistered due to the circumstance set forth in subparagraph (3), paragraph 1 of Article 14 of this Regulation, and it has not been three years since the date of deregistration.

(3) There is any conflict of interest between the business and the private fund management.

(4) The person has a serious record of bad credit that has not been repaired.

Article 9 Whoever falls under any of the following circumstances shall not serve as the director, supervisor, officer, managing partner, or authorized representative of a private fund manager:

(1) The person has received any criminal punishment for embezzlement, bribery, malfeasance, property encroachment, or disruption of the order of the socialist market economy.

(2) The person has received any administrative penalty imposed by the financial administrative department against any serious violation of law or regulation in the last three years.

(3) The person, as a director, supervisor, factory director, officer, managing partner, or authorized representative of a company or enterprise, is personally liable for the bankruptcy liquidation of the company or enterprise due to poor business management or for the revocation of the business license of the company or enterprise due to any violation of law, and it has not been five years since the date of completion of bankruptcy liquidation or the date of revocation of business license.

(4) The person who has a large amount of debt fails to repay the debt or is included in the list of dishonest persons subject to enforcement.

(5) The person, as an employee of a fund manager, fund custodian, securities or futures trading venue, securities company, securities depository and clearing institution, futures company, or any other institution or a staff member of a government agency, has been dismissed for any violation of law.

(6) The person, as a lawyer, certified public accountant, employee of an asset appraisal or verification institution, or investment advisory employee, has his or her practicing license or qualification revoked due to any violation of law, and it has not been five years since the date of revocation of the practicing license or qualification.

(7) Any person serves as the legal representative, managing partner, authorized representative, or responsible officer of a private fund manager that has been deregistered under the circumstance specified in subparagraph (3), paragraph 1 of Article 14 of this Regulation, and it has not been three years since the date of deregistration of the private fund manager.

Article 10 A private fund manager shall, in accordance with the law, submit the following materials to the institution entrusted by the securities regulatory agency of the State Council (hereinafter referred to as the “registration and recordation agency”) and undergo registration formalities:

(1) Unified social credit code.

(2) The company bylaws or the partnership agreement.

(3) Basic information on shareholders, the actual controller, directors, supervisors, officers, general partners, managing partners, or authorized representatives, as well as the information on beneficial owners of such shareholders, actual controllers, and partners.

(4) Letter of credit commitment to guarantee the veracity, accuracy, and completeness of the submitted materials and compliance with the regulatory provisions.

(5) Other materials prescribed by the securities regulatory agency of the State Council.

In case of any change in major matters such as the controlling shareholder, actual controller, general partners, managing partners, or authorized representatives of a private fund manager, the private fund manager shall undergo modification registration formalities with the registration and recordation agency as required.

The registration and recordation agency shall publish the information on the private fund manager which has completed the registration.

Without registration, no entity or individual shall use the word “fund” or words “fund management” or any similar name to engage in investment activities, except as otherwise prescribed by any law or administrative regulation, or the state.

Article 11 A private fund manager shall perform the following duties:

(1) Raising funds in accordance with the law and handling the recordation of the private fund.

(2) Separately managing and keeping separate accounts of the assets of different private funds under its management and making investments.

(3) Managing the private fund and making investments as agreed upon in the fund contract and establishing an effective risk control system.

(4) Determining the private fund income distribution plan as agreed upon in the fund contract and distributing income to investors.

(5) Providing investors with information relating to private fund management activities as agreed in the fund contract.

(6) Preserving records, account books, statements, and other materials regarding the management of private fund assets.

(7) Performing other duties prescribed by the securities regulatory agency of the State Council and agreed upon in the fund contract.

Where an investment fund is established by raising funds in a non-public manner, the private fund manager shall also exercise litigation rights or take other legal actions in its own name for the interests of the private fund assets.

Article 12 The shareholder, actual controller, or partner of a private fund manager may not:

(1) make any false capital contribution or illegally withdraw any capital contribution, or authorize others or be authorized by others to make any capital contribution;

(2) intervene in the business activities of the private fund manager without authorization by a resolution of the shareholders' meeting or board of directors, or other statutory procedures;

(3) require the private fund manager to seek any benefits for itself or himself or any other person by using private fund assets, infringing upon the interests of investors; or

(4) commit any other act prohibited by any law or administrative regulation or the rules of the securities regulatory agency of the State Council.

Article 13 A private fund manager shall continuously satisfy the following requirements:

(1) It has a sound financial status and working capital commensurate with its business types and the size of assets under its management.

(2) Its legal representative, managing partners or authorized representatives, and officers responsible for investment management hold a certain percentage of equity or property shares of the private fund manager according to the rules of the securities regulatory agency of the State Council, except as otherwise prescribed by the state.

(3) It satisfies other requirements prescribed by the securities regulatory agency of the State Council.

Article 14 Where a private fund manager falls under any of the following circumstances, the registration and recordation agency shall deregister the private fund manager and make an announcement thereon in a timely manner:

(1) It applies for deregistration on its own initiative.

(2) It is dissolved, administratively dissolved, or declared bankrupt in accordance with the law.

(3) It is held legally liable due to illegal fundraising, illegal operation, or any other serious violation of law.

(4) It fails to undergo recordation formalities for the first private fund within 12 months from the date of registration.

(5) It fails to undergo recordation formalities for any new private fund within 12 months after the date of liquidation of all private funds under its management.

(6) Other circumstances prescribed by the securities regulatory agency of the State Council.

The registration and recordation agency shall, before the deregistration of a private fund manager, notify the private fund manager that it should liquidate the private fund assets or lawfully transfer the private fund management duties to another registered private fund manager.

Article 15 Except as otherwise agreed upon in the fund contract, the private fund assets shall be under the custody of a private fund custodian. If the private fund assets are not under custody, the rules and measures for protecting the safety of private fund assets and the dispute resolution mechanism shall be specified.

Article 16 Where private fund assets are under custody, the private fund custodian shall perform its duties in accordance with the law.

The private fund custodian shall establish a mechanism for separating the custody service from other services in accordance with the law and ensure the independence and security of the private fund assets.

Chapter III Fund Raising and Investment Operation

Article 17 A private fund manager shall raise funds on its own and shall not have others raise funds on its behalf, exc......