Notice of Issusing Guidelines for the Internal Control of Managers of Privately Offered Investment Funds
· Area of Law： Securities
· Level of Authority： Industry Regulations
· Date issued：02-01-2016
· Effective Date：02-01-2016
· Status： Effective
· Issuing Authority： Associations
Notice of the Asset Management Association of China on Issuing the Guidelines for the Internal Control of Managers of Privately Offered Investment Funds
All managers of privately offered investment funds:
In accordance with the relevant provisions of the Securities Investment Fund Law and the Interim Measures for the Supervision and Administration of Privately Offered Investment Funds, as approved by vote by the board of directors of the Asset Management Association of China, the Guidelines for the Internal Control of Managers of Privately Offered Investment Funds are hereby officially issued.
These Guidelines shall come into force on February 1, 2016.
Annex 1: Guidelines for the Internal Control of Managers of Privately Offered Investment Funds
Annex 2: Instructions on the Drafting of the Managers of Privately Offered Investment Funds (Omitted)
Asset Management Association of China
February 1, 2016
Guidelines for the Internal Control of Managers of Privately Offered Investment Funds
Chapter I General Provisions
Article 1 In order to direct managers of privately offered funds to strengthen internal control, promote their compliance with laws and regulations and operation in good faith, improve their risk prevention capacities, and boost the regulated development of the privately offered fund industry, these Guidelines are developed in accordance with the Securities Investment Fund Law, the Interim Measures for the Supervision and Administration of Privately Offered Investment Funds and the Measures for the Registration of Managers of Privately Offered Investment Funds and Fund Recordation (for Trial Implementation).
Article 2 “Internal control of managers of privately offered funds” means the institutional arrangements, organizational system and control measures for the identification, assessment and management of risks in the process of business operations developed by POF managers on the basis of taking full consideration of internal and external environments for the purposes of preventing and resolving risks, ensuring the operation of various business in line with laws and regulations and achieving business objectives.
Article 3 Privately offered fund managers (“POF managers”) shall, in accordance with the requirements of these Guidelines and in light of their specific circumstances, establish and improve internal control mechanisms, clarify the internal control responsibilities, improve the internal control measures, intensify internal control guarantee, and continuously conduct the internal control evaluation and supervision.
Thehighest governing bodies of POF managers shall undertake the final responsibility for the establishment of internal control rules and the maintenance of their effectiveness, and the management level shall undertake the responsibility for the effective implementation of internal control rules.
Chapter II Objectives and Principles
Article 4 The overall objectives of the internal control of POF managers are as follows:
(1) Guaranteeing the compliance with the relevant laws and regulations on POFs and self-regulatory rules.
(2) Preventing operational risks and ensuring the stable operation of business operations.
(3) Guaranteeing the safety and integrity of the POF properties.
(4) Ensuring the authenticity, accuracy, integrity and timeliness of the financial and other information of POFs and POF managers.
Article 5 The internal control of POF managers shall observe the following principles:
(1) Principle of comprehensiveness.Internal control shall cover various business, all departments and personnel at all levels, and cover fund raising, investment and research, investment operation, operating guarantee, information disclosure and other major links.
(2) Principle of mutual restraint. Organizational structures shall feature clarified powers and responsibilities and mutual restraint.
(3) Principle of effective implementation. Through scientific internal control means and methods, reasonable internal control procedures shall be established, and the effective implementation of internal control rules shall be maintained.
(4) Principle of independence. All departments and post functions shall be kept relatively independent, and fund properties, managers' inherent properties and other properties shall be operated separately.
(5) Cost-benefit principle. The optimum internal control effects shall be achieved through reasonable cost control, and internal control shall match with the management scales and numbers of employees of POF managers and other aspects, and correspond to the actual circumstances of the managers.
(6) Principle of timeliness. POF managers shall assess on a regular basis the effectiveness of internal control, and make synchronous and timely modifications or improvements according to the adjustments to the relevant laws and regulations and the changes of business strategies, policies, philosophies and other internal and external environments.
Chapter III Basic Requirements
Article 6 The effective internal control established and implemented by POF managers shall include the following elements:
(1) Internal environment: including business philosophy and internal culture, governance structure, organizational structure, human resources policies and employee's moral qualities, etc. Internal environment is the basis for implementing internal control.
(2) Risk assessment: The risks related to the objectives of internal control during business operations shall be identified in a timely manner and analyzed in a systematic manner, and risk response strategiesshall be determined in a reasonable manner.
(3) Control activities: According to the results of risk assessment, the corresponding control measures shall be taken to control risks within the endurable range.
(4) Information and communication: The information related to internal control shall be collected and delivered in a timely and accurate manner so as to ensure the effective communication of information among internal environment, enterprises and external environment.
(5) Internal supervision: Periodic supervision and inspection shall be conducted on the construction and implementation of internal control to assess the effectiveness of internal control. Where anyinternal control defects are found or internal control requirements change as a result of business changes, the improvements and updating thereof shall be made in a timely manner.
Article 7 POF managers shall firmly establish their philosophy of operation in compliance with laws and regulations and the conscientiousness of giving priority to risk control, cultivate employees' regulatory compliance and risk conscientiousness, create the institutional and cultural environments featured by compliance operation, and guarantee managers and their employees' honesty and trustworthiness and diligent performance of their duties.
Article 8 POF managers shall observe the principle of professional operation and have clear main business, and may not concurrently engage in any other business that is irrelevant with or has conflicts of interest with POF management.
Article 9 POF managers shall improve the governance structure, prevent illegitimate affiliated transactions,tunneling and insider control risks, and protect investors' interests and theirlegitimate rights and interests.
Article 10 The organizational structure of POF managers shall embody the principles of clarification of powers and mutual restraint by establishing necessary firewall rules and business isolation rules. All departments shall have reasonable and clear authorization and division of labor and operate independently of each other.
Article 11 POF managers shall establish effective human resources management rules, improve the incentive and restraint mechanisms, and ensure that staff members observe the professional ethics and professional competences appropriate for the post requirements.
A POF manager shall have a minimum of two senior executives.
Article 12 POF managers shall designate senior executives to take charge of compliance risk control. The senior executives in charge of compliance risk control shall independently perform the functions of internal control supervision, inspection, evaluation, reporting and recommendation, and assume the corresponding responsibilities for the heavy losses caused by the internal control failures resulted in bynegligence of duty and malfeasance.
Article 13 POF managers shall establish scientific risk assessment system to identify, assess, and analyze internal and external risks, and prevent and resolve risks in a timely manner.
Article 14 POF managers shall establish scientific and rigorous business operation process, and achieve business process control by means of establishment of separate departments, establishment of separate posts, outsourcing, andcustody, etc.
Article 15 Authorized control shall run through the whole process of POF managers' fund raising, investment research, investment operation, operational security, information disclosure and other major links. POF managers shall establish and improve the authorization standards and procedures so as to ensure the implementation of the authorization rules.
Article 16 Where any POF manager raises POFs on its own, it shall establish effective mechanisms to effectively guarantee the safety of the settlement funds raised. POF managers shall establish the qualified investor suitability rules.
Article 17 The POF managers that authorize others to raise funds shall authorize the institutions that have obtained the fund sale business qualifications of the China Securities Regulatory Commission and have become the members of the Asset Management Association of China (hereinafter referred to as the “AMAC”), and develop the selection system for raising institutions so as to effectively guarantee the safety of the settlement funds raised; and shall ensure that POFs are raised from qualified investors and no public offering is conducted in a disguised way.
Article 18 POF managers shall establish sound property separation rules, and independent operation and separate accounting shall be conducted between the POFs properties and the inherent properties of POF managers, among different POFs properties, and between POF properties and other properties.
Article 19 POF managers shall establish and improve relevant mechanisms, prevent the tunneling and conflicts of interest among all POFs, equally treat the POFs managed, and protect investors' interests.
Article 20 POF managers shall establish and improve the investment business control, and guarantee investment decisions are made in strict compliance with laws and regulations, and meet the requirements for investment objectives, investment scope, investment strategies, portfolio and investment restrictions, among others, as agreed on in fund contracts.
Article 21 Unless otherwise agreed on in the fund contracts, POFs shall be under the custody of fund custodians, and POF managers shall establish and improve the selection rules for POF custodians so as to effectively guarantee the safety of funds.
Where it is agreed in any fund contract that no POF shall be placed under custody, the POF manager shall establish rules and measures for guaranteeing the safety of POF properties and the dispute settlement mechanisms.
Article 22 POF managers shall develop the corresponding risk management frameworks and rules for conducting business outsourcing. POF managers shall, under the principle of prudential operation, develop the implementation plans for their business outsourcing, and determine the scope of outsourcing activities appropriate for their business levels.
Article 23 POF managers shall establish and improve outsourcing business control, and conduct comprehensive outsourcing business risk assessment at least once each year. At various stages for conducting the business outsourcing, attention shall be paid to whether outsourcing institutions have any business that conflicts with outsourcing services, and whether outsourcing institutions have taken effective isolation measures.
Article 24 Where POF managers offer to undertake the function of information technology and financial accounting, they shall establish corresponding information system and accounting system, and guarantee the smooth operation of information technologies and financial accounting system.
Article 25 POF managers shall establish and improve the information disclosure control, maintain the information communication channels smooth, guarantee the authenticity, accuracy, integrity and timeliness and the absence of any false record, misleading statement or major omission of the information disclosed to investors, regulatory authorities and the AMAC.
Article 26 POF managers shall preserve the information on privately fund internal control activities and other aspects and the relevant materials, and ensure the integrity, continuity, accuracy and traceability of the information. The said information and relevant materials shall be preserved for not less than ten years as of the date of termination of clearing of publicly offered funds.
Article 27 Publicly offered fund managers shall conduct regular and irregular inspection, supervision and evaluation of the implementation of internal control rules, check whether there are any defects in internal control rules and whether there are any problems during the implementation thereof, and make improvements in a timely manner so as to ensure the effective implementation of the internal control rules.
Chapter IV Inspection and Supervision
Article 28 The AMAC shall supervise the information on the establishment and implementation of the internal control of POF managers.
Article 29 POF managers shall, in accordance with the requirements of these Guidelines, develop the relevant internal control rules, and fill out and upload the relevant internal control rules through the POF registration and recordation system of the AMAC.
Article 30 The AMAC shall, in accordance with the relevant self-regulatory rules, conduct business inspection of the staffing, internal control, business activities, information disclosure and other compliance information of POF managers. The business inspection may be conducted through on-site or off-site methods, and shall be supported by publicly offered fund managers and the relevant personnel.
Article 31 Where any publicly offered fund managers fail to establish and improve the internal control in accordance with these Guidelines, or there are any major defects in internal control, resulting in violations of the relevant laws and regulations and self-regulatory rules, the AMAC may,in light of the seriousness of the circumstances, take such measures such as giving a written warning to, circulating a notice of criticism of within the industry, and publicly issuing a reprimand of the publicly offered fund managers and their principal persons-in-charge.
Chapter V Supplementary Provisions
Article 32 The power to interpret these Guidelines shall remain with the AMAC.
Article 33 These Guidelines shall come into force on February 1, 2016.