Circular of the Legislative Affairs Office of the State Council on Seeking Public Comments on the Interim Administrative Regulations for Private Investment Funds (Draft for Comment)

Circular of the Legislative Affairs Office of the State Council on Seeking Public Comments on the Interim Administrative Regulations for Private Investment Funds (Draft for Comment)

Circular of the Legislative Affairs Office of the State Council on Seeking Public Comments on the Interim Administrative Regulations for Private Investment Funds (Draft for Comment)

August 30, 2017

With a view to further making the legislation more available and transparent and improving the quality of legislation, the Interim Administrative Regulations for Private Investment Funds (Draft for Comment) as well as the instructions drawn up by the Legislative Affairs Office of the State Council and the China Securities Regulatory Commission are hereby promulgated in full to solicit opinions from all walks of life. Relevant entities and all walks of life may give their comments in any of the following three ways by September 30, 2017.

1. Visit the website at http://www.chinalaw.gov.cn and make comments through the module of Seeking Comments on Legislation on the navigation bar on the homepage.

2. Send comments by post to: Mailbox No.2067, Beijing Municipality (Post Code: 100033), with "Comments Sought on the Interim Administrative Regulations for Private Investment Funds" indicated on the envelope.

3. Send comments by mail to: smtzjj@chinalaw.gov.cn.

Interim Administrative Regulations for Private Investment Funds (Draft for Comment)

Chapter I General Provisions

Article 1 For the purpose of regulating the activities of private equity funds, protecting the legitimate rights and interests of investors and the interested parties, and promoting the sound and compliance development of the private investment fund sector, these Regulations are enacted.

Article 2 For the purpose of these Regulations, private investment funds (hereinafter referred to as the "private funds") shall mean those private securities investment funds and private equity investment funds which are established within the territory of the People's Republic of China by raising funds through non-public offerings from qualified investors and are managed by fund managers to carry out investment activities for the sake of investors.
Where a company or a partnership is established under non-public offerings for investment purposes, with its assets managed by a fund manager or a general partner, the fund manager and the fund custodian, and the fundraising, investment operation, and provision of information shall be governed by these Regulations.
The investment made by using the property of private funds shall include securities as well as the derivatives thereof, equities of limited liability companies and fund units, and other investment instruments identified by the securities regulatory authority under the State Council.

Article 3 Those engaged in private fund business shall adhere to the principles of free will, fairness and good faith, maintain the legitimate rights and interests of investors, and shall not impair the national and public interests and lawful rights and interests of any other parties.
When private fund managers and private fund custodians manage and utilize properties of private funds, or when private fund service agencies provide private fund services, they shall be in good faith, prudent and diligent.

Article 4 The securities regulatory authority under the State Council as well as its regional offices shall, in accordance with the provisions of the Law of the People's Republic of China on Securities Investment Funds (hereinafter referred to as the "Law on Securities Investment Funds") and these Regulations, supervise and administer private fund business activities.

Article 5 The funds association shall, in accordance with applicable laws, administrative regulations and the provisions made by the securities regulatory authority under the State Council, exercise self-regulation of private fund business activities.

Chapter II Private Fund managers

Article 6 A private fund manager may be a legally established company or partnership.
Any private fund manager shall be located at business premises, employ practitioners and take security precautions pertaining to its business operation demands, and other facilities in relation to the fund management business, and shall also have in place thorough systems in respect of risk control, compliance, internal auditing and monitoring, and information security.

Article 7 Any party falling under any of the following situations shall neither act as a private fund manager nor become a major shareholder or partner of a private fund manager,
1. Where it has been sentenced for a criminal offense due to its intentional crime and it has not been three years since the completion of the penalty;
2. Where it was subject to any administrative penalty imposed by an administrative body of finance regulation, taxation, customs, etc. as a result of its serious illegality or violation within the last three years;
3. Where its net assets are less than 50% of the paid-up capital or the contingent liabilities reach 50% of the net assets;
4. Where it is unable to pay off due debts; or
5. Any other situation specified by laws, administrative regulations and the provisions of the securities regulatory authority under the State Council.

Article 8 Any individual falling under any of the following situations shall not act as a director, supervisor, senior executive, executive partner or representative appointed by the executive partner in a private fund manager,
1. Where such individual has received a criminal penalty for the offense of corruption, bribery, property encroachment, or disruption of the order of the socialist market economy;
2. Where such individual was personally liable for the bankruptcy liquidation of a company or enterprise, where it serves as a director, supervisor, factory director, or senior executive, due to its poor business management or for the forfeiture of its business license 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 forfeiture of business license;
3. Where such individual fails to pay off a large amount of personal debts upon maturity;
4. Where such individual is a practitioner in a fund manager, a fund custodian, a stock exchange, a securities company, a securities depository and clearing institution, a futures exchange, a futures company or any other institution, or an employee of a government agency, from which the individual has been dismissed for any violation of law;
5. Where such individual is a lawyer, a certified public accountant, or a practitioner in an asset appraisal or verification institution, or an investment advisory employee, who has had his or her practicing license forfeited or has been disqualified for any violation of law;
6. Any other situation specified by laws, administrative regulations and the provisions of the securities regulatory authority under the State Council.

Article 9 A private fund manager shall fulfill its duties as follows,
1.
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