The China Securities Regulatory Commission ("CSRC") has recently issued the Guidelines for the Side Pocket Mechanism for Publicly-offered Securities Investment Funds (for Trial Implementation) (the "Guidelines"), with effect on August 1, 2020.
The Guidelines encompass a total of 17 articles to make clear three key points. The first is to clarify that the side pocket mechanism is a mechanism that separates risk assets that are difficult to be reasonably valued from fund portfolio assets for disposal and liquidation on the condition of meeting statutory conditions to ensure the normal operation of the remaining fund assets. The second is to stipulate the launch conditions and implementation procedures of the side pocket mechanism as well as the operational requirements for the main implementation links. The third is to consolidate the subject responsibilities of fund managers for risk management and control. To achieve this, efforts will be made to regulate such investment operation links as fee collection and information disclosure as well as related internal control, and clarify the responsibilities of fund trustees and the accounting firm, so as to form a mechanism under which the internal constraints of fund managers, public supervision, and external professional organizations are of equal importance.