The China Securities Regulatory Commission is planning to launch nation-wide on-site investigations of the country’s privately offered funds.
CSRC recently issued the “Notice on Undertaking Specialist Investigation Work in Relation to Privately Offered Funds in 2018” (关于开展2018年私募基金专项检查工作的通知) to regional departments, calling for FOCUSED investigations of “group cross-jurisdictional privately offered funds, privately offered funds that deal with non-standard debt, and other privately offered funds that suffer from risk issues,” according to the Securities Times.
Regional offices of CSRC are reportedly in the process of preparing for on-site inspections that will continue from 1 March to 15 June, while the Shanxi province authorities released an on-site inspection list of two privately offered funds on 9 February.
According to the notice “group cross-jurisidctional privately offered funds” are categorised as those involving a single controller exercising control of five or more funds with total assets under management of in excess of 500 million yuan, and will comprise at least one third of the funds subject to the current round of on-site inspections.
Inspections will focus on “control relationships, business transactions, fund transactions and product nesting between a single controller and different privately offered funds, as well as the control relationships between privately offered funds and other entities” from a risk and compliance perspective.
Privately offered funds that handle more than 50 million yuan in non-standard debt will also be a focus of investigations, with key areas including the existence of “capital pool” operations, shadow banking risk, leveraged operation, liquidity issues and information disclosures.