Presented at the Member Update:
RMB Financial Products in Hong Kong
– April 7, 2011
Co-hosted byRegulatory developments on RMBcontents

2© Clifford Chance, April 2011

Regulatory developments on RMB

Below is a selection of regulatory developments extracted from CC Online Service on RMB
from June 2009 to 31 March 2011. If you would like to sign up to our service, pleasecontact Marian Cheng at (852) 2825 8905 or email marian.cheng@cliffordchance.com.

HKMA welcomes launch of renminbi fiduciary account service

04

HKMA reminds authorised institutions of SFC investor education materials
on IPOs and trading of renminbi securities

04

SFC issues checklist to facilitate readiness for listed renminbi
securities business

04

SFC publishes key messages from listed RMB securities businessbriefing session

04

SFC and HKEx conduct briefing session on preparation for listed
RMB securities business

05

HKMA issues circular on preparation for potential listing of RMB
denominated products

05

SAFE issues notice on RMB / foreign exchange options trading

05

SFC issues circular on preparation for listed RMB denominatedsecurities business

06

HKMA welcomes pilot scheme for settlement of overseas direct
investments in RMB

06

PBC issues administrative measures on pilot RMB settlement ofoutbound direct investments

06

HKMA issues circular regarding RMB cross-border trade settlement
and net open positions

07

HKMA welcomes expansion of list of Mainland China enterprises
eligible for cross-border RMB settlement

08

HKMA and MOF sign memorandum of co-operation on issuanceof RMB sovereign bonds using Central Moneymarkets Unit

08

HKMA issues circular regarding conversion service provided by
RMB clearing bank

08

PBC issues interim measures on issuance of bonds in RMB byinternational development institutions

08

SFC Executive Director discusses new landscape for investment
products in Hong Kong09

PBC issues measures on administration of RMB settlement accounts
opened by offshore institutions09

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Regulatory developments on RMB

HKEx’s Chief Executive discusses internationalisation of RMB

10HKMA advises authorised institutions on selling of RMB deposit,
investment and insurance products

10

PBC issues interim measures on issuance of bonds in RMB byinternational development institutions

11

HKEx publishes amendments to operational procedures and clearing
rules to facilitate trading and settlement of RMB denominated products

11

SFC issues circular on preparation for trading and settlement oflisted RMB denominated products

11

HKMA revises reporting of RMB business data

12

HKMA reminds authorised institutions of SFC circular on listed
RMB products

12

SFC reminds exchange participants to ensure operational readinessfor business activities concerning listed RMB denominated products

12

HKMA issues guidance to authorised institutions in relation to pilot
scheme for RMB clearing bank and other eligible institutions toinvest in Mainland’s interbank bond market

12

PBC notice on issues concerning investments in intra-bank bonds
market in RMB published13

SFC authorises first RMB-denominated fund

13

HKMA publishes circular on RMB business in Hong Kong

14

HKMA explains supervisory principles and operational arrangements
regarding RMB business in Hong Kong

14

HKMA explains simplified arrangements for selling of RMB sovereign bonds

14

HKMA clarifies treatment of RMB assets and liabilities generated
from RMB cross-border trade settlement for calculation of liquidity ratio

15

HKMA issues circular to AIs providing guidance on RMB cross-border
trade settlement

15

HKMA and PBoC sign RMB supplementary pact

15

© Clifford Chance, April 2011

4

1. HKMA welcomes launch of renminbi
fiduciary account service
31 March 2011

Regulatory developments on RMB

Clearing and Settlement System (CCASS) participants thathave successfully completed the tests held by HKEx in March2011 and confirmed to HKEx their readiness for dealing and/or
clearing transactions in RMB securities.

The Hong Kong Monetary Authority (HKMA) has welcomed
the launch of the renminbi (RMB) fiduciary account service,a new arrangement intended to help participating banks tobetter manage their credit exposure to the clearing bank for
RMB business in Hong Kong. Banks participating in RMB
business can now place RMB funds in excess of their day-today business and settlement needs in a segregated fiduciary
account with the People’s Bank of China through the RMB
clearing bank.

Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20110329e1.pdf

The HKMA has issued a circular to authorised institutions on
the prudential treatment of balances maintained in the RMB
fiduciary account. Amongst other things, the circular states
that:

The Securities and Futures Commission (SFC) has issued achecklist to facilitate the Stock Exchange of Hong Kong Limited(SEHK) and the Central Clearing and Settlement System(CCASS) participants’ review of their readiness to conduct
listed renminbi (RMB) securities business. The checklist recaps
the key areas the participants should consider during theirreadiness review. Amongst other things, the SFC has reminded
that:n a participating authorised institution should always maintaina total amount of RMB cash, settlement account balancewith the RMB Clearing Bank and balance maintained in thefiduciary account of no less than 25% of its RMB customer
deposits; andn starting from the position of April 2011, any outstandingbalance maintained in the fiduciary account should be
included in the amount of settlement account balance with
the RMB clearing bank reported in the ‘Monthly Return of
RMB Business Activities’ (MA(BS)16).
Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20110331e2.pdf

2 HKMA reminds authorised institutions of
SFC investor education materials on IPOs
and trading of renminbi securities

3. SFC issues checklist to facilitate
readiness for listed renminbi securities
business
17 March 2011n participants should prudently assess their readiness andbe satisfied that they have already prepared themselvesproperly before confirming their readiness to the Hong Kong
Exchanges and Clearing Limited (HKEx);n brokers providing currency conversion service to their clientsshould ensure the relevant exchange rate and/or basis of
fixing the exchange rate has been clearly disclosed to andagreed with the clients; andn brokers who fail to ensure their readiness should refrainfrom dealing in RMB securities to be listed on the SEHK or
clearing transactions in such securities.
Circular: http://www.sfc.hk/sfcRegulatoryHandbook/EN/
displayFileServlet?docno=H620

29 March 2011
The Hong Kong Monetary Authority (HKMA) has issued acircular encouraging authorised institutions to make reference
to the Securities and Futures Commission’s (SFC’s) investor
education materials on preparing for initial public offering (IPO)
and trading of listed renminbi (RMB) securities. The materials
were issued by the SFC on 25 March 2011.
The HKMA has encouraged authorised institutions to refer tothe SFC materials to facilitate their handling of enquiries from
customers. Amongst other things, the SFC materials advise
investors to open RMB bank accounts in Hong Kong forsettling relevant transactions, and to make sure that they havesufficient RMB in that account.
The HKMA has also advised investors to verify if anintermediary is on the Hong Kong Exchanges and Clearing
Limited’s (HKEx) list of exchange participants and Central© Clifford Chance, April 2011

4. SFC publishes key messages from listed
RMB securities business briefing session
03 March 2011
The Securities and Futures Commission (SFC) has issued
a circular summarising the key messages from its joint brief
session conducted with Hong Kong Exchanges and Clearing
Limited (HKEx) on 28 February 2011 and 1 March 2011. In
particular, the circular reminds participants in the renminbi(RMB) securities business to:n apply to the Hong Kong Securities Clearing Company
Limited (HKSCC) to set up an RMB designated bankaccount for use with the Central Clearing And Settlement
System (CCASS) by 7 March 2011;5

Regulatory developments on RMB

n participate in the HKEx’s RMB readiness tests and complete
them successfully; andn ensure all of their relevant systems and procedures areready and submit their confirmation of readiness to the
HKEx before 6 pm on 21 March 2011.
The SFC has indicated that if the CCASS participants fail toapply for an RMB designated bank account by 7 March 2011,
they may risk not being able to participate in the readinesstests, and consequently may run the risk of not being accepted
by initial public offer (IPO) sponsors to take part in RMBdenominated IPOs when they are launched in Hong Kong. The
SFC has also reminded brokers who are not ready to conduct
listed RMB securities business to put in place measures toprevent the inadvertent trading of, or acceptance of client
trading instructions on, listed RMB securities.
Circular: http://www.sfc.hk/sfcRegulatoryHandbook/EN/
displayFileServlet?docno=H619
Press Release: http://www.sfc.hk/sfcPressRelease/EN/
sfcOpenDocServlet?docno=11PR25

5. SFC and HKEx conduct briefing session
on preparation for listed RMB securities
business
01 March 2011
The Securities and Futures Commission (SFC) and the Hong
Kong Exchanges and Clearing Limited (HKEx) have conducteda briefing session on the preparation for RMB denominatedsecurities business. The briefing session was intended toprovide guidance for brokers and other stakeholders on
the preparatory work for the trading and settlement of RMB
denominated securities.

HKEx briefing session document – trading:
http://www.hkex.com.hk/eng/market/sec_tradinfra/
PrepareRMB/Documents/RMB_Briefing_Trading_e.pdf
HKEx briefing session document – clearing:
http://www.hkex.com.hk/eng/market/sec_tradinfra/
PrepareRMB/Documents/RMB_Briefing_Clearing_e.pdf

6. HKMA issues circular on preparation
for potential listing of RMB denominatedproducts
18 February 2011
The Hong Kong Monetary Authority (HKMA) has issued acircular on the preparation for the potential listing of investment
products denominated in RMB. The HKMA reminds authorised
institutions to pay attention to the trading, clearing andsettlement of RMB-denominated products to be listed on the
Stock Exchange of Hong Kong Limited (SEHK).
The HKMA points out that authorised institutions should clearly
understand and define their roles and responsibilities in theinitial public offering (IPO), trading, clearing and settlement
processes, put in place proper internal checks and controls,
and implement the necessary operational and system changes.
To ensure smooth operation and service for customers, theHKMA reminds authorised institutions to thoroughly review
and properly test the readiness of their relevant financial andoperational infrastructures and procedures as soon as possible.
In addition, authorised institutions should allocate proper
resources and put in place adequate operational procedures
and contingency measures to cope with the forthcoming IPOs
of RMB-denominated products.
Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20110218e1.pdf

Amongst other things, the briefing session discussed:n the actions taken by the SFC and the HKEx to assist brokers
to prepare for listed RMB securities trading and settlement;

7. SAFE issues notice on RMB / foreignexchange options tradingn the key considerations for self-examination of readiness byparticipants;

16 February 2011

n frequently asked questions on preparation for RMB
denominated securities; andn the Central Clearing And Settlement System (CCASS) andtrading and settlement of RMB denominated securities;

The State Administration of Foreign Exchange (SAFE) has
issued a ‘Notice on Relevant Issues on RMB / Foreign
Exchange Options Trading’, which will come into force on 1
April 2011. In order to meet the growing demands of banks andenterprises for hedging RMB appreciation and exchange raterisk, the Notice permits RMB and foreign exchange options tobe traded domestically in China.

n and a trading system and operations preparation checklist.
Amongst other things, the Notice states that:
SFC briefing session document:
http://www.sfc.hk/sfcRegulatoryHandbook/EN/
displayFileServlet?docno=H618

n ‘options’ refers to European-style options and thus theoptions can only be exercised upon maturity;© Clifford Chance, April 2011

6

Regulatory developments on RMB

n upon satisfaction of certain eligibility requirements (such as
being licensed by SAFE for forward sale and settlement offoreign exchange for more than three years, assessed to be
B class or above, experienced in foreign exchange options
trading as well as with sound risk management and internal
control system) and filing with SAFE, banks are allowed tosell options to customers;

n attend the joint briefing session to be held by the SFC andthe Hong Kong Exchanges and Clearing Limited (HKEx) on
28 February 2011; andn enterprises can only buy options for hedging rather than
speculation and they can only buy options (including call
options and put options), but not sell them except forreverse squared position of the options already purchased– moreover, in principle, when exercising the options uponmaturity, the parties shall make full amount payment of theprincipal based on the agreed price instead of settling on a
netting basis;

The SFC has indicated that participants who fail to ensure
their readiness to conduct listed RMB securities businessshould refrain from dealing in listed RMB securities or clearing
transactions in such securities.

n besides selling options to customers, banks are also
permitted to trade them in the interbank foreign exchange
market – such trading will be organised by the China Foreign
Exchange Trade System (in order to qualify, banks will have toobtain prior approval from SAFE to trade RMB/FX forwards inthe interbank FX market for over three years and be equippedwith both software and hardware subject to technicalspecifications for option trading system formulated by the
China Foreign Exchange Trade System); and9. HKMA welcomes pilot scheme forsettlement of overseas direct investments
in RMBn the Delta positions of options shall be integrated into
synthetic positions in the settlement and sale of FX for
unified administration.

Under the pilot scheme, Mainland China enterprises canconduct direct investments overseas using RMB upon approvalby the relevant Mainland authorities. The Hong Kong branches
and correspondent banks of Mainland banks can also obtain
RMB funds from the Mainland and extend RMB lending to theenterprises conducting the investments.

Notice: http://www.safe.gov.cn/model_safe/laws/law_detail.jsp?ID=80600000000000000,32&id=4

8. SFC issues circular on preparation
for listed RMB denominated securities
business
11 February 2011
The Securities and Futures Commission (SFC) has issued acircular advising exchange participants of the Stock Exchange
of Hong Kong Limited (SEHK) and Central Clearing and
Settlement System (CCASS) on their preparation to trade orclear RMB denominated securities to be listed on the SEHK.
Amongst other things, the SFC advises participants to:n open RMB accounts with banks and secure appropriate
RMB banking facilities (such as overdraft facility and foreignexchange line) for working capital purposes;n participate in the end-to-end testing session and thepayment pilot run to be held by the HKEx and respondto the HKEx’s request for confirmation of readiness after
completion of the tests.

Circular: http://www.sfc.hk/sfcRegulatoryHandbook/EN/
displayFileServlet?docno=H616

13 January 2011
The Hong Kong Monetary Authority (HKMA) has welcomed theannouncement by the People’s Bank of China (PBoC) of a pilot
scheme for the settlement of overseas direct investments in RMB.

The HKMA has indicated that, upon implementation of the pilot
scheme, Mainland enterprises can conduct such investments
through Hong Kong’s offshore RMB centre, and at the sametime make use of the multi-currency and multi-functional
financial platform in Hong Kong for related financing and fundmanagement activities. The HKMA expects the launch of thepilot scheme to enhance the circulation of RMB funds for tradeand investment activities.
Press Release: http://www.info.gov.hk/hkma/eng/press/2011/20110113e3_index.htm

10. PBC issues administrative measures onpilot RMB settlement of outbound direct
investments
06 January 2011

n set up RMB designated bank accounts at CCASS forclearing purposes;n examine their operational capabilities to conduct listed RMB
securities business and make all necessary changes andarrangements immediately;© Clifford Chance, April 2011

The People’s Bank of China (PBC) has issued the‘Administrative Measures on Pilot RMB Settlement of OutboundDirect Investments’ to support the pilot scheme of RMB
settlement of cross-border trades, and to facilitate the RMB
settlement of outbound direct investments.

7

Regulatory developments on RMBAmongst other things, under the measures:n ‘outbound investment’ means establishing, gaining control
or management of offshore projects or enterprises, bymeans of setting up, merger and acquisition, or acquiring
shares with funds in RMB and with prior approval from thecompetent authorities;n the PBC and the State Administration of Foreign Exchange(SAFE) regulate the RMB settlement of outboundinvestments;n the precondition for banks to process the RMB settlementof outbound investments for domestic institutions, which aredefined as non-financial institutions registered in the RMB
pilot region, is the approval by the competent authorities;n in order to remit the upfront fees (which refers to the fees
arising from outbound investments before any actual
investment is made), or to remit the RMB funds foroutbound investments, domestic institutions must register
their application with the local SAFE branch;n with prior approval of the competent authorities, domestic
institutions may apply directly to banks for remittanceand repatriation of RMB funds arising from increases anddecreases of capital, transfers of equity and liquidation of
the outbound invested enterprises – in addition, domestic
institutions are allowed to repatriate the proceeds ofoutbound investments in RMB;

11. HKMA issues circular regarding RMB
cross-border trade settlement and net
open positions
23 December 2010
The Hong Kong Monetary Authority (HKMA) has issued
further guidance on the handling of RMB cross-border trade
settlement by authorised institutions participating in RMB
business, and the keeping of RMB net open positions which
is applicable to all authorised institutions. The guidance isintended to enhance the operations of RMB cross-border trade
settlement and establish a market-based approach. Amongst
other things, under the guidelines, authorised institutions
participating in RMB business:n should put in place stringent know-your-customer
procedures, as well as exercising due diligence to ascertainthat customers’ purchase of RMB for trade settlement
purposes are supported by genuine cross-border trades;n should only provide trade-related RMB conversion services
for their own customers in relation to transactions duefor settlement not more than 3 months from the date ofconversion, if the resulting position is to be squared with the
RMB clearing bank;n should first use their RMB positions derived under the trade
settlement regime when meeting customer demand for
RMB for the purpose of cross-border trade settlement;n and banks are entitled to extend RMB loans to domestic
institutions for their outbound investments.

n can approach the HKMA for RMB funding if they do nothave long RMB trade positions; andThe Administrative Measures also impose certain limitations
on outbound investments. In principle, the total upfront fees
remitted shall not exceed 15% of the total investment amountapproved by the competent authorities. The total sum of RMB
funds and foreign exchange funds remitted for outboundinvestment shall not exceed the total investment amountapproved by the competent authorities.

n are expected to maintain net RMB positions commensuratewith the scale of their RMB business.

The Administrative Measures are intended to encourage
domestic institutions to make outbound investments and toincrease the internationalisation of RMB.

Unless stated otherwise, the arrangements set out in the lettershould take effect from 1 January 2011.
Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20111223e1.pdf

The Administrative Measures came into force on 6 January
2011.
Adminstrative Measures: http://www.pbc.gov.cn/publish/
tiaofasi/584/2011/20110113160218798684105/
20110113160218798684104_.html© Clifford Chance, April 2011

8

Regulatory developments on RMB

12. HKMA welcomes expansion of list of
Mainland China enterprises eligible forcross-border RMB settlement

14. HKMA issues circular regarding
conversion service provided by RMB
clearing bank

06 December 2010

28 October 2010

The Hong Kong Monetary Authority (HKMA) has welcomed theannouncement by the People’s Bank of China (PBoC) of an
expansion of the list of Mainland enterprises that are eligible forparticipating in the cross-border RMB trade settlement scheme.

The Hong Kong Monetary Authority (HKMA) has issued acircular regarding the conversion service provided by theclearing bank for RMB trade settlement. According to thecircular, the clearing bank for RMB business has informed theHKMA that the 2010 quota assigned by the Mainland China’s
authorities for the conversion of RMB for trade settlementtransactions has been fully depleted. As a result, the HKMA
has decided that until further notice, participating authorised
institutions should make use of their long RMB positions or
RMB to be purchased from other participating authorised
institutions to satisfy the demand for RMB for paying tradetransactions from their customers. The HKMA has also
activated the currency swap arrangement with the People’s
Bank of China, which is intended, amongst other things, tofacilitate RMB trade settlement business. The HKMA has
reminded participating authorised institutions to conduct
appropriate due diligent procedures when handling conversionsof RMB for customers.

The cross-border RMB trade settlement scheme was expanded
in June 2010, when the coverage was extended from tradetransactions between five Mainland cities and the Associationof Southeast Asian Nations (ASEAN) economies to all tradetransactions of 20 provinces and cities in Mainland China
with the rest of the world. According to the HKMA, with thecurrent expansion of the list of eligible enterprises, the numberof Mainland China’s enterprises that can settle merchandise
exports in RMB has increased from 365 to 67,359.
Press Release: http://www.info.gov.hk/hkma/eng/press/2010/20101206e3_index.htm

13. HKMA and MOF sign memorandumof co-operation on issuance of
RMB sovereign bonds using Central
Moneymarkets Unit
22 November 2010
The Hong Kong Monetary Authority (HKMA) and the Ministry of
Finance (MOF) have signed a ‘Memorandum of Co-operation(MOC) on Using Central Moneymarkets Unit (CMU) for Issuanceof RMB Sovereign Bonds’. The MOC is intended to set thefoundation for the tendering and issuance of RMB sovereign
bonds through the CMU bid, a bond tendering platform offeredby the CMU operated by the HKMA.
The MOF is planning to issue RMB sovereign bonds of RMB 5
billion to institutional investors through the CMU bid, comprising
three-year bonds of RMB 2 billion, five-year bonds of RMB 2
billion and ten-year bonds of RMB 1 billion.
Press Release: http://www.info.gov.hk/hkma/eng/press/2010/20101122e3_index.htm

Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20101028e1.pdf

15. PBC issues interim measures on
issuance of bonds in RMB by international
development institutions
4 October 2010
The People’s Bank of China (PBC) has promulgated the ‘Interim
Administrative Measures on Issuance of Bonds in RMB by
International Development Institutions’, which amend an earlier
version dated 18 February 2005. Amongst other things, thedefinition of international development institution (IDI) has
been expanded to include multi_lateral, bilateral and regional
international development institutions providing development
loans and investments. However, the definition of the bonds in
RMB issued by an IDI (IDI RMB Bonds) remains the same i.e.
they are bonds denominated in RMB issued by an IDI in the
People’s Republic of China, principals and interest of which are
to be repaid within a certain period of time.
In recognition of the cross border features of the IDI RMBBonds, the State Administration of Foreign Exchange (SAFE)
has been added to the original approval authorities (the PBC,
the Ministry of Finance, the National Development and Reform
Commission, and the China Securities Regulatory Commission).
The issuance of IDI RMB Bonds must ultimately be approvedby the State Council. Amongst other things, the eligibility criteriaof an IDI under the new interim measures include that:© Clifford Chance, April 2011

9

Regulatory developments on RMB

n the IDI RMB Bonds to be issued must be graded as ‘AA’ by
two rating firms (one of which must be incorporated in China
and has the capability to rate RMB bonds);

According to Mrs. Lam, there are two key conditions for the
RMB to become an internationally-accepted and circulated
currency, namely that:n the IDI has provided over USD 1 billion in loan or equity
to Chinese domestic projects and enterprises, unless
exempted by the State Council; andn those outside the country who wish to hold the currency
must be able to obtain and transfer RMB without
impediment; andn the proceeds should first be used to provide middle andlong term fixed assets loans or equity to Chinese domestic
enterprises.

n there must be a market-driven demand for the currency.

The proceeds of IDI RMB Bonds can be directly remitted
offshore pursuant to regulations of the PBC, or converted into
foreign currency for offshore use with SAFE approval (in whichcase, the IDI must report the true purpose of the conversion foroffshore use, and periodically file with SAFE as to the utilisationof the proceeds).
To repay the principal and interest of IDI RMB Bonds, the IDI
may elect to remit RMB from offshore upon filing with PBC, or
to remit foreign currency from offshore and convert it into RMB
with SAFE approval.
After issuance, IDI RMB Bonds can be traded in China withapproval. The issuance and default of IDI RMB Bonds shall begoverned by Chinese law.
The Interim Measures 國際開發機購人民幣債券發行管理暫行辦法
http://www.pbc.gov.cn/publish/goutongjiaoliu/524/2010/
20100930144622583961548/20100930144622583961548_.html

16. SFC Executive Director discusses
new landscape for investment productsin Hong Kong
29 September 2010
Mrs. Alexa Lam, the Executive Director of the Securities andFutures Commission (SFC), has delivered a speech on the newlandscape for investment products in Hong Kong at the 19th
Annual Global Investment Funds Forum in Luxembourg. Mrs.
Lam noted that the regulatory changes made by Hong Kongin its domestic market are broad-reaching, covering collective
investment schemes, structured products and investmentlinked assurance schemes sold to the public in Hong Kong.
Mrs. Lam discussed the measures being taken by China tomove towards further internationalisation of the RMB, how thisis likely to impact upon investments and investment assets
worldwide, and the role Hong Kong is playing in this process.
She noted that the first major steps towards internationalisationof the currency were taken in July 2009, when China officiallylaunched a pilot scheme for the settlement of cross-border
trades in RMB between a few Chinese cities and several othercountries and territories outside mainland China, including
Hong Kong.

Mrs. Lam discussed the steps China has taken over the last
several years to address these two issues.
Mrs. Lam noted that further increases in the breadth and depthof the market for RMB investments products are expected in
Hong Kong, with the next major development likely to be in
the listed products area. She also indicated that a small-scale
Qualified Foreign Institutional Investor or QFII-like quota in RMB,
allowing direct investments into mainland China exchangetraded instruments, is expected to be introduced on a pilot trial
basis in Hong Kong.
Speech: http://www.sfc.hk/sfc/doc/EN/speeches/
speeches/10/Alexa_20100929.pdf
Press Release: http://www.sfc.hk/sfcPressRelease/EN/
sfcOpenDocServlet?docno=10PR116

17. PBC issues measures on
administration of RMB settlement
accounts opened by offshore institutions
29 September 2010
The People’s Bank of China (PBC) has promulgated the‘Measures on Administration of RMB Bank Settlement
Accounts opened by Offshore Institutions’. The Measures apply
to RMB bank settlement accounts opened by institutions duly
incorporated outside China (including Hong Kong, Macau andTaiwan) (‘Offshore Institutions’) with Chinese funded banks orforeign funded banks in China licensed to handle domestic
and foreign settlements (‘Banks’). However, the Measures
do not apply to RMB bank settlement accounts opened
by foreign central banks (monetary authorities), inter-bankaccounts opened by foreign commercial banks for the purposeof providing RMB clearing and settlement services, RMB
special accounts opened by QFIIs for the purpose of securities
investment, or RMB special accounts opened by foreign
institutions for the purpose of investing in onshore inter-bankbonds market.

© Clifford Chance, April 2011

10

Regulatory developments on RMBAmongst other things, under the Measures:

The six questions discussed by Mr. Li are:n Offshore Institutions are permitted to open RMB bankaccounts with Banks for the purpose of paying andreceiving RMB funds, and using such accounts to carry on
various cross-border RMB business;n why there is a need to internationalise the RMB;n opening RMB bank settlement accounts shall be approved
by local branches of the PBC, and an applicant shall submit
to a local branch of the PBC through a Bank it designates
the following documents:

n what the likely roadmap of development is;n an account opening application letter;n whether RMB internationalisation is feasible and realistic in
the current environment;n why Hong Kong can be an offshore RMB centre in thisdevelopment;n what the commercial opportunities potentially available toHong Kong are; andn the relevant documents evidencing that the applicant isduly incorporated offshore; andn what Hong Kong needs to do to prepare itself.

n the laws, regulations or government approvals uponwhich it carries on relevant business in China;

Speech: http://www.hkex.com.hk/eng/newsconsul/
speech/2010/sp100920.htm

n Offshore Institutions may not use their RMB bank settlement
accounts to handle cash business without approval from the
PBC; andn the RMB funds in the RMB bank settlement accounts may
not be converted into foreign exchange, unless explicitly
permitted otherwise in the relevant regulations.
Measures: http://www.pbc.gov.cn/publish/zhifujiesuansi/
1067/2010/20100929154441253564114/
20100929154441253564114_.html

18. HKEx’s Chief Executive discusses
internationalisation of RMB
21 September 2010
The Chief Executive of Hong Kong Exchanges and Clearing
Limited (HKEx), Charles Li, has given a speech covering six
key questions about the internationalisation of the RMB.
Internationalisation of the RMB has been one of the hottest
topics in Hong Kong’s financial markets recently, and is also amajor component of HKEx’s 2010-2012 Strategic Plan.

19. HKMA advises authorised institutions
on selling of RMB deposit, investment andinsurance products
16 September 2010
The Hong Kong Monetary Authority (HKMA) has issued acircular advising authorised institutions (AIs) on the selling of
RMB deposit, investment and insurance products. The circularreminds AIs to ensure that the specific nature and risks ofsuch products are adequately taken into account in the
product due diligence process and the suitability assessment ofcustomers. It further notes that while a low risk rating may be
assigned to sovereign RMB bonds given the specific productnature and lower risks involved, a higher risk rating may berequired for RMB products involving more complex structuresand higher risks.
Whilst the circular focuses on the disclosure of the nature andrisks of RMB products to customers, it also reminds AIs that it
is important for them to take all reasonable steps to ensure thatthe proposed transaction is suitable for the customer, having
regard to the customer’s own personal circumstances together
with the nature and risks of the product when making any
solicitation, recommendation or advice.
Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20100916e1.pdf© Clifford Chance, April 2011

11

Regulatory developments on RMB

20. PBC issues interim measures on
issuance of bonds in RMB by international
development institutions

21. HKEx publishes amendments tooperational procedures and clearing rules
to facilitate trading and settlement of RMB
denominated products

16 September 2010
10 September 2010
The People’s Bank of China (PBC) has promulgated the ‘Interim
Administration Measures on Issuance of Bonds in RMB by
International Development Institutions’, which amend an earlier
version dated 18 February 2005. Amongst other things, thedefinition of international development institution (‘IDI’) has
been expanded to include multi-lateral, bilateral and regional
international development institutions providing development
loans and investments. However, the definition of the bonds in
RMB issued by an IDI (‘IDI RMB Bonds’) remains same - thebonds issued by an IDI in the People’s Republic of China,
principals and interest of which are to be repaid within a certain
period of time, and are denominated in RMB.
In order to facilitate the cross-border features of the IDI RMBBonds, the State Administration of Foreign Exchange (‘SAFE’)
has been added to the original approving authorities (the PBC,
the Ministry of Finance, the National Development and Reform
Commission, and the China Securities Regulatory Commission).
The issuance of IDI RMB Bonds shall ultimately be approved by
the State Council. Amongst other things, the eligibility criteria ofan IDI under the new interim measures include that:n the IDI RMB Bonds to be issued must be graded as AA by
two rating firms (one of which must be incorporated in China
and have the capability to rate RMB bonds);

Hong Kong Exchanges and Clearing Limited (HKEx) has
published amendments to the Central Clearing and Settlement
System (CCASS) operational procedures, which are intended
to enable operational readiness for the clearing and settlementof RMB denominated transactions in CCASS. HKEx has also
published amendments to the Option Clearing Rules, which
are designed to enable the clearing of RMB denominatedproducts by SEHK Options Clearing House Limited (SEOCH) to
accept RMB as margin collateral for SEOCH transactions. The
amendments are effective from 13 September 2010.
CCASS procedural amendments:
http://www.hkex.com.hk/eng/rulesreg/clearrules/clrruleupdate_ccassop/Documents/29-10-CCASSOP-RMB_e.pdf
SEOCH rules amendments:
http://www.hkex.com.hk/eng/rulesreg/clearrules/clrruleupdate_
ocr/Documents/31-10-OCR-RMB_e.pdf

22. SFC issues circular on preparation
for trading and settlement of listed RMB
denominated products
09 September 2010

n the IDI has provided over USD 1 billion loans or equity
capitals to Chinese domestic projects and enterprises,
unless exempted by the State Council; andn the proceeds should be prioritised to provide middle and long term
fixed assets loans or equities to Chinese domestic enterprises.
The proceeds of IDI RMB Bonds can be directly remitted
offshore pursuant to regulations of the PBC, or converted toforeign currency for offshore use with the approval of the SAFE
(in which case, the IDI must report the true purpose of theconversion for offshore use, and periodically file with SAFE theutilisation of the proceeds).

Further to its circular dated 31 August 2010 on the operational
readiness for business activities concerning listed RMB
denominated products, the Securities and Futures Commission(SFC) has reminded Stock Exchange of Hong Kong (SEHK)
participants about the Hong Kong Monetary Authority (HKMA)’s
circular dated 3 September 2010 on the preparation for the
trading and settlement of listed RMB denominated products.
The SFC has advised brokers to take note of the restrictions
on RMB lending by banks as set out in the HKMA’s circular. In
addition, the SFC has reminded brokers to set up RMB credit
facilities with their clearing banks as soon as possible if needed,
so as to facilitate the trading and settlement of listed RMB
denominated products in the near future.

To repay the principal and interest of IDI RMB Bonds, the IDI
may elect to remit RMB from offshore upon filing with PBC, or
to remit foreign currency from offshore and convert it into RMB
upon SAFE approval.

SFC circular:
http://www.sfc.hk/sfcRegulatoryHandbook/EN/
displayFileServlet?docno=H599

After issuance, IDI RMB Bonds can be traded in China upon
approval, and the issuance and defaults of IDI RMB Bonds shallbe governed by Chinese law.

HKMA circular:
http://www.info.gov.hk/hkma/eng/guide/circu_
date/20100903e1.pdf

Interim Measures:
http://www.pbc.gov.cn/publish/goutongjiaoliu/
524/2010/20100930144622583961548/
20100930144622583961548_.html.
© Clifford Chance, April 201112

23. HKMA revises reporting of RMB
business data
07 September 2010
The Hong Kong Monetary Authority (HKMA) has revised the
Return of Renminbi Business Activities (MA(BS)16) to takeaccount of the changes arising out of the latest developmentwith regards to RMB business in Hong Kong, following
consultations with two industry associations. The revised returnand completion instructions are attached to the circular.
The HKMA has indicated that all authorised institutions (AIs)
are required to file the revised return starting from the positionof September 2010 in accordance with the usual time table,
i.e. within 21 days from the end of each calendar month. The
HKMA will notify AIs when the electronic version of the revised
return is available on its private website.

Regulatory developments on RMB

25. SFC reminds exchange participants
to ensure operational readiness forbusiness activities concerning listed RMB
denominated products
31 August 2010
The Securities and Futures Commission (SFC) has issued
a circular to remind participants of the Stock Exchange ofHong Kong Limited (SEHK) to ensure operational readinessfor business activities arising from potential listing of products
denominated in RMB.
Amongst other things, exchange participants are advised to:n arrange with the SEHK and Hong Kong Securities Clearing
Company Limited (HKSCC) to test the capability of theirtrading and clearing systems;

Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20100907e1.pdf

n review the readiness of their front office, back office andinternet trading systems; arrange with their clearing banks toopen RMB bank accounts as soon as possible; and24. HKMA reminds authorised institutionsof SFC circular on listed RMB products

n establish effective operating and risk management controls
to prudently manage liquidity and exchange rate risks when
conducting RMB denominated business.

03 September 2010
The Hong Kong Monetary Authority (HKMA) has issued acircular to draw the attention of authorised institutions (AIs) toa circular issued by the Securities and Futures Commission(SFC Circular) on 31 August 2010. The SFC Circular advisedintermediaries to ensure their readiness for the trading andsettlement for future launches of listed RMB denominatedproducts.
The HKMA has indicated that AIs planning to engage inthe trading and settlement of listed RMB products should
implement proper controls and necessary operational andsystem changes. In addition, it has reminded AIs that plan toprovide customers with RMB loan facilities to facilitate theirinvestment in such products that RMB lending to personalcustomers and designated business customers (DBCs) iscurrently not permissible. The HKMA has further indicatedthat while AIs are permitted to extend RMB loans to corporate
customers including other financial intermediaries, they shouldtake reasonable steps to ascertain that such loans will not inturn be lent by the corporate customers concerned to personalcustomers and DBCs.
Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20100903e1.pdf© Clifford Chance, April 2011

Circular: http://www.sfc.hk/sfcRegulatoryHandbook/EN/
displayFileServlet?docno=H597

26. HKMA issues guidance to authorised
institutions in relation to pilot scheme
for RMB clearing bank and other eligible
institutions to invest in Mainland’sinterbank bond market
17 August 2010
The Hong Kong Monetary Authority (HKMA) has issued
guidance to authorised institutions (AIs) in relation to the pilot
scheme promulgated by the People’s Bank of China (PBoC) for
the RMB clearing bank and other eligible institutions outside
the Mainland to make use of their RMB funds to invest in the
Mainland’s interbank bond market.

Regulatory developments on RMB

13Under the pilot scheme and the HKMA guidelines, all AIs
engaging in cross-border RMB trade settlement can participate
in the interbank bond market in the Mainland through asettlement agent, upon approval by the PBoC. The HKMA
has indicated that AIs engaging in this activity should apply to
the PBoC directly and comply with the applicable rules andregulations in the Mainland. It has further indicated that AIs
should however note that they cannot execute transactionsin the Mainland interbank bond market with a counterparty
which is a group company of the AI itself. The HKMA expects
AIs to put in place effective policies and procedures as wellas proper internal control systems to ensure compliance withthe relevant rules and regulations. The HKMA also expects AIs
submitting their application to the PBoC to participate in theinterbank bond market to keep it informed of the progress of
the application.

n Offshore Central Banks and RMB Clearance Banks may
entrust inter-bank bonds market settlement agents whichhave the capability of conducting international settlementbusiness to trade and settle bonds - they may also
directly apply to open a bonds account with China Central
Depository & Clearing Co., Ltd. and complete the relevant
procedures with Nation Interbank Funding Center;

Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20100817e2.pdf

n Offshore institutions can only make investments within theirapproved quota but are not permitted to trade bonds with
their affiliate enterprises.

Press Release: http://www.info.gov.hk/hkma/eng/press/2010/20100817e4_index.htm

27. PBC notice on issues concerninginvestments in intra-bank bonds market in
RMB published
16 August 2010
The People`s Bank of China (PBC) has published a noticeon relevant issues in relation to three kinds of institutions’investments in the intra-bank bonds market in RMB on a pilot
basis. The Notice has been issued in conjunction with the pilot
programme of using RMB to settle cross-border trades and isintended to further facilitate and widen the channels for offshore
RMB’s back-flow.
Amongst other things, the notice includes the following
provisions :n the three kinds of competent institutions are offshore central
banks or currency authorities (‘Offshore Central Banks’),
RMB clearance banks of Hong Kong and Macau (‘RMB
Clearance Banks’), and offshore participating banks of RMB
settlement of cross-border trade (‘Offshore Participating
Banks’) (collectively ‘Offshore Institutions’”);n the RMB funds permitted to invest in the inter-bank bonds
market shall come from currency cooperation between
central banks, cross-border trade and investment in RMB
business;n Offshore Participating Banks shall entrust inter-bank bonds
market settlement agents which have the capability of
conducting international settlement business to trade andsettle bonds;
n Offshore institutions shall open RMB special accounts forthe funds settlement of bonds transactions - each institution
is only permitted to open one RMB special account; andThe Notice also applies to other offshore financial institutions
that participate in the cross-border services settled by RMB
on a pilot basis and use RMB funds to invest in the inter-bankbonds market.
Notice: http://www.jris.com.cn/attachments/2492_%E9%8A%
80%E7%99%BA%5B2010%5D217%E5%8F%B7%EF%BC%8
8%E4%B8%AD%E6%96%87%EF%BC%89.pdf

28. SFC authorises first RMB-denominatedfund
06 August 2010
The Securities and Futures Commission (SFC) has authorised
the first fund denominated in RMB for sale to retail investors
in Hong Kong under the enhanced product authorisation
regime. The SFC has indicated that it has been working closelywith industry participants to enable the introduction of RMBdenominated investment products to support the initiative todevelop Hong Kong into an offshore RMB centre. The SFC
anticipates that as the RMB becomes more popular and widely
held outside the Mainland, demand for RMB-denominatedinvestment and financial products will grow, and believes thatHong Kong’s role is to make these products available andmanage their risks.

Press Release: http://www.sfc.hk/sfcPressRelease/EN/
sfcOpenDocServlet?docno=10PR92© Clifford Chance, April 2011

14

29. HKMA publishes circular on RMB
business in Hong Kong

Regulatory developments on RMB

30. HKMA explains supervisory principles
and operational arrangements regarding
RMB business in Hong Kong

19 July 2010
11 February 2010
The Hong Kong Monetary Authority (HKMA) and the People’s
Bank of China (PBoC) have signed a Supplementary
Memorandum of Co-operation on the expansion of the RMB
trade settlement scheme. The PBoC and the RMB clearing
bank have also signed a revised settlement agreement on theclearing of RMB businesses (Clearing Agreement).
In this context, the HKMA has issued a circular to draw theattention of authorised institutions (AIs) to the key amendments
made by the revised Clearing Agreement and to set out
supervisory guidance to AIs participating in RMB business.
Amongst other things, the key changes to the Clearing
Agreement include that:n there will no longer be any restrictions on establishing RMB
accounts and transferring RMB funds (including cheque
payments in Hong Kong) between different accounts for
personal customers and designated business customers,
whether within the same AI or not; andn AIs can open RMB deposit accounts for any corporate
customers for general purposes subject to usual banking
practices and requirements in Hong Kong.
The HKMA expects participating AIs to have a clear
understanding of the contractual terms in their agreementswith the RMB clearing bank or Mainland China correspondentbanks. AIs are also expected to establish internal guidelines on
the new scope of RMB business to elaborate on the operating
systems and procedures, or revise existing guidelines asappropriate. These should be submitted to the HKMA within
one month.
Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20100719e1.pdf© Clifford Chance, April 2011

HKMA has issued a circular to explain the supervisory principles
and operational arrangements regarding RMB business in HongKong. The supervisory principles for cross-border flows of RMB
funds are:n cross-border flows of RMB funds into and out of Mainland
China should comply with the rules and requirements in the
Mainland China; andn with regard to the RMB funds that have flowed into Hong
Kong, participating authorized institutions (AIs) can develop
RMB businesses based on the regulatory requirements
and market conditions in Hong Kong, as long as thesebusinesses do not entail the flow of RMB funds back to
Mainland China.
The supervisory principles should be applied to the day-to-day
operations of participating AIs such as deposit-taking, RMB
conversions, RMB remittances to and out of Mainland China,
lending, RMB bonds and cheque and credit card services
accordingly.
Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20100211e1_index.htm

31. HKMA explains simplified arrangements
for selling of RMB sovereign bonds
08 September 2009
The Hong Kong Monetary Authority (HKMA) has issued acircular to explain the simplified arrangements for selling
RMB sovereign bonds, which will be launched in Hong Kongon 28 September 2009. The co-arrangers consider that thefeatures and risks of RMB sovereign bonds are not difficult foran average investor to understand and therefore proposed
simplified arrangements for the sales of these bonds. The
arrangements have been formulated in consultation with the
Securities and Futures Commission (SFC) to ensure consistency
with the principles of the suitability requirements in the Code of
Conduct for Persons Licensed by or Registered with the SFC. In
the circular, the HKMA explains, amongst other things:

15

Regulatory developments on RMB

n the client risk profiling process;n the simplified selling process;n the arrangement of selling through non-designated areas inbranches; and33. HKMA issues circular to AIs providing
guidance on RMB cross-border trade
settlement
06 July 2009

In addition, the circular addresses the treatment of transactions
involving vulnerable customers, tenor mismatch or high asset
concentration.

Following up on the promulgation of the administrative rules
on RMB cross-border trade settlement by the People’s
Bank of China (PBoC) on 1 July 2009, the Hong Kong
Monetary Authority (HKMA) has issued a circular settingout its supervisory guidance to authorised institutions (AIs)participating in RMB cross-border trade settlement. The circular
covers, amongst others, the following:

Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20090907e1_index.htm

n the eligibility of restricted licence banks and deposit-taking
companies to become participating AIs;n the arrangement of selling through other distribution
channels.

32. HKMA clarifies treatment of RMB
assets and liabilities generated from
RMB cross-border trade settlement forcalculation of liquidity ratio
29 July 2009
The Hong Kong Monetary Authority (HKMA) has issued acircular to clarify the treatment of renmibi (RMB) assets andliabilities generated from RMB cross-border trade settlement
for the purposes of calculating the liquidity ratio. Participating
authorised institutions can, pursuant to the requirements set
out in the Fourth Schedule to the Banking Ordinance, include
these RMB assets and liabilities in the calculation of theliquidity ratio, provided the amount of RMB assets reported asliquefiable assets in the Return of Liquidity Position (MA(BS)1E)
is limited to 25% of the qualifying RMB liabilities in the Return.
Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20090729e1_index.htm

n the two approaches to conduct RMB cross-border trade
settlement business, ie through the clearing bank andthrough correspondent banks in the Mainland China;
n the participating AIs’ scope of RMB business services and
RMB funding;n the importance for the participating AIs to set up internal
control systems to ensure compliance with the relevant
RMB clearing and settlement agreements; andn the exchange rate and liquidity risks involved in RMB
business.
Circular: http://www.info.gov.hk/hkma/eng/guide/circu_
date/20090706e1.htm

34. HKMA and PBoC sign RMB
supplementary pact
29 June 2009
The Hong Kong Monetary Authority (HKMA) and thePeople’s Bank of China (PBoC) have signed a supplementary
Memorandum of Co-operation to prepare for the
implementation of the pilot scheme for the use of RMB in
settling cross-border trade transactions between Mainland
China and Hong Kong. The PBoC and the HKMA have beenworking closely on the implementation of the pilot scheme,
including the related arrangements for the cross-border
settlement and clearing of RMB funds and amendments to theexisting legal documents, eg the clearing agreement for RMB
business in Hong Kong. Once the relevant administrative rulesin Mainland China are promulgated, banks in Hong Kong will
be able to provide services to enterprises using RMB to settle
trade transactions with their counterparts on the Mainland.
Press Release: http://www.info.gov.hk/hkma/eng/press/2009/20090629e3_index.htm© Clifford Chance, April 2011

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