The recent announcement of the launch of cross-boundary wealth management connect pilot scheme, known as the Wealth Management Connect, in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) has generated a lot of interest and support from both the financial and legal sectors in Hong Kong.

 

Financial regulatory bodies that span the Greater Bay Area — the HKMA (Hong Kong Monetary Authority), SFC (Securities and Futures Commission) and AMCM (Monetary Authority of Macao) — have joined forces, entering into an MoU with mainland China authorities in order to collaborate under the Wealth Management Connect scheme.

The agreement will see regulators issuing guidance to banks across a variety of areas including product due diligence, investor protection and personal data protection, and ensuring more cohesion and clarity. The scheme, which is promoted as a means of allowing residents of Hong Kong, Macao and major Guangdong cities, to invest across borders, is expected to trigger an increase in legal work too.

The most recent development — which spans across personal data protection, investor protection and mitigates against money laundering, should be taken into careful consideration by those who plan to make use of the Wealth Management Connect scheme, Eric Lui, a partner at Ince, explains.

“As a pilot initiative, the Wealth Management Connect will be a testing ground for new products, new systems and new regulations that investors may be unfamiliar with. Investors should always read the product information and standard terms carefully before purchasing a financial product, which applies not only to when they participate in the Wealth Management Connect but to any situation in which investment decisions are being made,” says Lui.

He adds that investors are also encouraged to “fully utilise the investor protection measures that are going to be implemented, which might include the provision of product explanations or suitability and risk assessments that banks will be required to conduct to make informed decisions and choose the products most suitable for each investor's personal circumstances.”

Meanwhile, when it comes to matters of AML/CFT, investors should be prepared to provide supporting documents and information in order to help satisfy know-your-customer and other relevant compliance requirements, Lui explains.

Akin to earlier programmes Stock Connect and Bond Connect, the Wealth Management Connect will be launched through two different channels.

“The Northbound Scheme will allow Hong Kong and Macau residents to invest in wealth management products offered by Mainland banks in the Greater Bay Area, while the Southbound Scheme will allow Bay Area residents to invest in wealth management products offered by Hong Kong and Macau banks,” Lui says.

The aggregate quota of the Wealth Management Connect is currently set at 300 billion yuan ($46 billion), with individual investors given a quota of 1 million yuan each, says Lui, noting that all cross-boundary remittances will be conducted in renminbi “in a closed-loop system bundling designated accounts.”

DIVERSE OPTIONS

For investors, the Wealth Management Connect scheme means access to more diverse investment options. “Although the product scope of the Wealth Management Connect is expected to constitute only simple, low-risk products such as mutual funds and bonds in its initial phase, investors can keep an eye out for more complex products to be made available in the future,” he adds, noting residents have already shown interest in “increasing their investments on both sides of the border,” Lui says.

For lawyers, the launch of Wealth Management Connect will also spark new opportunities, from “drafting standard terms and conditions for new wealth management products, assisting banks to conduct due diligence, or helping investors set up personal investment companies, trusts and/or family offices (if investment through such legal entities is permitted),” Lui explains.

He also predicts that advice on legal and regulatory compliance requirements would also be sought after as a result of developments in this area.

According to the MoU, the scheme is expected to operate “on the principle of regulation by the jurisdiction where the business is conducted,” Lui notes, adding that there are currently no specific provisions for dispute resolution made within the MoU, but this is another area where advice and legal assistance are likely to be required.

While the MoU outlines a general framework, many of the specific mechanisms are still awaiting guidance of definite regulations and policies. Among the questions still hovering are those such as “will there be any eligibility requirements, such as minimum assets requirements, imposed on individual investors? How may individuals prove their residency in the Greater Bay Area? What are the criteria of ‘low-risk, simple investment products’?” Lui says.

Additionally, lawyers are still awaiting detailed guidance around the procedures and requirements for conducting due diligence on eligible management products as well as guidance across other areas including investor protection and management operations.

“Another important area in which regulations would be helpful and in fact are highly anticipated is the procedure for opening accounts. In normal circumstances, an individual would have to be physically present at a bank to open an account. However, with the ongoing COVID situation and cross-border travel restrictions yet to be lifted, the authorities are discussing the possibility of minimising the number of cross-border trips that investors would have to make to one,” Lui says.

Looking ahead, the Wealth Management Connect is outlined to stimulate financial markets development in the Greater Bay Area.

“There have been reports on several banks already establishing a number of branch offices and increasing their head-count in the region. Facilitation of the scheme will incentivise the rapid growth of the whole industry chain; apart from diverse financial products, product management and client services will have to become increasingly sophisticated as well to meet investors’ needs,” Lui says.

He adds that the scheme can also stimulate the development of the region’s fintech landscape.

“Digital asset management platforms and payment systems which support transactions across all three jurisdictions, enhancing the scheme’s accessibility, are examples of potentially attractive and useful products worth exploring,” Lui says.

“Already one of the regions with the highest density of high net-worth individuals, the Greater Bay Area’s status as a key financial centre is anticipated to be further cemented by the global interest and surge in capital flows which the scheme will bring,” he adds.

 

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