CHINA Law and Practice Contributed by: Zhen Chen, Candy Tang, Flora Qian and Yan Zhao, Fangda Partners
Specifically, whilst the rule of beneficial owner identi - fication applies, private fund managers are currently not “regulated entities” under the New AML Law. That said, AMAC generally requires them to conduct AML checks on potential investors with no detailed rules. Thus, private fund managers may consider establish - ing their AML frameworks by reference to the AML/ KYC requirements for regulated entities, insofar as this is appropriate. 4.12 Data Security and Privacy for Investors For investors in China, managers and funds must pri - marily comply with the regulatory framework formed by three foundational laws – ie, the Cybersecurity Law, the Data Security Law and the Personal Information Protection Law, while also adhering to specific regu - latory requirements for the financial services sector. Regarding privacy, key obligations include obtaining explicit consent for data processing, especially for sensitive financial information, and adhering to the principles of legality, necessity, and data minimisa - tion when processing. Regarding cybersecurity, the Regulations on Network Data Security Management (effective on 1 January 2025) refine multiple aspects of the Cybersecurity Law, strengthening the alignment of cybersecurity- related laws. In particular, they establish strict require - ments for enterprises regarding network operation security, including Multi-Level Protection Scheme (MLPS) measures, mandatory reporting of security vulnerabilities, and protocols for responding to secu - rity incidents. 4.13 Anticipated Changes for Investors The landscape for private fund investors in the PRC is poised for incremental evolution, driven by a combina - tion of regulatory reforms, market developments and policy initiatives aimed at increasing market partici - pation, enhancing investor protections, and ensuring the stability and sustainability of the financial system. One of the most notable changes is the increasing participation of government-backed funding. Over recent years, the PRC government has actively pro - moted the private fund sector as part of its broader financial reform and economic modernisation objec -
tives. Government-backed investment entities, such as state-owned enterprises, policy-oriented local government investment funds (usually funds of funds) and state-owned/participated insurance companies, are expected to play a prominent role in the private funds market. This trend is motivated by the desire to channel long-term capital into strategic sectors, sta - bilise the market during periods of volatility, and sup - port economic restructuring. However, this increased participation of government-backed funding can also impact the market dynamics, potentially leading to more policy-oriented investment strategies and strict - er scrutiny as to the use of funds. Simultaneously, there are ongoing discussions and proposals to tighten the criteria for QIs. Currently, QIs are assessed relating to their asset size, investment experience, and risk appetite, intended to ensure they possess sufficient financial literacy and capacity to bear investment risks (see 4.1 Types of Investors in Alternative Funds ). Future regulatory developments may impose higher thresholds – such as higher mini - mum asset and income levels – or introduce more rigorous verification processes, including but not lim - ited to enhanced standards on track records and the relevant experience of investment personnel of the (institutional) investor, to prevent potential systemic risks and to elevate the professionalism of market participants. Further, regulatory focus on investor protection is expected to intensify. Legal developments in recent years, including the enactment of the Regulation on the Supervision and Administration of Private Invest - ment Funds and the Measures on Private Investment Fund Registration and Filing, indicate a trend towards more comprehensive investor protections. Upcoming regulations are anticipated to build on this framework, addressing gaps in the existing regime by expanding disclosure and transparency obligations, setting clear - er standards for fund due diligence and risk manage - ment and imposing stricter compliance requirements on both investors and fund managers. These measures are expected to improve market integrity, build investor confidence, and prevent mis - conduct that could undermine the stability of the pri - vate funds market in China.
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