CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm
4.13 Entities Investing in Securitisation Entity Types of Investor Only institutional investors are qualified to invest in securitisations. At present, the main institu - tional investors are financial institutions and the asset management products thereof, securities investment funds (public or private), enterprise annuities, and insurance funds. In addition, foreign investment entities in the CIBM currently include: • foreign central banks or monetary authori - ties, sovereign wealth funds and international financial organisations; • qualified foreign investors, including quali - fied foreign institutional investors (QFII) and renminbi-qualified foreign institutional inves - tors (RQFII); and • foreign financial institutions (such as commer - cial banks, insurance companies, securities companies, fund management companies), investment products issued by such financial institutions, and other medium and long-term institutional investors recognised by PBOC, such as pension funds, charity funds and endowment funds. The aforementioned foreign investors may invest in the CIBM through a settlement agent, or may conduct cash bond transactions via third-party platform with domestic market makers. But the most popular way is to invest in the CIBM is called “Bond Connect”, a mechanism that con - nects the financial infrastructure institutions of Hong Kong and mainland China. According to Announcement No 4 [2022] of the PBOC, CSRC and SAFE, foreign institutional investors that are admitted to the CIBM may invest in the exchange bond market directly or
through the connect scheme between the CIBM and the exchange bond market. Additional Restrictions of Investment In addition to the restrictions on commercial banks’ investment in securitisation discussed in 4.9 Banks Securitising Financial Assets , the restrictions on investments by different types of investors also include the following: • A trustee in a credit asset securitisation may not use its own funds or trust funds to invest in the securities issued by it, except for the early redemption by the trustee in accordance with relevant regulations or contracts. • A trust company may invest in ABS with its own funds or with trust funds whose settlor is not a natural person, but the investment bal - ance of ABS under its owner’s equity shall not exceed 50% of its net assets. • A single banking financial institution shall not purchase and hold a single securitisation product exceeding 40% of its issuance scale. • For insurance institutions, the credit rating of invested product shall not be lower than A, and the pooled credit assets are limited to loans classified as pass or special mention. • Cash management-based products of com - mercial banks and its wealth management subsidiaries shall not invest in ABS with credit rating lower than AA+, and they are also sub - ject to certain concentration limits relating to the originator of ABS. • Wealth management products offered by a commercial bank’s wealth management subsidiary shall not invest in any subordi- nated class of ABS originated by its major shareholder, and products offered to non- institutional investors shall not invest in any non-performing asset-backed securities. • A single securities investment fund shall not hold the same credit tranche of one ABS
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