JUNHE | LAW REVIEW

Navigating Compliance Boundaries in Cross-Border Business – Mainland - Hong Kong Regulatory Cooperation is Underway

XIE,/Qing/(Natasha)、ZHANG,/Chi/(Austin)、Muzhi/LI — Thu, 02 Jul 2026 16:00:00 GMT

On May 22, 2026, the China Securities Regulatory Commission (CSRC) and seven other ministries jointly published the Implementation Plan for the Comprehensive Crackdown on Illegal Cross‑Border Securities, Futures and Fund Business Activities (CSRC Document [2026] No. 28, the “Implementation Plan”). This launches a two-year dedicated rectification campaign targeting illegal cross-border securities, futures and fund business activity and marks a new stage in China’s efforts to crack down on illegal cross-border financial activity.

Echoing the Implementation Plan, the Securities and Futures Commission of Hong Kong (SFC) and the Hong Kong Monetary Authority (HKMA) each issued a regulatory circular (collectively the “Circulars”) on the same day to licensed corporations (including Hong Kong licensed securities brokers and fund managers) and registered institutions (including Hong Kong commercial banks). The Circulars set out general requirements regarding client account opening, due diligence and ongoing monitoring while specifically mentioning these for clients from Chinese Mainland.

In our view, while the regulatory focus of this rectification campaign is on offshore institutions’ provision of online securities, futures and fund services without approval to retail clients in Chinese Mainland, the regulatory principles and compliance boundaries set out in the Implementation Plan go far beyond the concepts of “online” and “retail clients”. They will inevitably affect the compliance assessment of all types of cross-border financial services.

On June 7, 2026, a Hong Kong-based private wealth management industry association invited JunHe team to share with its members our observations of these regulatory developments, key points of which are:

Firstly, this reflects the “baring of teeth” for the financial regulation in Chinese Mainland, which we believe would happen throughout the rectification campaign, and we would not be surprised if the CSRC imposes heavy fines on some firms for their illegal cross-border financial activities.
Secondly, illegal cross-border securities activities that have operated in a “dark grey” area in Chinese Mainland will no longer be tolerated by the Chinese government, and some firms may even face retrospective penalties. Given the campaign-style of this rectification, even overseas financial institutions who have been operating cautiously and have not directly breached any Chinese regulation, should pay attention to so called “counterparty risk” and “collateral damage risk”, which, if not appropriately managed, could result in reputational damage.
Thirdly, the simultaneous release of the Implementation Plan and the Circulars indicates significant progress in cross-border financial regulatory cooperation between Chinese Mainland and Hong Kong. This is likely to serve as a reference for cross-border regulatory collaboration in other financial sectors (such as capital markets) between these two jurisdictions and may also serve as a reference for cross-border financial regulatory cooperation between Chinese Mainland and other overseas jurisdictions outside Hong Kong.
Finally, overseas financial institutions serving Chinese Mainland clients, regardless of the jurisdiction in which they are located, should continue to monitor the extraterritorial application of PRC financial law and ensure that they do not engage in or facilitate any illegal activity prohibited in Chinese Mainland.

Between May 29 and June 17, 2026, in response to market concerns, government and regulatory officials in both Chinese Mainland and Hong Kong made statements to clarify the compliance boundaries for cross-border business activity, account opening and the provision of investment services to Chinese Mainland investors.

The Implementation Plan and the Circulars have been in place now for over a month. This briefing summarizes the key requirements under the Circulars and the recent public statements made by the regulators in Chinese Mainland and Hong Kong respectively, to help clients better understand the evolving regulatory landscape and assess the implications relevant to them from time to time.

I.The Beginning of the Rectification Campaign: Issuance of the Implementation Plan

The regulatory logic of the Implementation Plan remains grounded in the principle of territorial jurisdiction, namely that overseas institutions may not conduct securities, futures or fund business activity within Chinese Mainland without approval. Under the territorial jurisdiction principle, the Implementation Plan further extends the scope of “conducting business in Chinese Mainland” to include any ancillary activity such as online marketing, account opening, customer service and technical support.

Beyond illegal securities, futures and fund business activity, any violation of foreign exchange control, anti‑money laundering, cybersecurity or personal information protection arising from the activity, shall also be rectified.

II.Hong Kong Regulatory Coordination: Release of the Circulars

The SFC and the HKMA each issued the Circulars on the same day as the CSRC issued the Implementation Plan. The Circulars require Hong Kong licensed corporations and registered institutions to comply with all the relevant laws and regulatory requirements of Hong Kong and the relevant jurisdictions when opening accounts for clients outside Hong Kong. The Circulars remind these licensed institutions to take note of the Implementation Plan and not to engage in or facilitate any illegal activity when providing services to investors outside Hong Kong.

The Circulars further require Hong Kong licensed corporations and registered institutions to implement the following additional measures when opening and managing investment accounts of Chinese Mainland investors¹.

Measure 1: Closure of investment accounts that were opened using questionable or forged documents.

Identify the client investment accounts that have opened since January 2023 (or another designated timeframe) that have used questionable or forged documents. Give advance written notice to the clients of the accounts identified for the suspension of any new client-initiated transactions and the intended closure of the relevant accounts, while allowing reasonable time for clients to manage the assets in their accounts, such as unwinding their positions and transferring funds to their bank accounts. In principle, such account closures should be completed within six months after the completion of the review.

Measure 2: Closure of zero-balance dormant investment accounts

Identify zero-balance dormant investment accounts which have zero asset balance as of May 22, 2026 (or another designated timeframe) and have had no client-initiated activity during the previous 12 months. The review should be completed within three months.

Give advance written notice to clients of the identified accounts and suspend the accounts from any new transactions until the licensed institution is able to satisfactorily complete the reactivation procedures (including confirmation that the KYC and the client due diligence information remain valid), and the client declaration and the bank account requirements under Measure 3 below are satisfied. In principle, such account closures should be completed within six months after the completion of the review.

Measure 3: Opening new investment accounts

(1) Obtain a series of written declarations from the Chinese Mainland investor, including but not limited to: (a) confirmation that the investment funds come from legitimate channels outside Chinese Mainland; (b) confirming that there is no record of account closure or suspension due to questionable or forged documents; (c) agreeing to notify the Hong Kong licensed corporations or registered institutions within seven business days of any change in the information provided in the written declaration; and (d) agreeing to the access to personal data by the regulators or the enforcement authorities.

(2) Require investors to link a bank settlement account in their own name with a bank in Hong Kong or another compliant offshore jurisdiction, and all fund transfers must be conducted through that account only.

(3) Close the client investment account if the client’s funding sources are subsequently found to be unlawful or in violation of any of the capital control regulations of Chinese Mainland.

(4) Maintain proper records for each client’s account opening process in a manner that is readily accessible for compliance checks and audit purposes.

(5) Provide information to the SFC/HKMA upon request (as applicable), including but not limited to the number and details of the new investment accounts opened during a specified period and the clients’ written declarations as above.

III.Regulatory Clarifications by Both Chinese Mainland and Hong Kong: Navigating the Compliance Boundaries

Following the release of the Implementation Plan and the Circulars, market participants have expressed concerns as to whether Hong Kong licensed institutions would be stopped from opening or maintaining investment accounts for investors from Chinese Mainland. Accordingly, the Hong Kong regulators provided further clarity through appendices to the Circulars², Q&As and public statements, that the measures do not impose a prohibition on Chinese Mainland investors opening accounts or investing in Hong Kong. Instead, Hong Kong licensed institutions are required to implement more stringent KYC, client due diligence and account management measures, provided that they comply with the laws and regulations of Hong Kong and the other applicable jurisdictions.

In other words, Hong Kong licensed institutions may still open and maintain investment accounts for eligible Chinese Mainland investors, provided that the regulatory requirements are satisfied. The provision of such services shall remain subject to Chinese Mainland regulatory requirements, should not constitute illegal securities, futures or fund business activity within Chinese Mainland without approval, and should not engage in or facilitate any clients or counterparties in illegal activity intended to circumvent foreign exchange control, anti-money laundering, cybersecurity, personal information protection or any other applicable laws and regulations.

This position is consistent with the subsequent public statements made by CSRC officials. On June 17, 2026 at the Lujiazui Forum 2026, Wu Qing, the Chairman of the CSRC, stated that financial operations subject to license is a globally recognized principle and a basic requirement for protecting investors’ lawful rights and interests. The CSRC is cracking down on illegal and non-compliant cross-border financial business activity, while supporting the lawful and compliant cross-border investment activity of investors from Chinese Mainland. Going forward, the CSRC will further promote the improvement of cross-border regulatory coordination mechanism, strengthen routine information sharing and market communication, “open the front door while blocking the side door”, i.e., the CSRC will support lawful and compliant cross-border investment and financing activity while cracking down on all types of illegal and non-compliant cross-border activity in accordance with the law, so as to maintain normal market order and protect investors’ lawful rights and interests.

IV.Our Observation

The Implementation Plan primarily targets financial business activity conducted without approval in Chinese Mainland. The Circulars are from the perspective of Hong Kong licensed institutions' compliance obligations in opening and managing investment accounts, and require licensed institutions to strengthen their KYC, their client due diligence and their anti-money laundering procedures. As Chinese Mainland-Hong Kong cross-border financial regulatory cooperation continues to deepen, the implementation of major changes in the regulatory policy will rely on effective communication between the regulators and the markets, securing accurate interpretation and implementation by market participants. Following the release of the Implementation Plan and the Circulars, officials in Chinese Mainland and Hong Kong have communicated with the markets of both sides in a timely manner, clarifying the regulatory bottom line and dispelling market concerns, reflecting the continued deepening of cross-border regulatory cooperation between the two jurisdictions.

Although this rectification campaign mainly targets illegal online cross-border securities business activity aimed at retail clients, other financial businesses (including private banking businesses serving high-net-worth clients, as well as fund or insurance businesses primarily serving institutional investors), are also subject to the legal and compliance boundaries set by the Implementation Plan. We recommend that offshore financial institutions monitor developments in regulatory cooperation between Chinese Mainland and Hong Kong and the progress of certain administrative penalty cases, reassess compliance risks in light of the changes in the regulatory policy, enhance their internal compliance policies and procedures, and manage their compliance risks relating to cross-border business.

We set out a summary of the recent statements made by the regulators in Chinese Mainland and Hong Kong in the attached appendix.

Date

Event

May 22, 2026

CSRC and seven other ministries jointly issue the Implementation Plan.
CSRC announces formal investigations into three overseas brokers and issues an advance penalty notice.
SFC issues a circular requiring Hong Kong licensed brokers, when opening accounts for clients outside Hong Kong, to comply with all the relevant laws and regulatory requirements of Hong Kong and the relevant jurisdictions (with a specific reminder to take note of the Implementation Plan). The circular also requires Hong Kong licensed brokers not to engage in or facilitate any illegal activity when providing services to investors outside Hong Kong. Should a broker discover, after account opening, that the source of the funds is illegitimate or in violation of any capital control regulations of Chinese Mainland, it must close the account.
The HKMA issues a similar circular, specifically mentioning that registered institutions should take note of the Implementation Plan.

May 29, 2026

The Hong Kong Insurance Authority responds that it has maintained ongoing communication with the relevant Chinese Mainland authorities and has implemented measures such as requiring entire sales process to be conducted within Hong Kong and prohibiting Hong Kong licensed insurance intermediaries from soliciting insurance business in Chinese Mainland. It also undertook joint enforcement action in 2024 to crack down on the unlicensed sale of insurance policies to Chinese Mainland customers on a cross-border basis.

June 6, 2026

A spokesman for the HKMA states that the banking industry has implemented the latest regulatory requirements set out in the HKMA’s circular to ensure account opening procedures are compliant and orderly, and that the overall process for Chinese Mainland clients applying to open accounts is running smoothly.

June 9, 2026

The SFC publishes their “Q&A: Frequently Asked Questions on the SFC’s Circular of 22 May”, stating that Hong Kong licensed corporations may continue to serve their existing Chinese Mainland clients, as long as the services are not provided in Chinese Mainland and that all the relevant laws and regulatory requirements of Hong Kong and the applicable jurisdictions have been complied with.

June 10, 2026

HKMA Chief Executive Eddie Yue says that Hong Kong welcomes people from around the world to open accounts in the city, but the key focus is that the account opening process and the funds involved are legal and compliant. He added that the measures will be beneficial in the long run to Hong Kong’s wealth management businesses and its status as an international financial hub.
According to reports by the media, including Ta Kung Pao, the SFC emphasizes that as long as Chinese Mainland investors open accounts in a compliant manner and the funds constitute legitimate overseas capital, brokers may continue to provide services and the industry need not be overly alarmed. It is reported that the authorities lay down two key fundamental principles at the meeting.
Firstly, regarding the “legitimacy of overseas funding sources”, the fundamental principle is that “if the funds are already offshore and there is no evidence to suggest they are illegally obtained, the industry can reasonably believe them to be legitimate”. For example, funds transferred from a local Hong Kong bank account to a brokerage firm are, in principle, within the acceptable scope.
Secondly, regarding the “boundary of cross-border services”, overseas brokers not licensed by Chinese Mainland regulatory authorities must never provide services within Chinese Mainland. However, executing transactions via a mobile application (apps) outside Chinese Mainland is considered compliant conduct.
Hong Kong Financial Secretary Paul Chan says that the Central Government is very supportive of Hong Kong becoming a successful international financial hub.
This round of rectification actions under the Implementation Plan only targets investment funds that flow across the border through non-compliant means and is not intended to restrict normal cross-border investment.
Some banks’ adjustments to their account opening policies for Chinese Mainland clients are individual acts only, not a signal of a unified regulatory tightening.

June 17, 2026

At the Lujiazui Forum 2026, CSRC Chairman Wu Qing states that financial operations subject to license is a globally recognized principle. The CSRC is cracking down on illegal and non-compliant cross-border business activity. Going forward, the CSRC will further promote the improvement of the cross-border regulatory coordination mechanism, strengthen routine information sharing and market communication, support lawful and compliant cross-border investment and financing activity while cracking down on all types of illegal and non-compliant cross-border activity in accordance with law.

[1] Pursuant to the Circulars, a Chinese Mainland investor refers to an individual investor who uses either or both a resident identity card and a passport issued by the People’s Republic of China as an identification document according to a licensed corporation/recognized institution’s records or when opening an investment account.

[2] Taking the SFC Circular as an example, Appendix C provides that when Chinese Mainland investors come to Hong Kong in person and approach licensed corporations to open investment accounts or for other investment services, licensed corporations should implement Measure 3 in Appendix B in relation to declarations and the designation of bank accounts, in addition to fulfilling know‑your‑customer and customer due diligence requirements. Licensed corporations may continue to serve existing Chinese Mainland investors provided that, among other things:

1) No questionable or forged documents were used in their account opening;

2) The relevant measures in Appendix B are adequately implemented; and

3) The service is conducted in a manner compliant with the applicable requirements under the notice.

Where a licensed corporation has questions regarding the interpretation or application of the notice, including whether certain activities carried out by the licensed corporation in Chinese Mainland may be unlawful, it should seek legal advice from a qualified legal adviser.

Disclaimer

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Visiting, Studying and Researching in China: A Guide to National Security Legal Compliance

YU,/Su、LAO,/Chengzhe、HUANG,/Jiancheng、LIU,/Xiaoxin — Thu, 02 Jul 2026 16:00:00 GMT

In recent years, China has strengthened its enforcement of the laws around national security. These laws involve the protection of state secrets, counter-espionage, export control, the administration of overseas non-governmental organizations, and foreign investment. In practice, foreign nationals visiting China for academic purposes, study programs and other similar activities may be subject to China’s national security laws and regulations regardless of their chosen field—whether in education, finance, technology, energy, healthcare, or other fields. Simply 'not being a spy' does not render the national security framework irrelevant to such individuals. In fact, the scope of interests protected by China’s national security laws is considerably broader than commonly assumed. For foreign nationals and institutions undertaking short-term visits, long-term study, research exchanges or business activities in China, understanding these national security laws and the associated risks is an indispensable precondition for lawful compliance.

In particular, the State Council’s Provisions on Outbound Investment (State Council Order No. 837, hereinafter referred to as the “Provisions”) establish a national security review mechanism, further extending the scope of national security reviews. While academic visits and study programs undertaken by foreign nationals in China are not directly tied to outbound investment, such activities may entail the cross-border transfer of information, data and technology, and thus trigger a security review under the Provisions. In light of this, we analyze herein the legal issues regarding national security reviews most closely associated with academic visits, study programs and research activities in China conducted by overseas institutions, together with the corresponding compliance recommendations.

I. National Security Review Mechanism for Outbound Investment

1. Principles of Outbound Investment

Article 3 of the Provisions set up the fundamental principles governing outbound investment: upholding the opening-up policy; implementing a comprehensive national security concept; balancing development with security and domestic interests with international considerations; improving outbound investment management and services; enhancing investment quality; and promoting open cooperation for mutually beneficial, win-win outcomes.

Article 5 of the Provisions requires investors to comply with the laws, regulations and the international practices, while respecting local customs and cultural traditions. Investors shall also adhere to business ethics, act with honesty and integrity, compete fairly, fulfill social responsibilities, and safeguard China's image. They must not disrupt market competition, damage the environment, violate workers’ rights or endanger national security interests.

2. Security Reviews

Article 15 of the Provisions establishes a national security review mechanism for outbound investment (hereinafter referred to as “Security Review Mechanism”). The State Council's investment authority, together with the commerce authority, and other relevant departments, shall conduct security reviews of outbound investment activities that affect or may affect national security, and the related transfers of assets, rights and interests. Entities and individuals must cooperate but not obstruct the review and comply with the review decisions.

3. Legal Liability for Violations of the Security Review Mechanism

Article 28 of the Provisions sets out the legal liability for violations and includes the following:

Where a party refuses to cooperate with a security review, provides false materials, conceals material facts, or fails to comply with a review decision, the competent authority shall order rectification, confiscate the unlawful gains, and impose a fine;
If national security is endangered, the relevant authority shall order measures to eliminate the impact and may prohibit outbound investment activities for a period of one to three years;
Where the investment has already been made, the competent authority may order the suspension of the investment activities and require the disposal of the equity, assets or interests within a prescribed time limit.

Under Article 25 of the Provisions, where a foreign organization or individual endangers China’s sovereignty, security or development interests, the eligibility of the persons to work, stay or reside in China may also be restricted.

4. Controls on the Cross-Border Transfer of Technology, Data and Related Items

Article 13 of the Provisions prohibits investors from (i) exporting or using goods, technologies, services and related data whose export is prohibited by the State, or (ii) exporting or using export-restricted items without approval. It further prohibits the cross-border transfer of such items through dispatching technical personnel, organizing work abroad, providing technical guidance, or arranging cross-border training. Cross-border technology and data transfer is not limited to the physical export of goods; intangible transfers through personnel training, technical guidance, and academic exchange may also trigger regulatory scrutiny. The Security Review Mechanism therefore covers not only investment conduct, but also potentially the information acquisition, technical exchange, and data flows associated with such activity. This is particularly significant for overseas institutions organizing visits or conducting research and exchange programs in China.

II. Implications of the Security Review Mechanism for Study and Research by Foreign Nationals in China

For overseas institutions organizing visits, study programs, and research projects in China, the impact of the Security Review Mechanism may be indirect yet substantive. This arises not only from a review of a foreign visitor’s 'investment conduct', but also from the connection between the movement of people and the cross-border flow of technology, data and information.

Where a visiting foreign national works for a company that has already invested, or plans to invest in, sectors affecting China’s national security, the individual may undergo a security review. This review aims to prevent sensitive technologies, data and other national security information from being collected, accessed, or transferred overseas. Likewise, the following circumstances also warrant attention:

Industry materials, market information, and other data collected during visits or research may fall within the scope of national security protection, export control lists, or cross-border data transfer requirements;
Academic exchanges, research projects, or educational activities may involve investment and technology cooperation subject to national security reviews or export control reviews;
Information sharing, data transmission, and cross-border research result exchanges in sensitive sectors require careful compliance management.

The principle of 'coordinating development and security' set up in Article 3 of the Provisions reflects China’s approach to national security governance. China continues to advance opening-up, while encouraging lawful international exchange and cooperation, with national security as a core policy consideration. National security and international cooperation are not mutually exclusive, but rather parallel objectives within the regulatory framework.

III. Compliance Recommendations

1. Pre-Departure Compliance Training

Before arranging travel to China, overseas institutions should provide compliance training covering:

China’s national security legal framework, including the Counterespionage Law, the State Secrets Protection Law, and the Export Control Law;
Identification principles of state secrets, controlled technologies and data;
Compliance boundaries for information collection during stays in China;
Response procedures when approached by national security authorities, including how to lawfully cooperate while protecting rights;
Requirements under the Overseas Non-governmental Organizations Law for registration activity filing and fund management.

2. Risk Management for Visits and Study Programs

Prior to each visit or study program in China, overseas institutions should develop a tailored risk management plan including:

An assessment of whether any planned activities involve sensitive sectors, key facilities, or controlled technology fields;
For technical exchanges, joint research or training, an advance assessment of the export control implications and confirmation with the Chinese counterparts;
Designation of a dedicated compliance officer for real-time support;
Contingency planning including communication channels with the overseas institution’s legal department, external counsel and diplomatic/consular missions.

3. Practical Considerations During Stays in China

Foreign nationals should observe the following:

When visiting enterprises, government authorities or research institutions, refrain from requesting unpublished materials and do not review, copy, photograph or disseminate classified documents;
Avoid any photography, surveying, audio or video recording at military facilities, critical infrastructure, or other sensitive areas;
Without lawful authorization, do not transmit non-public information obtained in China to overseas headquarters or third parties;
Materials and data for cross-border transmission should undergo legal/compliance reviews to assess the risks of disclosing state secrets, or breaching export control or data-export regulations;
When approached by national security authorities for a lawful investigation, cooperate while promptly contacting legal personnel to protect rights.

IV. Conclusion

China has strengthened the development of its legal national security regime in recent years. For foreign individuals and institutions conducting study tours, inspection visits, or academic research in China, staying informed about the evolving legal landscape is essential, thus there is no need for undue concern. The key lies in the thorough understanding of the applicable laws, establishing robust compliance management mechanisms, and conducting activities within permitted scopes.

Stakeholders should understand the meaning of 'coordinating development and security' set out in Article 3 of the Provisions. National security compliance requirements are not intended to restrict all international exchanges, but rather to guide overseas institutions towards lawful and compliant activities in China while safeguarding national security interests. China’s market opportunities remain substantial for those operating within the rules and regulations.

Disclaimer

A Notable Compliance Guide for Private Securities Investment Funds - Key Takeaways of Guidance No. 54

XIE,/Qing/(Natasha)、ZHANG,/Chi/(Austin)、LI,/Yongze — Wed, 24 Jun 2026 16:00:00 GMT

On June 5, 2026, the General Office of the State Council issued the Guidance on Strengthening Supervision, Preventing Risks, and Promoting the High-Quality Development of the Private Investment Fund Industry ([2026] No. 54, the “Guidance”). As an overarching policy document under the “1+N+X” regulatory framework for the private fund industry, the Guidance outlines the high-level regulatory guidance and directions to address common issues such as incomplete qualification review mechanism, insufficient supervision, incomplete regulatory framework, insufficient central‑local governments coordination, and the misuse of certain private funds as vehicles for illegal activities or even corruptions. This policy aims to establish a long-term and system-based framework for enhanced regulation and risk prevention, while promoting the sound development of the private fund industry.

This briefing analyzes the key provisions of the Guidance specifically from the perspective of private securities investment funds.

I. Tightened Qualification Review

The Guidance sets out stringent qualification review mechanism by establishing dual reviews consisting of: (i) a multi-authority joint review prior to the manager corporate entity registration (the “Joint Review”), and (ii) the review for the private fund manager (PFM) registration and private fund filing (“PFM Registration and Fund Filing”).

The Guidance expands the Joint Review practice, previously piloted in Shenzhen, Zhejiang, Hainan and some other regions, to a national level. It requires the local financial regulatory departments and the dispatched offices of the China Securities Regulatory Commission (CSRC) to streamline information sharing and work coordination. As a result, any private fund manager applicant must pass the Joint Review conducted by the local financial regulatory departments and the CSRC dispatched offices before it is eligible to apply for corporate entity registration or use “private fund” or similar wording in its corporate name or business scope.

The Guidance also aims to strengthen the review standards for the PFM Registration and Fund Filing. The regulatory authorities will further refine the relevant registration and filing rules to prevent any institutions and products that are inconsistent with the nature and operational norms of private funds from being registered or filed as such.

For existing non-compliant institutions, the regulatory authorities will adopt measures depending on specific circumstances:

1) For private fund managers that continuously fail to meet the registration requirements due to abnormal operations or fail to engage in actual business or have been out of contact for certain period of time, the regulatory authorities will revoke their registration within a prescribed time limit if they fail to rectify as required.

2) The regulatory authorities will urge institutions that fail to apply for PFM registration and fund filing as required, fail to meet the PFM registration or fund filing requirements upon review, have had their PFM registration revoked, or have completed liquidation of all funds under their management, to voluntarily cancel or amend their PFM registrations. If these institutions fail to do so, the local AMR may take measures including substituting the enterprise name using the Unified Social Credit Code, adding special markings to their profiles in the National Enterprise Credit Information Publicity System, or mandatorily revoking their business licenses.

The Guidance prohibits delegating authority of Joint Review to lower-level local governments, stipulating that only a provincial level local financial regulatory authority or any of the five independent planned cities (i.e., Shenzhen, Dalian, Qingdao, Ningbo and Xiamen) are authorized to conduct the Joint Review.

II.Tiered and Categorized Supervision

The Guidance introduces a tiered and categorized supervision mechanism. Under this mechanism, the risk assessment criteria for private funds will be further refined, and differentiated regulatory measures will be applied to private fund managers, based on their risk profiles. Key focus private fund managers will be subject to more frequent on-site regulatory inspections. Joint inspections carried out by the local financial regulatory authorities and the CSRC dispatched offices will also be strengthened. Enhanced cross‑jurisdictional joint inspections may be imposed if a private fund manager, its fund products or its investors are in different locations. The Guidance further reinforces the risk-based regulatory principle. Going forward, regulatory enforcement may focus more intensively on high-risk institutions, high-risk products and key risk areas.

The Guidance will also strengthen supervision of private fund managers operating outside their registered jurisdictions, gradually promoting the alignment between their registered addresses and their actual operating premises. The Asset Management Association of China (AMAC) currently allows an inconsistency between the registered address and the actual operating premises of a private fund manager applying for registration. However, in many cities, Human Resources and Social Security (HRSS) authorities have taken a strict approach and do not recognize the social insurance contributions made through third-party agencies as compliant. Therefore, private fund managers operating outside their registered jurisdictions and entrusting third-party agencies to pay social insurance may face potential compliance risks.

The regulatory authorities will also establish a centralized risk monitoring platform for private funds to collect the information reported by private fund managers, custodians and service providers, as well as the business registration data and judicial proceeding information. This platform will leverage technological means to enhance its ability to conduct see-through analysis, thereby facilitating the detection of potential risks.

III. Crackdown on Illegal and Non-compliant Activities

The Guidance states that compliant institutions shall be strictly supervised, and that illegal institutions shall be eliminated, with illegal conducts being cracked down upon.

(1) In terms of the regulatory focus, the regulatory authorities will first urge private fund managers engaged in non-compliant practices, such as those with unlawful nominee holding or channeling-type business to rectify the situation proactively.

(2) The regulatory authorities will also strengthen the monitoring and supervision of trading behaviors in private securities investment funds to prevent abnormal trading.

(3) Private fund managers involved in cross-border capital flow businesses may also expect stricter scrutiny on cross-border capital flows.

(4) Private fund managers involved in illegal fundraising, misappropriation, self-financing, interest tunnelling, illegal cross-border capital flows or criminal fundraising schemes will be cracked down, with heavier penalties to be imposed.

(5) The regulatory authorities will cancel the registration of any private fund managers that commit serious violations.

In terms of regulatory measures, the Guidance first proposes to establish a blacklist of private fund managers, their sponsors and/or practitioners involved in serious violations. The Guidance also introduces a whistleblowing mechanism for the private fund industry for the first time, with dedicated whistleblowing channels and supporting measures to strengthen private fund managers’ internal compliance. In terms of multi‑departmental enforcement collaboration, the public security authorities and the CSRC (together with its dispatched offices) are required to establish joint supervision to strengthen the crackdown on serious violations and criminal offenses in the private fund sector, achieving full accountability through an “administrative first, criminal second” combined approach. The Guidance also requires the public security authorities to utilize their grid-based management framework to jointly identify and investigate institutions and activities that evade financial regulation or illegally engage in private fund business, thereby facilitating early detection, intervention and enforcement.

IV. Requirements for Sound Development

The Guidance highlights the plan to establish a private fund regulatory framework mainly focusing on administrative supervision, supplemented by self-disciplinary management. It also emphasizes the revisions to the Securities Investment Fund Law, the issuance of judicial documents regarding the handling of private fund-related criminal cases, and the formulation of regulatory rules concerning the supervision of private fund managers, information disclosure, fund raising and mandatory custody. We note that in the CSRC’s 2026 Legislative Work Plan, the Securities Investment Fund Law has been included in the list of laws and regulations pending revision, while the Measures for the Supervision and Administration of Private Fund Raising and the Measures for the Supervision and Administration of Private Fund Custody Business have been listed for formulation. These are expected to gradually build a comprehensive so called “1+N+X” institutional framework for the private fund industry.

The Guidance also requires private fund managers to improve their internal controls and risk management, based on their business type and their stage of development. It encourages investors to exercise oversight through private fund contracts, so as to promote the sound operation of private fund managers. Senior management and the key personnel of private fund managers may be subject to stricter qualification administration, examination and training requirements. Institutions and practitioners in the private fund industry are required to faithfully perform their duties of honesty, good faith, prudence and diligence, failure of which will face more stringent self-disciplinary actions.

The Guidance particularly emphasizes the importance of sound operations and risk prevention for private securities investment funds, while highlighting high‑quality industry development and their functions in serving real economy. In the future, we may see a shift in regulatory focus from manager admission and general compliance management to the supervision of particular areas such as investment activity, trading behavior monitoring and investor protection. The Guidance also prompts private securities investment fund managers to meet the diversified needs for mid‑ to long‑term capital allocation, urging them to enrich their investment strategies and product types, while fostering institutional investors such as fund‑of‑funds (FOFs).

V. Conclusion

According to the CSRC’s Q&A with the press, the CSRC will formulate a three-year action plan to implement the Guidance and coordinate with the macroeconomic policy departments, the state-owned assets supervision or industry administrative authorities, other financial regulatory authorities, the public security authorities and the local governments to ensure the effective implementation of all the initiatives. We recommend that private fund managers monitor the issuance of the implementation rules and promptly assess their existing business model, internal controls and compliance management mechanisms. Managers should also proactively strengthen their internal policy framework and risk control mechanisms to adapt to the increasingly stringent regulatory landscape.

Disclaimer

China’s New Outbound Investment Rules: A New Era of National Security Reviews and Maybe China’s Answer to 'Reverse CFIUS'

Kenneth/ZHOU — Mon, 22 Jun 2026 16:00:00 GMT

I. Executive Summary

China has now moved decisively to tighten state control over outbound investment. With the State Council’s Regulations of the State Council on Outbound Investment (State Council Decree No. 837)¹ (the Rules) set to take effect on July 1, 2026, China has created its clearest legal basis yet to review, restrict, unwind and penalize overseas transactions involving Chinese investors where national security, technology, data or other strategic interests are at stake.

For multinational companies, private equity and venture capital firms, technology companies, and cross-border dealmakers, the significance of the new rules is substantial. Although the Rules sit within China’s existing outbound direct investment (ODI) framework, they go well beyond refining the administrative filing requirements. They reflect a broader policy shift under which China views outbound investment increasingly not only as a means of capital deployment, but also as a potential channel for the transfer of strategic assets, sensitive technology, data, expertise and talent in ways that may affect national security and broader state interests.

II. An Overview of the New Outbound Investment Rules

The Outbound Investment Rules are the first State Council-level administrative regulations governing outbound investment rather than ministerial or departmental rules. They are intended to establish a more unified and comprehensive regulatory framework for outbound investment by China-based investors including enterprises, other organizations and individual residents.

Outbound investment is broadly defined to include the direct or indirect acquisition of the ownership, control, management rights or other interests in overseas enterprises or assets, including through capital contributions, financing or guarantees. The Rules provide that China seeks to promote high-standard opening-up and higher-quality outbound investment while balancing development and security. Under the Rules, investors retain autonomy in making investment decisions and must bear their own risks and returns. They are also required to comply with PRC law, all applicable international norms and local laws, act in good faith and avoid harming national security, public interests, market order, labor rights or the environment.

Investors must continue to complete the required approval, filing, reporting and cross-border fund registration procedures. They must also comply with the other applicable PRC regulations including export controls, technology transfer restrictions, cross-border data flow, cybersecurity reviews, tax administration, antitrust reviews and state-owned asset supervision.

A central feature of the Rules is the introduction of a more formalized national security review and risk-control regime. For the first time, the Rules establish a national security review system for outbound investments, as well as the transfer or disposal of assets and interests, that affect or may affect national security. The relevant authorities, including the State Council’s investment and commerce departments, may also formulate and adjust policies classifying outbound investments as encouraged, restricted or prohibited based on the economic needs, the risk in destination countries or regions, and broader policy considerations. Investors and their overseas invested enterprises are required to strengthen their corporate governance, compliance, internal controls, workplace safety and emergency response to better identify and manage operational and geopolitical risks.

In summary, the Rules reflect a dual policy approach. On the one hand, China reaffirms its support for outbound investment by Chinese companies through enhanced public services and protections, as well as through bilateral and multilateral agreements and other forms of international cooperation, aimed at protecting Chinese investors, personnel and assets abroad. On the other hand, the Rules place a greater emphasis on national security and on preventing outbound investment from becoming a channel for the transfer of key technologies, sensitive data, strategic assets or critical personnel in ways that may affect the national interest. They also provide for countermeasures in response to discriminatory restrictions on Chinese investment and introduce clearer enforcement and penalties for non-compliance, including for prohibited investments, failure to complete the required approvals or filings, refusal to cooperate with security reviews and improper conduct such as bribery, fraud or market-disruptive behavior.

III. Interaction with the Existing ODI Framework

The new Rules do not replace China’s existing outbound direct investment (ODI) regime, which is built around the NDRC²’s outbound investment measures, MOFCOM³’s outbound investment rules and SAFE⁴’s foreign exchange controls. Instead, they preserve the existing approval, filing and foreign exchange architecture while superimposing a broader national security and strategic policy overlay.

The Rules apply broadly to domestic Chinese investors including enterprises, other organizations and resident individuals. They also provide that investments in Hong Kong, Macau and Taiwan are to be regulated by reference to the Rules, unless otherwise provided by the law, administrative regulation or the State Council. 'Outbound investment' is expansively defined to include not only the acquisition of the ownership interests in overseas companies or assets, but also the acquisition of the control, management rights or other related interests through contributions of assets or rights, as well as through financing or guarantees.

This definition is significant because it extends the scope of regulation well beyond conventional cross-border acquisitions. It is broad enough to capture a wide range of transaction structures including indirect investments, offshore restructurings, greenfield projects, financing arrangements and transactions designed to transfer the control, operational capability, strategic assets or other substantive interests offshore without a formal sale of assets or equity.

IV. New National Security Review for Outbound Investment

National Security Review

The most consequential feature of the new regime is the formal introduction of a national security review for outbound investment under Article 15 of the Rules.⁵

Until now, China’s investment-related national security reviews have mainly focused on inbound foreign investment into China, especially where foreign investors sought to acquire sensitive domestic businesses or assets. That framework was designed to address the risk that the foreign control of strategic Chinese assets could harm national security. It did not directly address the reverse risk: that Chinese companies themselves might move sensitive assets, technology, data or strategic capabilities offshore through overseas investments, offshore restructurings, corporate redomiciliation, business relocation or foreign exits.

The new Rules are intended to close that gap. They authorize the government to conduct security reviews of outbound investments, as well as the offshore transfer or disposal of assets and interests, where national security is or may be affected. They also give regulators a clearer basis to intervene, such as stopping transactions, requiring the divestment of shares or assets, and imposing penalties where investments proceed without the required approvals or are later found to create unacceptable security risks.

The practical effect is to treat outbound investment as a national security issue in a much wider range of cases than many market participants may previously have expected. The likely areas of concern are easy to identify: investments involving artificial intelligence, semiconductors, quantum technology, dual-use industrial capabilities, advanced manufacturing systems, strategic minerals, cybersecurity assets and large-scale data operations will be the obvious candidates for scrutiny. But the significance of the new rules goes beyond these sectors. The key issue for regulators is likely to be whether a transaction could lead to the offshore transfer, weakening or loss of assets or capabilities that Beijing regards as strategic. That may include not only technology and data but also production know-how, engineering capabilities, supply chain resilience and even the ability to direct, retain or redeploy key technical personnel.

Restrictions on the Transfer of Critical Technology and the Movement of Core Personnel

This point is especially clear in the provisions that deal with technology transfers. Under the Rules, investors may not export or use, in connection with outbound investment, any goods, technologies, services or related data that the State prohibits from export. Items subject to export restrictions may not be exported, used or otherwise transferred without the required approval, as provided in Article 13 of the Rules.⁶

This language ties the ODI framework directly to China’s broader export controls, including the Export Control Law, the rules governing dual-use items and the regulations on technology import and export. This is not entirely new: Chinese law has long regulated the export of controlled technologies. What is new is the clarity with which the Rules address outbound investment as a possible channel for cross-border transfers. The Rules make clear that investment structures cannot be used to circumvent export controls and that regulators will look at the substance of a transaction rather than its formal label.

One of the most notable aspects of Article 13 is its treatment of personnel movement. It makes clear that investors may not transfer prohibited technologies, or restricted technologies without authorization, by sending technical personnel abroad, arranging for employees to work overseas, providing cross-border technical guidance or organizing cross-border training.

This is an important development because it addresses an area that has long been uncertain in practice. Chinese companies expanding overseas often send engineers, technicians and managers from the mainland to support foreign affiliates, set up production lines, solve manufacturing problems or train overseas teams. These activities are often treated as ordinary business operations rather than formal technology transfer arrangements and may involve no separate payment or licensing structure. The new Rules make clear that such arrangements may still be treated as regulated technology transfers. In doing so, they recognize that in advanced industries, strategically important know-how often moves through people, not just through contracts, patents or source code.

Restrictions on the Movement of Sensitive Data

The same logic applies to data. The Rules expressly refer to 'related data' and require compliance with the broader PRC legal framework governing cross-border data transfers and controlled information. This matters particularly for AI, cloud, platform, industrial software and digital infrastructure businesses, where the transaction value may depend less on the formal ownership of a company than on access to datasets, training environments, user information, system performance data and remote operational visibility. Even if a transaction appears straightforward at the equity level, it may raise much more complex issues if it involves moving data offshore, granting remote access to regulated systems, integrating cross-border databases or transferring model-related know-how through implementation or support services. The Rules reflect a modern view of technology control: strategic capabilities can be transferred not only through hardware shipments or patent assignments, but also through data architecture, software support, employee mobility and operational integration.

A recent high-profile case involving the proposed acquisition of a Chinese AI-focused company by a major foreign technology company illustrates these concerns and helps explain why China has formalized its legal authority in this area. The reported intervention by Chinese authorities, and the eventual unwinding of that transaction on national security grounds, suggest a growing reluctance to allow Chinese-origin AI capabilities to pass into foreign control through offshore transaction structures. In that sense, the new Rules can be understood as a response to the increasingly sophisticated outbound structuring in the technology sector. They give the State a clearer legal basis to look beyond the legal form and assess whether a transaction effectively transfers strategic Chinese assets or capabilities abroad, whether through M&As, offshore redomiciliation, personnel relocation, data migration or the creation of overseas operating platforms.

V. Comparison with the U.S. Outbound Investment Rules (Reverse CFIUS)

China’s new outbound investment regime invites comparison with the U.S. outbound investment controls. In recent years, the United States has developed its outbound investment security framework through Executive Order 14105 and the Treasury Department’s implementing regulations, focusing on semiconductors, quantum technologies and AI in countries of concern, with China at the center of that policy design.

The U.S. program is relatively narrow and highly sector-specific. It is based on the concern that outbound U.S. investment may provide not only capital, but also intangible benefits that strengthen the military, surveillance, intelligence or cyber capabilities of strategic rivals. China’s new regime comes from a different institutional tradition, but its strategic premise is strikingly similar. Chinese authorities are now concerned that Chinese companies, investors and founders may move capital, talent, know-how and strategic assets abroad in ways that weaken China’s technological position or expose sensitive capabilities to foreign influence. Both systems reflect a world in which cross-border investment in advanced technologies is no longer treated as presumptively benign.

However, China’s regime differs from the U.S. outbound investment program in important ways. It appears broader and more discretionary in its national security review, and it is more directly integrated with export controls, data controls and personnel restrictions. It also has a distinctly retaliatory dimension.

The Rules authorize Chinese authorities to respond to the discriminatory restrictions or sanctions imposed by foreign states, organizations or individuals against Chinese investors and their overseas investments. Depending on the circumstances, China may adjust country-specific investment policies, restrict the import or export of goods and technologies, limit investment access and take countermeasures under the Anti-Foreign Sanctions Law. The government may also impose restrictions on the foreign entities or individuals considered to have harmed China’s sovereignty, security or development interests. As such, the Rules are both a screening mechanism and a geopolitical response tool. They are designed not only to prevent strategic assets from leaving China on problematic terms, but also to give China leverage against the foreign governments and firms that participate in efforts to restrict Chinese capital.

China’s new ODI review may also affect discussions about any future U.S.-China investment coordination mechanisms focused on non-sensitive sectors, including the idea of a bilateral Board of Investment that has reportedly surfaced in the wake of the recent Trump-Xi summit. In theory, this could help define safe lanes, reduce uncertainty and prevent wholesale investment decoupling. But it would face significant challenges. The line between sensitive and non-sensitive sectors is increasingly unstable, particularly where data, software, advanced industrial processes and dual-use functionality are involved. A business that appears commercially ordinary may still involve capabilities or information that regulators regard as strategically important. The Rules’ broad and discretionary design, together with their retaliatory features, adds another layer of complexity to any such framework.

VI. Conclusion

In sum, China’s new ODI regime marks a significant shift in the legal and policy treatment of outbound investment. Although the Rules formally sit within the existing ODI framework, their real significance lies in the way they expand that framework beyond administrative approvals and foreign exchange controls into a broader system of national security review, export control enforcement, data regulation and strategic risk management. Outbound investment is no longer solely treated as a question of capital deployment or corporate structuring. It is also now viewed as a potential pathway for the offshore transfer of technology, data, know-how, operational capability and key personnel.

The Rules are notable for the breadth of the transactions they may reach and for their emphasis on substance over form. They are broad enough to capture not only conventional overseas acquisitions, but also offshore restructurings, financing arrangements, personnel deployments, data migration, technical support models and other structures that may shift strategic capabilities abroad without a formal transfer of equity or assets.

For companies, founders, investors and deal advisers, transactions involving Chinese technology, data, engineers or other strategic business assets can no longer only be assessed through the traditional lens of ODI approvals, MOFCOM and NDRC filings, SAFE registration and offshore structuring. They must also now be evaluated through the lens of national security, export controls, cross-border data compliance and personnel mobility.

Similar to the U.S. outbound investment controls, China has now also formally embraced outbound investment screening as an instrument of state strategy. The result is a new operating environment in which outbound investment must be understood not only as an economic activity, but also as a matter of geopolitical and technological competition and governance.

1. https://www.gov.cn/zhengce/content/202606/content_7070755.htm

2.The National Development and Reform Commission, China’s economic planning authority.

3.The Ministry of Commerce, China’s regulator on investment and trade.

4.The State Administration of Foreign Exchange, China’s regulator on foreign exchange control policies.

5.Article 15 provides: “The State shall improve the security review system for outbound investment. The investment department and the commerce department of the State Council, together with the other relevant departments of the State Council, will conduct security reviews of outbound investments and of the transfer or disposition of the related assets, rights and interests, that affect or may affect national security. Organizations and individuals must provide assistance and cooperation, must not refuse or obstruct such review, and must comply with the decisions made in the outbound investment security review.”

6.Article 13 provides “When conducting outbound investment activities, investors must not export or use goods, technologies, services or related data whose export is prohibited by the State, or export or use, without authorization, goods, technologies, services or related data whose export is restricted by the State. Investors must also not transfer to other countries or regions, by means such as the cross-border secondment of technical personnel, organizing personnel to work in other countries or regions, providing cross-border technical guidance or arranging cross-border training, any goods, technologies, services, or related data whose export is prohibited by the State, or, without authorization, any goods, technologies, services or related data whose export is restricted by the State.”

Disclaimer

New Major State Council Rules Released on Outbound Investment: A New Framework that Balances Development and Security

Wed, 10 Jun 2026 16:00:00 GMT

On June 1, 2026, the State Council promulgated the Regulation of the State Council on Outbound Investment (State Council Order No. 837, hereinafter referred to as the New Regulation), which shall take effect on July 1, 2026. As China’s first dedicated administrative regulation governing outbound investment, it is a systematic upgrade of departmental rules in terms of its regulatory hierarchy, coverage, logical framework and legal liabilities. It also represents a new phase in China’s outbound investment governance that balances development and security.

I. Background

For years, China’s outbound investment governance has operated under a fragmented, sector-based supervisory model. Development and reform authorities oversee project management, commerce authorities regulate overseas institutional operations, and foreign exchange authorities administer cross-border fund remittance for outbound direct investment. While these three supervisory bodies perform distinct functions, China has lacked a unified, top-tier institutional framework covering all dimensions of outbound investment governance.

Against a backdrop of escalating geopolitical friction, investment screening barriers and unilateral sanctions have been imposed across different jurisdictions. Multiple European economies have recently rolled out stringent foreign investment regulatory updates, departing from the principle of non-retroactivity of laws. They have launched retrospective reviews on lawfully completed and compliant Chinese-funded overseas investment projects, forcing Chinese enterprises to divest overseas equity and dispose of existing assets. Cross-border asset security risks have become increasingly salient, exposing Chinese investors to heightened external uncertainties in their global outbound investments. After decades of global expansion, China has gained extensive experience in international investment cooperation, yet it faces persistent bottlenecks in cross-border compliance, asset safety and overseas regulatory adaptation. This has created an urgent need for national unified top-tier outbound investment rules, strengthened risk prevention and control measures, and enhanced coordinated countermeasure capabilities.

According to the 2024 Statistical Bulletin of China’s Outbound Foreign Direct Investment, jointly released by the Ministry of Commerce, the National Bureau of Statistics and the State Administration of Foreign Exchange, China’s outbound foreign direct investment stocks rank among the world’s top three. By the end of 2024, Chinese-invested overseas institutions had a global presence in over 80% of countries and regions. The expansion of China’s outbound investment has further integrated the country into global investment governance. It has also laid a solid foundation for China to raise its voice in shaping international economic and investment rules, build institutional mechanisms to counter overseas restrictive measures, and safeguard its core legitimate rights and interests in cross-border investment and economic activities.

This New Regulation balances development and security. It incorporates core regulatory mechanisms including national security reviews, export controls, cross-border data compliance, cross-border dispute resolution and responses to foreign sanctions and forms a comprehensive national governance system for cross-border investment. The regulation not only provides institutional guarantees and operational guidance for Chinese enterprises to conduct high-quality overseas investment and expansion, but it also establishes standardized mechanisms to address discriminatory overseas policies and unilateral restrictive measures. It achieves the integrated coordination of four core dimensions: outbound business expansion, risk prevention and control, legitimate rights and interests protection, and external countervailing governance.

II. Core Changes

Compared with the existing regulatory rules, the New Regulation has achieved an all-round iteration and upgrade, with the following core reform highlights:

(I) Upgrade of Regulatory Hierarchy

For a long time, China’s outbound investment oversight has primarily relied on two departmental rules: the Ministry of Commerce’s Decree No. 3 of 2014 and the National Development and Reform Commission’s Decree No. 11 of 2017. These lower-tier provisions only support vertical supervision within individual authorities, resulting in fragmented and inconsistent regulatory practices. Building on years of sectoral governance, the New Regulation establishes unified national top-tier regulatory standards. It provides a robust legal basis for the competent authorities covering development and reform, commerce, foreign exchange, foreign affairs and customs to formulate supporting implementation rules and build a coordinated, modernized outbound investment governance system.

(II) Expansion of Regulatory Scope

The previous regulatory regime featured segmented supervision by the development, reform, commerce and foreign exchange authorities, which focused on project approval and filing, overseas institution registration, foreign exchange verification and remittance for outbound investment, resulting in incomplete regulatory coverage. The New Regulation breaks with this siloed supervisory model and builds a full-spectrum compliance governance system. It aligns domestic regulatory requirements with international supervisory practices covering national security reviews, export controls, cross-border data compliance and foreign sanction responses. It effectively counters the discriminatory screenings and restrictive measures imposed by major Western jurisdictions on Chinese outbound investment, strengthens the protection of China’s sensitive assets, core technologies and key industrial sectors, and provides regulatory tools for competent authorities to respond to unfair overseas restrictions on Chinese investment.

(III) Optimization of Regulatory Logic

China’s outbound investment governance has traditionally adopted a supervision-centric model, prioritizing ex-ante review and filing, supplemented by in-process procedural updates and ex-post annual compliance declarations. This model is no longer adaptive to the complex, intertwined dynamics of contemporary global cross-border investment.

The New Regulation optimizes the traditional supervision-oriented compliance model by building a collaborative service system involving governments, financial institutions, professional service agencies and industry associations. It fills the gap in the public service support for enterprises’ overseas layout and facilitates high-quality outbound investment. It also improves institutional mechanisms for overseas investment risk early warnings, trade barrier investigations and cross-border dispute resolutions, fully protecting enterprises’ overseas assets and their legitimate business rights and interests. It effectively docks with foreign-related legal systems such as the Anti-Foreign Sanctions Law, further enhancing China’s influence in global investment governance and its capacity to safeguard and balance cross-border economic rights and interests.

(IV) National Security and Anti-Monopoly

Article 15 of the New Regulation mandates the improvement of the outbound investment security review system. Security reviews apply to all outbound investment activities and related asset and right transfers that affect or may affect national security. Any outbound investment detrimental to national security will be ordered to eliminate the associated security risks. Violators may be barred from conducting outbound investment activities for one to three years, and ongoing non-compliant investments may be subject to mandatory suspension and timed asset and equity divestment orders.

This outbound investment security review system complements China’s two-way cross-border investment security governance framework, which previously only covered inbound investment security screening. It effectively prevents market entities from evading inbound security review requirements through corporate restructuring and disguised transactions. Notably, the review scope covers not only standalone outbound investment projects, but also the transfer and disposal of relevant assets and rights. This provision responds partially to restrictive overseas investment policies, such as the U.S. bans on domestic entities’ investment in China’s semiconductor, microelectronics, quantum technology and artificial intelligence sectors.

The New Regulation embeds national security principles throughout outbound investment administration, requiring all investors to avoid actions that compromise China’s national security, national interests or public interests. While prior regulatory reviews incorporated partial security assessments, the New Regulation comprehensively integrates national security oversight across the entire investment review workflow, covering foreign exchange registration, technology export supervision and market concentration reviews.

Regarding antitrust compliance, the New Regulation requires investors to uphold fair competition and refrain from distorting the market order in outbound investment activities. Whether these declaratory provisions impose mandatory obligations on enterprises to comply with overseas competition and antitrust laws remains subject to further judicial interpretation and supporting implementing rules.

(V) Technology Export Control

Article 13 prohibits investors engaged in outbound investment from exporting or utilizing prohibited goods, technologies, services and relevant data. It also bans the unauthorized export or use of restricted goods, technologies, services and data. The regulation further clarifies export control jurisdictional scope by covering restrictive conduct implemented via cross-border staffing, offshore work deployment, technical guidance and transnational training. It achieves institutional alignment with the existing regulatory systems governing controlled technologies and dual-use items.

(VI) Investigations and Countermeasures

Article 23 stipulates that where investors encounter investment barriers or operational obstacles in host jurisdictions, the Ministry of Commerce may initiate independent or coordinated official investigations, with relevant entities and individuals obligated to provide full assistance and cooperation. This provision covers mainstream investment screening mechanisms adopted by the United States, the European Union and the United Kingdom.

Under Article 24, if any country or international organization imposes discriminatory prohibitions, restrictions or restrictive measures on China’s investment and operational activities, Chinese authorities may adopt corresponding countermeasures, including listing participating entities and individuals on the official countermeasure list. Foreign governments and entities that obstruct legitimate outbound investment by Chinese domestic entities through investment-related restrictions may be subject to such listing sanctions.

Article 25 empowers the competent State Council authorities to impose comprehensive countermeasures covering import and export activities, inbound investments, commercial transactions, cooperation, and entry and residence administration. Such countermeasures apply where foreign entities or individuals undermine China’s national sovereignty, security or development interests, disrupt normal market transactions with Chinese investors, or impose discriminatory treatment on Chinese outbound investors. This clause targets scenarios where foreign enterprises (including their Chinese subsidiaries) refuse normal investment-related transactions or restrict lawful Chinese outbound investment activities in compliance with overseas export control and unilateral sanction regimes.

These investigative and countermeasure mechanisms align with the Regulation of the State Council on Industrial and Supply Chain Security issued in April 2026 (Supply Chain Regulation), reflecting China’s strengthened multi-dimensional countervailing institutional framework covering industrial chains and outbound investment. Unlike the Supply Chain Regulation, the New Regulation does not specify key restricted sectors, which may be attributable to the existing sectoral classification system embedded in the current outbound investment approval and filing protocols.

(VII) Cross-Border Data Transfer

Corporate outbound investments frequently involve cross-border data flow, such as transferring domestically collected or generated data overseas for algorithm training or sharing operational experience and technical data with offshore branches and cooperative partners. The New Regulation reiterates and reinforces the statutory cross-border data compliance obligations for investing entities. Enterprises must assess whether the involved data contains personal information or important data that triggers mandatory cross-border compliance procedures and obtain official approval when sharing domestic data with foreign judicial or law enforcement authorities.

Article 14 clarifies that cross-border data flow arising from outbound investment shall be governed by national laws, administrative regulations and institutional provisions.

In accordance with the Cybersecurity Law, Data Security Law and Personal Information Protection Law, the cross-border transmission of personal information and important data must satisfy mandatory compliance prerequisites, including security assessments, standard contract filings, personal information protection certifications and valid individual consent. Personal information covers data related to Chinese consumers, employees and partner contacts. Important data is defined on a sector-specific and scenario-specific basis. For example, if an enterprise invests and builds factories overseas and needs to transmit sensitive data abroad in the process, (where such data involves core sector competitiveness, key technologies and processes for the industrial ecological development of key products, and data collected and generated during the research, design, production and manufacturing of major domestic equipment), they shall assess whether the data constitutes important data and fulfill the compliance obligations for cross-border data transmission.

Article 22 regulates responses to overseas judicial and law enforcement requests for domestic personal information and data. Chinese domestic entities and individuals participating in outbound investment-related arbitration, litigation or regulatory investigations overseas must comply with national confidentiality, data security, personal information protection, technology export control and judicial assistance regulations when submitting offshore evidence and materials. All legally required official approvals must be completed prior to disclosure.

Per the Data Security Law and Personal Information Protection Law, any provision of domestically stored personal information and data to foreign judicial or law enforcement bodies requires prior competent authority approval and full compliance with the technology export administration and regulatory requirements.

(VIII) Cross-Border Equity Investment and Financing Structure Establishment and Domestic and Overseas Capital Market Operations

The current outbound investment rules apply exclusively to domestic corporate and institutional investors, without establishing compliant channels for direct outbound investment by Chinese resident individuals. The New Regulation expands the statutory definition of investors to include domestic enterprises, other institutional organizations and Chinese resident individuals. This revision has far-reaching implications for cross-border equity investment and financing structuring, as well as the domestic and overseas listing arrangements for Chinese enterprises.

(a) The New Regulation will reshape cross-border equity investment and financing structuring practices. Previously, individual investors seeking outbound exposure typically completed investment filings through newly established domestic corporate or partnership entities or utilized qualified offshore investment schemes such as QDLP. These approaches were subject to stringent supervision, high tax costs and mandatory profit repatriation requirements.

As an alternative solution in practice, the derivative path after completing foreign exchange registration (in accordance with the Circular of the State Administration of Foreign Exchange on Foreign Exchange Administration of Domestic Residents’ Overseas Investment and Financing and Round-trip Investment via Special Purpose Companies (Hui Fa [2014] No. 37, hereinafter referred to as the SAFE Circular 37) issued in 2014) has become a common option for overseas investment by domestic individual residents. Specifically, SAFE Circular 37 addresses the needs of domestic natural persons to set up offshore special purpose companies for financing and conducting round-trip investment by utilizing their domestic corporate assets or equity interests, yet it does not resolve the issue of outbound capital remittance after foreign exchange registration. As a derivative practice, after completing the construction of an offshore red-chip structure through the SAFE Circular 37 pathway, Chinese natural persons may further pool funds via the first-tier offshore entities under their direct control (such as BVI companies). Such fund sources include the capital accumulated through multi-tiered dividend distributions from domestic enterprises to BVI entities, the proceeds from the sale of equity interests in lower-tier offshore entities (such as Cayman companies), and the revenue generated from offshore business operations. Although such practices may be deemed non-compliant in essence with the regulatory requirements of SAFE Circular 37, they have been widely adopted in practical operations.

The New Regulation clarifies that 'investors' cover domestic resident individuals and stipulates that the specific administrative measures governing outbound investment by domestic resident individuals shall be formulated by the investment regulatory authority and the commerce authority of the State Council. This expands the regulatory scope of domestic resident individuals’ direct overseas equity holdings from the previous foreign exchange registration dimension to the oversight of the National Development and Reform Commission (NDRC) and commerce authorities. Accordingly, the traditional outbound investment path implemented via the SAFE Circular 37 framework may undergo major changes. Given that the NDRC and commerce authorities have not yet issued supporting rules and registration guidelines governing individual outbound investment, the registration requirements for individual outbound investment with the NDRC and the commerce authorities remain to be further clarified and observed.

(b) Failure to complete compliance procedures for offshore shareholdings will significantly affect enterprises’ domestic and overseas listing arrangements. In past listing cases, many enterprises failed to complete the approval and filing procedures for their outbound investments, while red-chip structure enterprises had domestic resident individual shareholders that did not complete the registration under SAFE Circular 37. For a long time, the regulation of outbound investment and Circular 37 registration was governed by departmental rules rather than administrative regulations, and competent authorities at the ministerial level had no legislative power to impose penalties. Therefore, even with such compliance deficiencies, applying enterprises could relatively easily obtain confirmation that such issues 'did not constitute major illegal acts', or merely disclose the relevant compliance defects for overseas listing purposes, which would not substantially hinder their listing applications. Following the promulgation of the New Regulation, such regulation has been elevated to the level of administrative regulations. Enterprises and domestic resident individuals that fail to comply with the provisions will face a substantially higher risk of penalties. Meanwhile, securities regulatory authorities may require applying enterprises to obtain rigorous compliance confirmation in advance for such potential illegal issues; otherwise, their listing applications may not pass regulatory review. This will undoubtedly increase the difficulty of listing applications and further strengthen enterprises’ awareness of compliance.

(IX) Significant Strengthening of Legal Liability

1. Upgrade of Administrative Penalties

The disciplinary system under the existing departmental rules governing outbound investment is generally lenient, with punitive measures limited to non-property regulatory means such as orders for rectification, warnings and the revocation of approvals or filings, and no quantified penalty mechanism has been established. In practice, the core constraint of outbound investment filing under the existing rules lies in the inability to process cross-border capital remittance without completing the approval or filing procedures, which blocks the outbound flow of project funds. The New Regulation comprehensively upgrades the legal liability system by adding rigid disciplinary measures including tiered fines, entity accountability, and full-scale outbound investment prohibition, upgrading procedural restrictions to substantive penalties and substantially increasing the cost of violations. The overall liability penalty framework of the New Regulation benchmarks the mature disciplinary mechanisms of foreign-related regulatory laws including the Anti-Monopoly Law, Export Control Law and Anti-Foreign Sanctions Law. It inherits conventional penalty mechanisms covering property punishment, qualification punishment and individual accountability, and further improves such mechanisms tailored to the supervisory scenarios of outbound investment. Please refer to Annex 1 for a detailed comparison of the penalty provisions under the New Regulation.

2. Enhanced Criminal Liability as a Catch-All Regulation

The New Regulation is consistent with the protection of national security in the previous laws and regulations such as the National Security Law, Law on Guarding State Secrets, Counter-Espionage Law, Anti-Monopoly Law, Regulation on Countering Foreign Extraterritorial Jurisdiction Inappropriately and Anti-Foreign Sanctions Law. On the basis that most of the aforementioned laws and regulations stipulate criminal liability, it also provides for criminal liability clauses in a 'catch-all' manner:

(1) A 'catch-all' accountability for violations (or illegal acts) by investors (enterprises or individuals)

The New Regulation sets a catch-all accountability for violations (or illegal acts) by investors (enterprises or individuals). That is, if an outbound investor commits an act in the process of outbound investment that violates the relevant provisions of the Criminal Law of the People’s Republic of China (hereinafter referred to as the 'Criminal Law'), such as acts that may harm national security (e.g., involving state secrets, intelligence or espionage activities), money laundering, illegal business operations, or covering up or concealing the criminal gains and proceeds from a crime, and if the criteria for criminal prosecution are met, the act will not only be a violation of the administrative regulations or civil infringement, but also bear criminal liability.

(2) Job accountability for public officials

The New Regulation also sets job accountability for public officials. If supervisors commit dereliction of duty, bribery or disclose secrets in the approval and supervision process, they may be guilty of crimes such as abuse of power, dereliction of duty, bribery, and intentional (or negligent) disclosure of state secrets. If investors are accomplices (e.g., the joint disclosure of state secrets) or concurrent offenders (e.g., bribery), they will also be held accountable when the criteria for criminal prosecution are met.

III. Conclusion

The current global geopolitical environment is becoming increasingly complex. Some countries have issued retroactive investment regulatory rules, restricting the development of Chinese-funded enterprises through unilateral sanctions, discriminatory reviews and other means. The existing overseas assets of Chinese funds face various external risks such as forced divestment and compliance retroactivity, and the uncertainty of enterprises’ outbound investment has increased significantly. The promulgation of the New Regulation optimizes the regulatory status of China’s outbound investment (characterized by decentralized supervision by multiple departments, lenient penalties and weak compliance constraints for a long time), and makes up for the institutional shortcomings of China’s outbound investment countermeasures and rights protection. It will be an important legal tool to respond to unreasonable overseas restrictions and hedge unilateral sanctions.

The New Regulation connects with the relevant institutional system of the Anti-Foreign Sanctions Law, clarifying that investigations can be carried out and corresponding countermeasures can be taken in accordance with the law against overseas discriminatory investment restrictions and the unreasonable infringement of rights and interests, protecting Chinese-funded overseas assets and business rights and interests. Domestically, the New Regulation unifies regulatory standards at the administrative regulation level, improves the legal liability system, and builds a richer compliance governance framework through diversified disciplinary methods such as graded fines, subject and individual accountability, investment prohibition and asset disposal. While supporting enterprises to steadily carry out outbound investment and safeguarding opening-up and development patterns, it further consolidates the bottom line of national security and asset security compliance in cross-border investments.

Enterprises need to take the initiative to update their compliance concepts. Domestic supervision requires not only attention to the outbound investment approval/filing requirements, but also to the comprehensive compliance requirements such as export control licenses, cross-border data transfers, national security, cross-border employment and countermeasure lists. They should coordinate and balance business development, risk prevention and control, improve the capacity for compliant operations and risk response in outbound investment, better adapt to the complex and changing international investment environment and ensure the steady and orderly development of outbound investment activities.

Annex 1 Detailed Comparison of Penalties Under the New Regulation

In addition to the common violations specified in the New Regulation and existing rules, some regulatory matters in the existing commerce and NDRC rule systems are not separately listed in the penalties of the New Regulation. The specific regulatory matters under existing rules not included in the New Regulation’s penalties are as follows:

Source

Triggering Matters

Penalties

NDRC (Decree No. 11 of 2017)

Failure to fulfill the statutory information reporting obligations in accordance with the regulations: failure to submit a project status report form before carrying out large-scale non-sensitive projects through controlled overseas enterprises; failure to submit a major adverse situation report form within five working days when major adverse situations occur in outbound investment (major casualties of dispatched personnel, major losses of overseas assets, damage to China’s diplomatic relations, etc.); failure to submit a project completion report form within 20 working days after the completion of the approved/filed projects; failure to submit a written report within the required time limit after receiving a letter of inquiry on major matters from the regulatory authority

1. Order to make corrections within a time limit; 2. Issue a warning; 3. Issue a warning to the person in charge

Ministry of Commerce (Decree No. 3 of 2014)

Forging, altering, leasing, lending, transferring outbound investment certificates

1. Issue a warning; 2. Investigate criminal liability if a crime is constituted

Disclaimer

Convergence in International Arbitration:Building the Legal Architecture of a Shared Future

DONG,/Arthur/(Xiao) — Sun, 07 Jun 2026 16:00:00 GMT

导言

近日，以“新法同修·互鉴共生”为主题的中英最新仲裁法修订制度对比与商事仲裁前沿研讨会在伦敦国际会议中心成功举办。本次活动由中国国际经济贸易仲裁委员会主办，汇聚了中英两国仲裁领域的资深专家与实务人士。君合律师事务所合伙人、贸仲委仲裁员、伦敦国际仲裁院委员董箫博士受邀出席，并围绕中英仲裁法改革的共同关切，就建设可信任、可预期的仲裁法体系、司法支持及制度互通等热点议题发表了主旨演讲。

随着中国新仲裁法与英国2025年仲裁法修订案的相继施行，两国在确认仲裁协议独立性、提升仲裁透明度、加强司法对仲裁的支持等方面呈现出诸多共通之处。董箫律师的主旨发言立足国际视野，为推动跨境争议解决机制的协调发展和“差异化共生”提供了前瞻思考，引起了与会中外专业人士的广泛共鸣。以下是董箫博士本次论坛演讲的内容，以飨读者。

董箫博士在会议上发表演讲

Distinguished guests, ladies and gentlemen, good morning, everyone,

It is a great honor to speak here in London—a city that has shaped the very grammar of international arbitration we discuss today. The topic of my presentation is: Convergence in International Arbitration: Building the Legal Architecture of a Shared Future. My message today is simple: international arbitration is converging because cross-border disputes require a common procedural language. Legal systems remain different, and they should remain different. But parties engaged in international commerce increasingly expect the same basic things: neutrality, efficiency, fairness, court support and enforceability. Convergence is therefore not the disappearance of legal diversity. No, it is the building of a shared procedural trust.

Let me walk you through this in four observations.

Point I: The 2025 Reforms: A Shared New Starting Line

Before turning to the broader theme of convergence, I would like to begin with the 2025 reforms themselves. When we place the English and Chinese reforms side by side, at least five areas are particularly worth noting, and together they show that the two systems are responding to many of the same questions in modern arbitration law.

First, the law governing the arbitration agreement. Both systems are concerned with improving certainty in determining the law applicable to the arbitration agreement. This reflects a shared recognition that the arbitration agreement should be treated as an autonomous agreement, not merely as an accessory to the main contract.

Second, the arbitrator’s duty of disclosure. Both reforms pay close attention to the independence and impartiality of arbitrators. This shows that modern arbitration cannot rely only on party autonomy; it must also be supported by transparent and trustworthy decision-makers.

Third, arbitrators’ professional responsibility and immunity. Both systems are seeking to define the proper responsibility of arbitrators, although they approach the issue differently. The deeper common question is how to protect arbitral independence while maintaining accountability for serious misconduct.

Fourth, Interim Measures Supporting Arbitral Proceedings. Based on Section 42 of the new English Arbitration Act, the court may make an order requiring a party to comply with a peremptory order made by the tribunal or the emergency arbitrator. Meanwhile, China’s 2025 Arbitration Law builds on existing provisions for assets and evidence preservation by introducing a new regime of 'conduct preservation', in other words, “mandatory injunction”, and grants parties the right to seek such interim measures even before the arbitration is commenced.

Fifth, Judicial Support Extended to Third Parties. Both Sections 44 of new English Arbitration Act and Article 55 of new China Arbitration Law expand judicial assistance beyond the confines of the disputing parties to cover third parties, grant the courts explicit powers over evidence preservation and compulsory collection,

Taken together, these five areas raise an important question: is the similarity between the English and Chinese reforms merely a coincidence? I would suggest that it is not. These reforms reflect a broader movement in international arbitration, where different legal systems are responding to the same practical needs and gradually developing a shared procedural language.

This is the starting point of my speech. The English and Chinese reforms are not identical, and their differences remain important; but their common direction allows us to see convergence not as an abstract theory, but as a living development in contemporary arbitration law.

Point II: Why Convergence Arises: From Human Conflict to Procedural Trust

To understand convergence, we should first place arbitration in the longer history of dispute resolution. Human cooperation has always produced disputes. In earlier times, disputes were often resolved by power, pressure or retaliation. Modern legal systems replaced private force with public adjudication. This was a major step in legal civilisation: conflict became subject to law.

International arbitration represents a further step in that movement from power to process. Domestic courts remain essential, but cross-border disputes create a special problem. Parties from different jurisdictions may not share the same confidence in one national court, one legal culture, or one procedural tradition. Arbitration responds to that problem by offering a neutral process chosen by the parties themselves. It turns international disagreement into an agreed legal procedure.

This explains why arbitration laws in different jurisdictions increasingly move in similar directions. They are not converging simply because one system copies another. They are converging because they face the same question: how can parties from different legal systems trust the same process? The answer is not uniformity. The answer is a sufficient common ground to make arbitration predictable, credible and enforceable. The root of convergence is therefore not imitation, but the search for procedural trust.

Point III: What Convergence Looks Like Today: The Three Layers of Convergence

Convergence in international arbitration can be understood in three layers: functional, legitimacy-based and structural. These three layers help us see that convergence is not an abstract slogan. It has concrete meaning in modern arbitration law and practice. Together, they show what contemporary arbitration systems are trying to achieve.

The first layer is functional convergence. Arbitration laws are increasingly concerned with the same practical problems: delay, cost, tactical obstruction, interim relief, tribunal powers, court assistance and enforcement. These are not minor technical matters. They determine whether arbitration actually works for its users. A process that is too slow, too expensive or too uncertain cannot command commercial confidence. Functional convergence therefore means that arbitration systems are increasingly designed to make arbitration more effective in practice.

The second layer is legitimacy convergence. Arbitration must not only be efficient; it must also be worthy of trust. This is why modern arbitration increasingly focuses on arbitrator independence, impartiality, disclosure, due process, equal treatment and institutional accountability. Party autonomy remains the foundation of arbitration, but party autonomy alone is no longer enough. As arbitration has come to play a central role in resolving major transnational disputes, it must earn authority through procedural integrity. Legitimacy convergence therefore means that arbitration systems are increasingly measured by fairness as well as efficiency.

The third layer is structural convergence. This concerns the basic architecture of arbitration. Across many jurisdictions, arbitration law increasingly revolves around similar concepts: separability of the arbitration agreement, competence-competence, the legal significance of the seat, limited judicial review, court support for interim measures, and recognition and enforcement of awards. These concepts create a common grammar. They allow courts, tribunals, institutions and parties from different legal systems to understand each other. Structural convergence therefore means that arbitration systems are increasingly built around a shared framework.

The 2025 English and Chinese arbitration reforms are meaningful when viewed against this wider background. England and China have very different legal histories, traditions and cultures. Yet both reforms respond to many of the same questions: how to strengthen arbitral autonomy, how to define the proper role of courts, how to improve procedural certainty, and how to align domestic arbitration law with international expectations. The details differ, and those differences matter. But the broader direction shows a common concern with the effectiveness, legitimacy and structure of modern arbitration.

Point IV: Why Convergence Matters: From Similar Rules to a Shared Future

Firstly, convergence matters because the future of arbitration is not sameness, but the ability of different systems to work together. One may call this “interoperability”, but the idea is simple. Legal systems do not need to become identical. Courts, institutions and legal traditions may remain different. But they must be able to communicate, coordinate and support arbitration in a way that international users can understand. The future of convergence is therefore not uniformity, but workable connection.

Secondly, convergence matters because it protects legal diversity while reducing distrust. Common law and civil law systems have different strengths. Chinese arbitration practice, English arbitration practice and other jurisdictions each have their own experience. The goal is not to erase these differences. The goal is to create enough shared principles so that difference does not become uncertainty, and uncertainty does not become distrust. Convergence allows legal systems to remain different without becoming disconnected.

Thirdly, convergence matters because it supports international cooperation before disputes arise. Parties are more willing to trade, invest and cooperate when they know that future disputes can be resolved through a neutral and enforceable process. Arbitration is therefore not only a mechanism used after relationships break down. It is also part of the confidence that allows cross-border relationships to begin. Trust in dispute resolution helps create trust in international cooperation itself.

Finally, convergence matters because it gives the world a legal language for peaceful disagreement. We should not imagine a future without disputes. Legal systems will remain different. Commercial interests will conflict. Contracts will fail. But the real question is whether disagreement can be managed through reasoned procedure rather than power alone. The achievement of arbitration is not that it removes conflict. Its achievement is that it allows conflict to be resolved without destroying cooperation.

Let me conclude with the broader meaning of convergence. In an interdependent world, we need more than contracts, trade and investment. We also need trusted procedures for the moments when cooperation comes under pressure. International arbitration contributes to that task. It offers parties from different legal systems a common method, a common language and a common expectation of justice. That is why convergence in arbitration is not merely a legislative trend. It is part of the legal architecture of a shared future.

Thank you very much for your kind attention.

What QFIs Need to Know Before Trading CGB Futures

XIE,/Qing/(Natasha)、ZHANG,/Chi/(Austin)、LI,/Yongze — Tue, 02 Jun 2026 16:00:00 GMT

On April 24, 2026, the China Securities Regulatory Commission (CSRC), in consultation with the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE), announced that Qualified Foreign Institutional Investors (QFIIs) and Renminbi Qualified Foreign Institutional Investors (RQFIIs) (collectively referred to as “QFIs”) can participate in CGB futures trading, with such trading limited to hedging purposes. The China Financial Futures Exchange (CFFEX) began accepting applications from QFIs for trading CGB futures on that same day.

In early May 2026, futures companies, QFI custodian banks and other QFI institutions attended CFFEX training sessions regarding the participation of QFIs in CGB futures trading. This article summarizes the key regulatory requirements and practical issues for QFIs’ participation in CGB futures trading, based on the current CFFEX rules and insights from these training sessions.

I. The Process for QFIs Participation in CGB Futures Trading

For offshore institutions that have not yet obtained QFI qualification, the process for participating in CGB futures trading consists of the following steps:

Step 1: Apply for QFI qualification with the CSRC, with an investment plan covering CGB futures, through a custodian bank;
Step 2: Sign a futures brokerage agreement with a futures company and open a futures trading account;
Step 3: Apply for a hedging trading code with the CFFEX through the futures company;
Step 4: Prepare hedging application materials and apply to the CFFEX for a CGB futures hedging quota through the futures company; and
Step 5: Once the hedging quota is approved, the QFI may commence CGB futures trading on the next trading day.

Offshore institutions that already have a QFI qualification and with investment plans that cover CGB futures, do not need to reapply for QFI qualification or reopen bank accounts. They can apply directly for a CFFEX hedging trading code and a hedging quota through a futures company and begin trading once the quota is approved.

II.The Process for QFIs Application for CGB Futures Hedging Quota

Since the participation of QFIs in CGB futures is limited to hedging, QFIs should apply to the CFFEX for a hedging quota. According to the CFFEX’s hedging rules, QFIs shall submit application materials to the futures company with which they have opened an account; after a preliminary review, the futures company shall file the application with the CFFEX via the Member Service System; after formally accepting the application, the CFFEX shall provide a response within five trading days, for which any time spent on supplementary material submission shall be excluded from the five trading days.

The application materials include:

1. A CFFEX Application Information Form for a Hedging and Arbitrage Quota

2. A Hedging Plan

A hedging plan shall include, but not be limited to: a hedging trading strategy, the necessity and rationale of the quota required to manage risk exposure (with supporting materials), a calculation of the correlation between futures and the hedged underlying assets (including the calculation methods and parameters, etc.), the hedging effectiveness and an introduction to the investment team. For long hedging proposals, it shall also include the alternative investment plan, the proposed scale of the assets and the trading plan relating to the alternative plan.

3. Requirements on QFI’s CGB Positions

According to the CFFEX training, CGB assets held by an offshore institution through both the QFI channel and the CIBM Direct channel are, in principle, recognized as the CGB cash positions of that institution, but currently do not include CGB assets held through the Bond Connect regime. If an offshore institution holds CGB assets through both the QFI channel and the CIBM Direct channel, the asset certification shall be stamped by the custodian bank to certify that the positions under the bond/securities accounts belong to the same offshore investor. However, if the CGB assets are held by different affiliated entities within the same offshore group through the QFI channel and the CIBM Direct channel respectively, they cannot currently be aggregated and recognized as the CGB cash positions of the same entity. If an offshore investor currently holds CGB solely through the CIBM Direct channel but intends to use CGB futures for hedging, it still needs to apply separately for QFI qualification and open a futures trading account.

We believe that allowing QFIs to count CGB assets held through the CIBM Direct channel as recognized CGB cash positions when applying for hedging quotas reflects the regulators’ encouragement and support for offshore institutional investors to participate in the Chinese bond market through multiple channels. This will greatly facilitate existing offshore institutional investors’ investment in the Chinese bond market. However, exactly when offshore institutional investors’ investments in CGB through the Bond Connect regime will be permitted to access onshore CGB futures remains to be seen.

4. Proof that the QFI has incorporated CGB futures into its investment scope

It is noteworthy that the hedging quota approved by the CFFEX is valid for 12 months, effective from the next trading day following the date of approval. QFIs must apply for a new quota at least 10 working days before the existing quota expires. If a QFI applies for a quota for near-delivery month contracts, it must first (or simultaneously) apply for a hedging quota; the quota for near-delivery month contracts may not exceed the already approved hedging quota. QFIs shall apply for the near-delivery month contract quota during the period from the first trading day of the second month preceding the delivery month to the fifth trading day preceding the delivery month. This quota is effective from the trading day preceding the delivery month until the last trading day of the contract. If a QFI does not separately apply for a near-delivery month contract quota, the CFFEX will monitor positions based on the lower of the following two figures: “the client’s position after settlement on the second trading day preceding the delivery month” and “the position limit for the delivery month”.

III.Requirements for Hedging Trading

A QFI’s hedging position shall not exceed its approved hedging quota. For a single futures product, a QFI’s weekly trading volume in a single direction shall not, in principle, exceed twice its hedging quota for that product. The CFFEX has the authority to supervise and manage how QFIs utilize their hedging quotas, including periodically requesting QFIs to provide information regarding their cash and futures positions, as well as explanations regarding their compliance with hedging requirements, if needed. Depending on the market conditions and the specific circumstances of each QFI, the CFFEX also has the discretion to adjust a QFI’s hedging quota. If a QFI’s hedging position exceeds its corresponding asset-to-position ratio or exceeds its approved hedging quota, the CFFEX may require the QFI to make adjustments within a specific period and may even, in serious circumstances, take self-regulatory measures such as ordering the liquidation of positions within a prescribed time, forced liquidation, or adjusting or canceling the QFI’s hedging quota.

IV.Using Bonds as Margin

QFIs may submit cash or marketable securities (e.g., bonds) as margin to meet the margin requirements for futures trading. Currently, the scope of the marketable securities accepted by the CFFEX refers strictly to book-entry treasury bonds issued by the Ministry of Finance, excluding those that are about to mature (treasury bonds with one month or less to maturity cannot be used as margin). If an offshore institution holds treasury bonds solely through the CIBM Direct channel and intends to use those bonds as margin, it may, in accordance with the regulatory provisions, transfer the bonds to its QFI account through a non-trade transfer.

V.Offshore Institutions Trade CGB Futures Through Offshore TRS

Besides QFIs’ direct participation in CGB futures trading, some broker-type QFIs may also apply for CGB futures trading in their own names, based on their own assessments and provide total return swaps (TRS) or other products linked to CGB futures to their clients offshore.

During the training sessions, the CFFEX mentioned that if an offshore client participates solely in CGB futures trading, it is not required to submit a letter of undertaking stating that it is “not involved in structured product business, cross-border derivatives business of securities companies, or related hedging transactions”, when opening a futures account. Some institutions have interpreted this to mean that since no such undertaking is required for CGB futures trading, they may offer or trade derivatives linked to CGB futures offshore (e.g., offshore TRS transactions).

From a regulatory perspective, our interpretation is that the Chinese regulators encourage offshore institutions to participate directly in onshore CGB futures trading rather than indirectly through structures such as offshore TRS. Within the overall regulatory framework of the Derivative Trading Administrative Measures (Interim), regulators may further strengthen the see-through supervision of cross-border derivatives transactions through cross-border regulatory cooperation. Before such see-through supervision in a cross-border context is fully implemented, offshore TRS structures still give rise to regulatory concerns regarding transparency and the potential circumvention of regulations. Therefore, offshore institutions that are already participating or planning to participate in offshore TRS, or similar products linked to CGB futures, are advised to conduct a comprehensive compliance assessment based on their own strategies. At this stage, since the regulators have not yet clarified the specific requirements for hedging and information disclosure under TRS structures, we recommend that parties proceed with caution and make timely adjustments in response to changing market conditions and regulatory policies to avoid potential compliance risks.

Disclaimer

Offline IPO Placements - Recent Enforcements Against Non-Compliant Managers

XIE,/Qing/(Natasha)、ZHANG,/Chi/(Austin)、LI,/Yongze — Wed, 27 May 2026 16:00:00 GMT

Following the revision made to the Rules for the Administration of Offline Investors in Initial Public Offerings of Securities (the “Administration Rules”) in March 2025 by the Securities Association of China (SAC), the enforcement and self-regulation of offline IPO placement related pricing and allocation has been significantly tightened.

According to public announcements by the Shanghai Stock Exchange (SSE) and the SAC, since the issuance of the Administration Rules, eight local private fund managers have been warned or sanctioned for violations in offline IPO placements. Overall, compliance inspections and the self-regulatory supervision of offline IPO placements have been progressively tightened and streamlined by the regulatory authorities.

I. Regulatory Requirements and Consequences of Violations

The Administration Rules stipulate that institutional offline investors participating in the offline IPO placement pricing and allocation shall establish sound internal control policies and operational procedures to conduct comprehensive management over their business operations. The rules set forth highly detailed requirements for all stages, including investment research and pricing, quotation and subscription, as well as compliance and risk control.

The relevant rules also list the various self-regulatory measures that may be taken against investors who violate the requirements. At the exchange level, the Detailed Rules for the Implementation of Issuance and Underwriting Business of Initial Public Offering Securities of the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) provide that if an investor participating in an offline inquiry fails to determine its quotation in accordance with the pricing decision procedures, the exchange may take supervisory measures and disciplinary sanctions against it, individually or in combination. This could happen if the archived pricing basis does not support the quotation result, there are abnormalities (such as an insufficient justification for a quotation revision), or the quotations are highly consistent with other investors that disrupt the normal inquiry order. If the exchange finds that an offline investor has committed a violation that is set out in the Administration Rules, it may release a public circular and recommend that the SAC takes self-regulatory measures such as including the investor on the restricted list.

Under the Administration Rules, at the level of industry self-regulatory organizations, the SAC may take the following actions against investors or the funds or products under their management and/or their staff:

Working measures: issue a supervision letter, initiate a conversation, request a response, require a declaration or temporarily suspend the account of the investor or fund or product under its management;
Self-regulatory measures: initiate warning conversations, orders to rectify, issue regulatory warnings, require participation in compliance education, order the employing institution to handle the matter, order a compliance inspection, suspend the registration of new fund or product for allocation, prohibit from participating offline IPO placement related business for one to 12 months; include on the restricted list for one to 36 months, not accept registration or recommended registration for one to 36 months; and
Disciplinary sanctions: industry admonition, public condemnation, etc.

The relevant rules do not prescribe the frequency of the SAC’s self-regulatory inspections. Based on an observation of the past enforcement practices, we understand SAC may conduct inspections on a random basis and may take measures on cases forwarded by the stock exchanges from time to time.

Recent enforcement cases indicate that the SSE typically requires the violating institution to complete rectification within one month, while issuing a regulatory warning; while the SAC often adopts a “regulatory warning + mandatory compliance education” approach, requiring relevant personnel to complete compliance training courses within one month. Failure to implement the above requirements as scheduled may lead to further action by the regulatory authorities. It is noteworthy that among the recent cases one private fund manager was included on the SAC’s restricted list for six months, during which time both the firm and the funds or products under its management were prohibited from participating in offline IPO placement related business for any market segment in any stock exchange.

Since the exchanges and SAC generally disclose self-disciplinary regulatory decision letters publicly, the reputation of the non-compliant investors may be affected, which could in turn affect their ability to conduct similar business in the future.

II. Recent Enforcement Cases

Based on recent cases of self-regulatory measures, the typical violation circumstances can be summarized as follows:

1. Investment research and pricing

a) Inadequate research, failure to conduct substantive reviews of research reports for new stocks, factual errors in research reports, and insufficient basis for earnings forecasts, valuation analysis or valuation conclusions.

b) Inadequate research, report drafting and approval mechanisms with only principled provisions stipulated and without detailed implementing rules at the execution level; failure to specify the format requirements of research reports, failure to specify the proper use of the lead underwriters’ investment value research reports, and failure to specify detailed rules for important aspects such as new stock research.

c) Insufficient pricing basis, determining a quotation solely based on the midpoint of the valuation range, or simply marking up by a certain percentage above the upper limit of the valuation range in the investment valuation report or research report, lacking a logical deduction process and failing to support the final quotation result. Pricing decisions based only on qualitative analysis of the day’s market quotation and lottery winning trends and lacking quantitative analysis. Minutes of pricing meetings failing to adequately and robustly support the final quotation result, lacking detailed explanation of valuation parameters, and inconsistencies between the supporting rationale, the recommended prices in research reports and the proposed subscription prices.

d) Incomplete pricing procedures, only verbal discussion of valuation benchmarks, fundamentals and industry conditions, failing to retain executed minutes of pricing meetings, failing to follow collective decision-making procedures, and lacking detailed provisions in pricing decision-making policy.

2. Compliance and risk control

a) Inadequate risk management policy and implementation, failing to incorporate new stock inquiry business into overall risk control management, failing to set up verification modules in risk control systems, failing to monitor, analyze and identify risks that may arise in each procedure, lacking risk control measures for market public sentiment, information leakage and quotation deviation.

b) Inadequate compliance management policy and implementation, failing to conduct compliance checks on affiliated relationships and quotation/subscriptions, failing to conduct retrospective verification of the objectivity and prudence of new stock quotations, failing to establish sound four-eyes verification mechanisms, and failing to archive records of compliance reviews.

c) Inadequate communication device control policy and implementation, failing to strictly control the communication devices of personnel with access to quotation information during the inquiry period, failing to make special arrangements for such personnel who cannot comply with mobile communication device control requirements due to specific circumstances such as business travel or leave to effectively prevent quotation information leakage, incomplete records of communication device control.

d) Deficient working paper policy, business training policy, internal accountability mechanisms, and compensation and performance appraisal mechanisms, and failure to implement and retain relevant records.

e) Inadequate segregation of personnel and information, with pricing team members also serving as members of the pricing team of an affiliated company.

III. Our Observations

Under Article 2 of the Measures for the Implementation of Self-Regulatory Measures of SAC, the application scope of SAC’s self-regulatory administration includes its members, securities industry practitioners, and other institutions and individuals brought under management pursuant to the relevant rules.

Article 4 of the Administration Rules further provides that Qualified Foreign Investors (QFIs) registered as offline investors, along with the funds or products under their management and their staff, are also subject to the self-regulatory administration of the SAC. The SAC has self-regulatory jurisdiction over the conduct of offline investors, covering both domestic and foreign participants, including QFIs.

According to the information published by the SAC, two QFII accounts were included in the IPO placement blacklist in December 2016 for a period of six months. Recent cases against non-compliant private fund managers are also a reminder to investors to attach great importance to the establishment of internal control systems and the daily record keeping for implementation of the internal controls, in order to prevent similar compliance risks.

We recommend that investors strictly benchmark their actions against the Administration Rules, refine their own offline IPO pricing, allocation policies and operational procedures, and ensure full compliance with the regulatory requirements. The following Compliance Self-Inspection Checklist for Offline IPO Placement Business is for investors’ self-assessment.

Attachment:Compliance Self-Inspection Checklist for Offline IPO Placement Business

Stage

Item

Research Mechanism

◽

IPO stock research mechanism and research report drafting and approval mechanism have been established, with detailed provisions on execution, IPO stock research and pricing decisions.

◽

Necessary valuation and pricing models have been established.

◽

Research methodologies and analytical logic is rigorous, and in-depth analysis of the issuer’s investment value has been conducted based upon reasonable data foundations and facts.

◽

Internal policies stipulate and ensure the reasonable, prudent, and confidential use of the investment value research reports provided by the lead underwriter and such internal policies have been implemented in practice.

Research Report Drafting

◽

The research report has been independently drafted and completed internally.

◽

The internal policy specifies the format of the research reports.

◽

The research reports have included the following:

- Research on the issuer’s fundamentals: research on industry development patterns and trends, the issuer’s business model, business prospects, management operations and management capabilities, and an analysis of the issuer’s core competitive advantages;

- Analysis of the issuer’s profitability and financial condition: including but not limited to making prudent and reasonable estimates and calculations of the important financial matters of the issuer for future accounting periods, and elaborate clearly on important assumptions and parameters;

- Reasonable valuation and pricing models: offline investors shall adopt at least one reasonable valuation methodology. For an absolute valuation methodology, include detailed descriptions of the valuation and pricing model, the model assumptions and the key valuation parameter settings using a rigorous and logical deduction process. For a relative valuation methodology, include comparable company selections and the basis for such selections, with a rigorous and logical deduction process;

- Sensitivity analysis for the issuance of IPO stocks with secondary share transfer arrangements (if any); and

- Specific quotation recommendations or recommended price range, etc.

Research Report Approval

◽

The research report approval mechanism has been strictly followed.

◽

A substantive review has been conducted on the research report.

Pricing Basis

◽

Both quantitative and qualitative analyses have been fully performed in the pricing decisions.

◽

The price, or price range of the IPO stocks has been reasonably determined, without simply relying on the midpoint of a valuation range or a markup percentage.

◽

The difference between the highest and lowest price does not exceed 20% of the lowest price, if a price range is recommended in the quotation.

◽

The supporting rationale, recommended price in the research and pricing reports are consistent with the proposed subscription price, with logical deduction.

Pricing Reports / Minutes of Pricing Meetings

◽

The pricing team prepared pricing reports or minutes of the pricing meetings based on the pricing basis and pricing decision-making process for each quotation, and have retained the relevant materials for archiving and future reference (a retention period of no less than 20 years)

◽

The pricing report or the minutes of the pricing meeting adequately and robustly support the final quotation.

◽

The pricing report or the minutes of the pricing meeting contain detailed descriptions of the valuation parameters.

◽

The pricing report or the minutes of the pricing meeting were signed or executed in writing by all members of the pricing team participating in the IPO project.

◽

The system documentation timestamp, retention time or last modification time of the pricing report or the minutes of the pricing meeting were archived before the conclusion of the inquiry period.

Pricing Decisions

◽

An IPO pricing team has been established to make collective research decisions based on the specific quotation recommendations or recommended price ranges given by the pricing basis.

◽

The pricing team includes new stock research personnel and investment decision-making personnel.

◽

No investment decisions were made nor investment instructions directly executed by investment advisers or other institution/individuals.

Quotation and Subscription

◽

Verification procedures have been followed when providing information materials as required by the lead underwriter of the IPO project.

◽

Before submitting the pricing basis, internal approval procedures have been followed.

◽

The quotation has been made based on the recommended price or price range according to the pricing basis.

◽

If the offering price is determined through a book-building inquiry, the subscription quotations and the inquiry quotations are consistent.

◽

In the case of quotation revision, the pricing decision-making procedures have been reperformed, and the basis for the revision and/or the records of the reperformed pricing decision-making procedure has been archived.

◽

When participating in an offline inquiry and subscription for the same project with an affiliated party, effective segregation measures were taken.

Allocation Subscription

◽

Duplicated online subscriptions, by the fund/product that has participated in an offline inquiry and its affiliated accounts, have been prevented.

◽

The proposed subscription price, quantity and amount filled in for the fund/product have satisfied the regulatory indicators.

◽

The proposed subscription quantity has been determined by factors such as the fund/product’s asset scale before the inquiry and the day’s subscription and redemption activities, so that its total assets and cash assets meet the subscription requirements.

◽

Risk control indicators, such as the position and concentration of individuals and all products after allocation, and the proportion of illiquidity-restricted assets, have been calculated to ensure that the proposed subscription quantity and future shareholding of the fund/product comply with the laws, regulations and product contracts.

Compliance Management

◽

A sound compliance management policy has been established.

◽

A compliance review has been conducted on the participation in an IPO offline inquiry and allocation business, particularly, the following items have been subject to compliance review:

- Any affiliated relationship with the issuer or the lead underwriter of the project as defined by the rules

- Compliance of quotation and subscription behavior, and the absence of any violation of internal policies

◽

Regular or irregular compliance inspections have been conducted on matters such as the retrospective verification of objectivity and the prudence of quotations.

◽

An appropriateness self-examination is conducted once every six months, and the registration information of the offline investor and the funds/products under its management is updated in a timely manner.

◽

Information has been reported as required by SAC, including but not limited to affiliated parties, investors, financial conditions and investment operations.

Risk Management

◽

A sound risk management policy has been established, and the new stock inquiry business is integrated into overall risk management control.

◽

Verification modules have been set up in the risk control system.

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Risks that may arise in each business procedure are appropriately monitored, analyzed and identified.

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Necessary risk control measures are taken promptly and effectively to prevent and mitigate risks.

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Complete special business operational procedures have been established, and the operating procedures, job responsibilities and authority divisions are clearly defined.

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A four-eyes verification mechanism for important operational steps such as quotations, subscriptions and payments has been established.

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Performance risk assessment indicators for IPO stocks have been established to retrospectively verify the objectivity and prudence of quotations.

Subscription Funds

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Fund transfer approval procedures for subscription have been established.

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Sufficient reserve funds have been arranged according to the subscription plan, to ensure that funds are transferred into the settlement bank account within the prescribed time.

Business Training

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Sound business training has been established and improved.

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Targeted business training has been organized on a regular or semi-regular basis.

Communication Device Control

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A sound communication control policy has been established.

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It is prohibited to disclose valuation and pricing methods, parameters, and related quotation information before the conclusion of the inquiry period, or to inquire about, collect or disseminate such information of other offline investors.

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A communication device control policy has been implemented, with unified control on the communication devices of personnel with access to quotation information during trading hours on the inquiry day.

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Special arrangements have been made to prevent quotation information leakage for personnel with access to quotation information who are unable to comply with communication device control due to business travel, leave or other circumstances.

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Complete records of communication device control for personnel with access to quotation information, as well as other relevant materials have been retained for future reference.

Working Paper Archiving

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A sound working paper archiving system has been established.

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The system has been implemented with the relevant working papers archived for reference.

Personnel Management

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Stipulate in the internal policies and employment contracts the deferred payment of performance compensation or clawback for improper quotation behavior by pricing team members.

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Stipulate in the internal policies and employment contracts the performance compensation clawback for violations by pricing team members.

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Stipulate in the internal policies and employment contracts the internal accountability mechanisms for operational errors by trading personnel.

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A segregation mechanism for personnel and information has been established (including but not limited to, new stock pricing team member not concurrently serving as member of the new stock pricing team of an affiliated company).

1. Please refer to the Announcement on the Blacklist of IPO Placement Objects (No. 7 of 2016), https://www.sac.net.cn/wxtzz/tzjgg/zlcsgk/202305/t20230517_59924.html

Disclaimer

CSRC Issues Derivative Trading Administrative Measures

XIE,/Qing/(Natasha)、ZHANG,/Chi/(Austin)、LI,Muzhi — Tue, 26 May 2026 16:00:00 GMT

After a rulemaking process that lasted three years and involved three rounds of public consultation (in March 2023, November 2023 and January 2026), the China Securities Regulatory Commission (CSRC) promulgated the Derivative Trading Administrative Measures (Interim) (the Measures) on May 15, 2026. The Measures will take effect on November 16, 2026.

As the first departmental rule governing the derivatives industry under the supervision of the CSRC, the Measures establish a unified regulatory regime for derivative business conducted by securities and futures operation institutions, aiming to prevent risks in the derivatives market and promote its steady, sound and orderly development. Below are our observations on key provisions of the Measures.

I. Scope of Application

Pursuant to Article 2 of the Measures, the Measures only govern: (i) derivative trading and related activities organized by the derivative trading venues supervised by the CSRC; and (ii) derivative trading business and related activities conducted by the derivative operation institutions supervised by the CSRC.

The Measures shall not apply to the interbank market, or the OTC derivatives markets organized by banking or insurance financial institutions. That said, where banking or insurance financial institutions participate as traders in derivative trading, either on CSRC supervised derivative trading venues or with CSRC supervised derivative operation institutions, the Measures shall still apply.

II. Basic Principles and Prohibited Trading Activities

The Measures encourage the use of derivative markets for hedging and other risk management activities, support the development of derivative products that meet the risk management needs of medium- and long-term funds, and restrict excessive speculation in accordance with the applicable law. This principle has guided the entire rulemaking process of the Measures.

Consistent with the structure of the third consultation draft, the Measures no longer include a dedicated chapter on “prohibited trading activities”. Instead, Article 4 sets forth the basic principles applicable to all parties participating in derivative trading and related activities, namely, such parties shall observe the principles of fairness, voluntariness, consideration and good faith, and shall not commit, through derivative trading, any illegal acts or violations such as market manipulation, insider trading, trading on non-public information, non-compliant shareholding reduction or interest tunneling. No specific penalty provision is prescribed under this article. The Measures also remove the vague expression “no circumventing regulation”, which appeared in the first two consultation drafts, thereby avoiding an overly broad and ambiguous catch-all clause.

Compared with the third consultation draft, Article 16 of the Measures expands the scope of the prohibited underlying assets of derivative trading for some market participants. Specifically, for a listed company, shareholders holding 5% or more of its shares, its de facto controller, directors, supervisors, senior management and shareholders holding restricted shares, are prohibited from engaging in derivative trading with underlying assets consist of shares or any other equity-type securities issued by such listed companies.

This means that the prohibition extends beyond A shares, B shares and H shares issued by the listed companies, and also covers depositary receipts, exchangeable corporate bonds, convertible corporate bonds and other equity-type securities.

Article 16 also includes an exception for circumstances “otherwise provided by laws, administrative regulations or the CSRC”, reserving space for potential exemptions to be introduced in particular circumstances.

III. Aggregation of Futures and Derivatives Positions

Article 15 of the Measures provides that when implementing the position limit and large-position reporting for futures trading, futures exchanges may require that the derivatives contracts held directly or indirectly by a trader that link to the same or similar underlying assets shall be aggregated with the trader’s futures positions.

The Measures do not further define the specific criteria for “similar assets”, leaving room for futures exchanges to formulate detailed rules. It remains to be seen when the implementation rules will be issued by the futures exchanges.

IV. Aggregation of Shares and Derivatives Positions

In line with the third consultation paper, the Measures no longer retain the provisions in the first two consultation drafts requiring derivatives contracts referencing voting shares of a listed company to be aggregated with the trader’s directly and indirectly held shares, for the purpose of disclosure obligations or takeover-related activities.

We understand this removal reflects an intent not to restate content already addressed under the PRC Securities Law and other implementing rules. Even without an explicit provision in the Measures, exchanges may still require the aggregation of cash equity share positions and equity derivatives positions under the relevant rules for disclosure of equity interest.

V. Hedging Trading by Derivative Operation Institutions and Position Limit Exemptions

Article 34 of the Measures provides that where derivative operation institutions conduct hedging trading on securities or futures exchanges, they shall use dedicated hedging accounts and shall not conduct hedging trading directly based on clients’ instructions, and they shall comply with the rules of the securities or futures exchanges.

Securities or futures exchanges may provide necessary facilitation for the hedging trading conducted by derivative operation institutions, such as exemptions from position limits, and they shall place such hedging trading under close monitoring. Securities or futures exchanges may, based on the needs of monitoring, require derivative operation institutions to provide information about the counterparties, contracts and trading details of the derivative contracts relating to hedging transactions.

Compared with the third consultation draft, the final version deletes the requirement to submit information on the “trading purpose and trading strategy”, and only retains the requirements relating to “counterparties, contracts, and the trading details”. This suggests that the information which exchanges may require derivative operation institutions to report for monitoring purposes has become more objective and easier to standardize.

Article 34 reflects the CSRC’s regulatory approach towards hedging trading by derivative operation institutions: firstly, to prevent derivative operation institutions from acting merely as a “channel”; secondly, to recognize the legitimacy and necessity of derivative trading by allowing exchanges to grant position limit exemptions to derivative operation institutions as appropriate; and finally, while granting such facilitation, to emphasize trading monitoring and client see-through supervision.

Although the Measures do not directly apply to offshore derivative operation institutions, the underlying regulatory approach is consistent. Hedging transactions conducted by offshore derivative operation institutions should also be subject to the exchanges’ close monitoring and see-through supervision, highlighting the importance of the exchange-level frontline supervision.

VI. Net Capital and Personnel Requirements for Derivative Operation Business

Chapter IV of the Measures sets out internal control and risk management requirements. Building on the third consultation draft, the Measures add new administrative licensing conditions for securities companies and futures companies applying to conduct derivative operation business, including a requirement that their net capital remains no less than RMB 500 million on a sustained basis for the most recent six months. The Measures further provide that the CSRC may adjust the minimum net capital requirement in accordance with prudential regulatory principles, reserving the authority to impose higher requirements where necessary.

In addition to the net capital threshold, the Measures also require derivative operation institutions to have professional staff commensurate with their derivative trading business. The required relevant work experience for senior management in charge of derivative trading business has been reduced from five years (as set out in the third consultation draft) to three years.

Consistent with the third consultation draft, the definition of derivative operation institutions under Article 55 of the Measures does not include risk management subsidiaries of futures companies. This aligns with the regulatory trend reflected in the Administrative Measures for the Supervision and Administration of Futures Companies (Consultation Paper) issued by the CSRC in April this year, under which derivatives business is expected to be migrated from risk management subsidiaries to direct licensed operation by futures companies. This also imposes heightened compliance expectations on futures companies engaging in derivatives business going forward.

VII. Extraterritorial Application

Article 53 of the Measures follows the approach adopted in the third consultation draft. It no longer requires offshore derivative operation institutions that conduct derivative trading offshore, but hedging onshore, to directly comply with the provisions of the Measures. Instead, it provides that where a derivative operation institution conducts derivative trading offshore and its hedging transactions occur onshore, the CSRC will strengthen regulatory cooperation with the relevant overseas regulatory authorities in accordance with the law.

Similarly, we believe that the exchange-level frontline supervision will also play an increasingly important role in cross-border trading scenarios.

VIII. Transitional Period

The Measures provide for a six-month transitional period and will take effect on November 16, 2026. Pursuant to the CSRC’s Drafting Statement, from the effective date, all entities conducting derivative trading and related activities shall comply with the Measures. For businesses that do not comply with the Measures, no new business may be conducted, while the existing business may continue and will be wound down upon maturity.

Disclaimer

Reshaping the Industry and Upgrading the Regulations - An Overview of the New Draft Administrative Measures for the Supervision and Administration of ...

XIE,/Qing/(Natasha)、ZHANG,/Chi/(Austin)、Yongze/LI — Thu, 07 May 2026 16:00:00 GMT

In April 2026, the China Securities Regulatory Commission (CSRC) issued the Administrative Measures for the Supervision and Administration of Futures Companies (Consultation Paper) (the “New Draft”) and its implementation provisions for public consultation. This revision further refines the draft for consultation issued in 2023 (the “2023 Draft”). It aims to implement the Futures and Derivatives Law and the overall requirements set out by the Central Financial Work Conference regarding strengthening regulation, preventing financial risks, and promoting high-quality financial market development. This New Draft not only represents a technical update of the existing regulatory framework but also signals significant restructuring of the whole futures industry.

Our analysis of the key aspects of the New Draft is set out below.

I.Re-establishment of a Business Classification Management Framework

The New Draft introduces tiered capital requirements for futures companies through a classification of businesses. Different types of businesses are subject to differentiated minimum registered capital and net capital thresholds, which increase progressively with the complexity of business activities. The relevant requirements are summarized as follows:

Type	Business Scope	Minimum Registered Capital
Primary Businesses	Domestic futures brokerage	Not less than RMB 100 million
Primary Businesses	Domestic futures brokerage and futures trading advisory	Not less than RMB 200 million
Trading Related Businesses	Futures market making	Not less than RMB 500 million for one trading business; not less than RMB 1 billion for two or more trading businesses
	Derivatives trading
	Futures asset management

With respect to the application for additional business lines, the New Draft requires futures companies to maintain the applicable net capital thresholds over the preceding six months. Specifically, where a company applies to add primary businesses, one trading related business, or two or more trading related businesses, its net capital shall have been no less than RMB 200 million, RMB 500 million, or RMB 1 billion, respectively. Each application may only cover one additional business, and there shall be an interval of no less than six months between successive applications. Additional requirements are also imposed with respect to staffing, track record of continuous operation, etc.

Compared with the 2023 Draft, the New Draft removes references to futures margin financing business and futures proprietary trading and further clarifies that proprietary funds of futures companies shall not be invested in unlisted stocks, equities or non-standard debt assets, thereby strengthening compliance boundaries for the use of proprietary funds.

II.Re-centralisation of Financial Businesses from Subsidiaries to Parent Companies

Consistent with the 2023 Draft, one of the key adjustments under the New Draft is the reallocation of permissible business activities, i.e., both futures market making and derivatives trading businesses, which were previously allowed to operate by the risk management subsidiaries of futures companies under the self-regulatory oversight of the China Futures Association, must be brought under the direct operation of futures companies and be subject to administrative licensing and ongoing regulatory supervision thereof.

In terms of operational requirements, the New Draft requires futures companies to establish dedicated departments for conducting futures market making business, and to ensure strict segregation from other businesses such as futures brokerage, futures trading advisory and futures asset management in terms of the personnel, capital, trading seats and accounting. Although the New Draft does not provide a separate chapter for derivatives trading business, we expect that regulators may require similar segregation and management arrangements for derivatives trading business, but this is still pending further clarification from the regulators.

With respect to transitional arrangements, where futures companies or their domestic subsidiaries had already been conducting relevant businesses prior to the implementation of the New Draft, these companies or their domestic subsidiaries may apply for the relevant business qualifications within twelve months of the effective date without being subject to the restriction that “only one type of business may be applied for each time with an interval of no less than six months”. In addition, a transition period of eighteen months is provided for subsidiaries that have already engaged in such businesses, during which they are required to gradually cease operations of such businesses.

III.Strengthening See-through Supervision of Shareholding and Enhancing Corporate Governance

With respect to corporate governance, the New Draft significantly enhances see-through supervision over shareholders and de facto controllers. Futures companies are required to fully disclose their shareholding structures, including de facto controllers, ultimate beneficial owners, and any affiliated relationship or concerted action arrangements, thereby improving transparency.

In terms of financial requirements, the New Draft raises the thresholds for major shareholders and de facto controllers. The minimum net assets requirement for major shareholders is increased from “not less than RMB 100 million” in the 2023 Draft to “not less than RMB 200 million,” and it is further specified that the largest shareholder, controlling shareholder and de facto controller shall each have net assets of no less than RMB 1 billion.

In addition, the New Draft explicitly prohibits cross-shareholding and circular shareholding arrangements, and continues to adopt the “one participation, one control” principle, limiting the number of futures companies that may be held or controlled by the same entity. Furthermore, by setting out a “negative list” for shareholder conduct, which includes interference with company operations, misappropriation of assets, or exercising management power through informal means, the New Draft aims to mitigate governance risks and safeguard client assets and the independence of company operations.

IV.Further Regulation of Asset Management Business

With respect to asset management business, the New Draft introduces proportional limits and investment restrictions to guide futures companies back to their core derivatives-related functions and to curb “channel business” practices. Specifically, the net scale of funds raised under futures asset management plans established by a futures company shall not exceed five times the net scale of funds raised under its futures and derivatives asset management plans. In addition, such asset management plans are prohibited from investing in unlisted stocks, equities or non-standard debt assets. The New Draft also requires that other types of asset management plans shall reasonably utilize futures or derivatives instruments for risk management purposes, thereby reinforcing the professional role of futures companies in risk hedging and price discovery. These requirements reflect the regulatory intention to enhance the role of futures companies in serving the real economy, rather than purely relying on channel-based business models for revenue generation.

V.Strengthening Supervision of Subsidiaries and Branches

In response to issues such as overly complex multi-level structures and unclear business boundaries of futures company subsidiaries, the New Draft further strengthens supervision over subsidiaries and branches of futures companies. A futures company shall have maintained net capital of no less than RMB 500 million over the preceding six months to establish a domestic subsidiary, and no less than RMB 1 billion to establish an overseas subsidiary. In terms of organizational structure, domestic subsidiaries are prohibited from establishing further subsidiaries, while overseas subsidiaries are, in principle, permitted to only establish one tier of subsidiary beneath it, to prevent excessive layering.

For branch offices, the New Draft imposes ongoing compliance requirements with respect to staffing, business premises, IT systems, and internal control policies, and emphasizes that branches shall not operate beyond their authorized scope, ensuring that their operations remain within a unified regulatory framework.

VI.Impact and Outlook

Overall, the New Draft provides a regulatory foundation for futures companies to expand into market making, derivatives trading and asset management businesses, thereby facilitating business diversification. At the same time, the higher capital thresholds and ongoing regulatory requirements will significantly increase compliance costs and operational pressure on futures companies. At the industry level, as futures companies transition from traditional brokerage-focused models to comprehensive financial service providers, they will need to make sustained investments in research capabilities, product developing and technological infrastructure in order to adapt to a more complex market and regulatory environment.

The CSRC has included the New Draft as a key legislative priority in its 2026 legislative plan, aiming for its promulgation within the year. This New Draft largely reflects the regulator’s intended direction for restructuring the industry, and we expect it will be promulgated shortly following this round of consultation.

We will continue to monitor relevant developments and keep our clients informed.

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