Translator：Jiang Wenyu

 

Asset Management Association of China (hereinafter referred to as AMAC or the Association) issued the Notice on Matters related to strengthening the self-regulation of abnormal business institutions (hereinafter referred to as the "Notice"), which is numbered as No. 37 of AMAC [2022], on January 30, 2022, to refine and clarify the abnormal operation exit mechanism of private fund managers.

 

The logic of the whole process and life cycle supervision system and self-regulation of private equity funds is becoming clearer and clearer, with registration and filing as the core pre-regulation, risk monitoring and disposal as the core mid-regulation, and self-inspection and disciplinary cancellation as the post-regulation.

 

The only way for the private equity institutions that are not included in the abnormal list is to abide by the original intention, practice internal skills, and do the "compliance work" according to the requirements, in order to be stable and make a long way forward.

 

In view of this, Zhao Yuanzhen lawyer team of Shanghai Landing Law Offices (Beijing) has spent two months to prepare the " The Q&As Manual for Private Equity Institutions with Abnormal Operation ", which combines the spirit of the Notice and provides answers to the questions of "entry" and "exit" of abnormal operating institutions, and resolves the following issues.

 

On June 20, 2022, the professional legal information database Wolters Kluwer first invited Zhao Yuanzhen lawyer team to put the The Q&As Manual for Private Equity Institutions with Abnormal Operation " online on the "Financial Compliance Practice Module" of Wolters Kluwer first.

 

The Q&As Manual is divided into eight parts, with the first part answering questions related to the issuance of the Special Legal Opinion, the second to seventh parts answering questions related to the first to seventh types of abnormal institutions in the Notice of the Association, and the eighth part being the original text of the Notice. The Q&As Manual contains 100+ high-frequency FAQs of private fund managers, and from the perspective of the Notice and the relevant self-regulatory rules of the Association, it provides comprehensive answers to the private fund managers' questions on the operation of abnormal institutions, which plays an important role in guiding the private fund managers and relevant practitioners.

 

01

Table of Contents of the Q&As Manual

 

 02

Content excerpts

 

Excerpts from Category 2 Q&As for Category 1 Operationally Abnormal Institutions

 

The first category of abnormal institutions is not a new "shortlisted" member of abnormal institutions, but has been clearly defined in the Announcement issued by the Association as early as 2018, and strict institutional arrangements have been made.

 

This type of organization is the first to be cleared. While the exit mechanism is the most stringent, there is almost no option to stay or out.

 

The situation of such institutions and disposal mechanism appears to be very necessary. How can the institutions engage in private equity, without understanding the bottom line the boundaries?

 

Keep the bottom line, recognize the boundaries, upward development!

 

Q: What situations will be recognized as the first category of abnormal institutions in the Notice?

 

A：According to the Announcement, an institution and its legal representative, senior management, actual controller or major contributor will be recognized as the first category of operating abnormal institutions when the following circumstances occur, which may affect the institution's continued compliance with the registration requirements:

 

 (i) Being investigated by the public security, procuratorial and supervisory authorities.

 

 (ii) Classified as a serious defaulter by the administrative authorities and as an executor for breach of trust by the People's Court.

 

 (iii) Being given administrative penalties by the securities regulatory authorities or being given self-regulatory sanctions by self-regulatory organizations such as exchanges under serious circumstances.

 

 (iv) Refusing or obstructing the supervisory personnel or self-regulatory management personnel to exercise their supervisory and inspection or investigation powers or self-regulatory inspection powers in accordance with the law.

 

 (v) For serious violations of the law, the securities regulatory authorities recommended to the Association to take self-regulatory measures.

 

(vi) repeatedly receiving real-name complaints from investors, suspected of violating laws, regulations and self-regulatory rules, infringing upon the legitimate rights and interests of investors, and failing to reasonably explain the matters under complaint to the Association and investors.

 

 (vii) The operation process of the "private equity fund registration and filing Q&As XIV" of the provisions of the non-registration of the situation.

 

 (viii) Other serious violations of laws and regulations and the relevant provisions of the Self-Regulation Rules such as the Guidelines for Internal Control of Private Fund Managers, out of control of operation and management, with significant risks and damages to the interests of investors.

 

 In order to prevent this type of business situation, Jinzhu Private Equity suggests that you make preparations in advance and look for a professional private equity service team for consultation to avoid legal risks.

 

Q: What is the difference between the handling measures for the first category of abnormal institutions and those for other situations?

 

A: The first category of abnormal institutions is a more serious business abnormality, and the Announcement makes it clear that it is "mandatory" to issue a special legal opinion, and the Association will send a written notice requesting the issuance of a special legal opinion.

 

If the institution does not issue the written notice after receiving the notice, it will be forcibly canceled, and if the written notice of the association cannot be delivered, it will be recognized as a lost organization.Moreover, such institutions do not have the right to cancel voluntarily.

 

 

Q: Under what conditions will the private fund managers be recognized as out-of-connection institutions by the Association?

 

 A: According to the Notice on Establishing the Publication System for "Out-of-connection (Abnormal)" Private Equity Institutions, a fund manager will be recognized as an "out-of-connection (abnormal)" private equity institution by the Association if it successively triggers the following conditions:

 

 (1) The fund manager cannot be contacted by the telephone number reserved in the private fund registration and filing system, and the association has not responded to the notification by email or SMS within a limited period of time.

 

 (2) The Association issues a "lost contact announcement" through its website to urge the relevant institution to take the initiative to contact the Association, and the institution still fails to contact the Association within 5 working days after the announcement is issued.

 

 If a private fund manager fails to answer the Association's call in a timely manner, the private fund manager should pay attention to the e-mail address reserved in the AMBERS system and reply to the Association within the time specified in the e-mail.

 

 If it fails to reply to the Association within the designated time, it should pay timely attention to the announcement issued by the Association on its official website.

 

 If a private equity institution fails to contact the Association within 5 working days after the announcement is made, it will be recognized as a "lost (abnormal)" private equity institution.

 

Jinzhu Private Equity reminds you that compliance details should not be overlooked, and suggests that a fixed compliance officer should be responsible for answering phone calls, checking e-mails at a fixed time, and paying attention to the public information of the organization in a timely manner, so as to avoid being recognized as an out-of-connection organization.

 

Q: Will the private fund manager be recognized as an out-of-connection institution and will it be publicized on the information disclosure platform?

 

 A: Yes.

According to the Notice on Establishing the Publication System for "Out-of-connection (Abnormal)" Private Equity Institutions, the Association will publicize the information in the "Private Equity Fund Manager Classification Publication" column of the official website, and at the same time, it will also be marked in the private equity fund manager's institutional integrity information publicity.

 

 

 Q: How should a private fund manager recognized as out-of-connection be rectified to be removed from the Association's list of out-of-connection institutions?

 

 A: If a private fund manager takes the initiative to contact the Association within three months and provides relevant information and explanation as required, the private fund manager can be removed from the list of "out-of-connection (anomalous)" institutions upon the Association's consent.

 

Further, the out-of-connection fund manager should judge what kind of situation belongs to the Notice according to its own situation, and provide the Association with the materials required by the corresponding situation within 3 months from the date of being included in the list of "out-of-connection (abnormality)".

 

As the consequences of being persistently out of contact are serious, it is recommended to seek professional support from private equity compliance experts as soon as possible to assess the risks of entering and exiting the market, and to contact the Association as soon as possible to apply for removal from the list of out-of-contact organizations.

 

Q: What are the consequences if a private fund manager recognized as out-of-connection fails to contact the Association in time to rectify the situation?

 

A: If a private fund manager is included on the "lost (abnormal)" list and does not take the initiative to contact the association and provide effective supporting materials within three months, the association will cancel the registration of the private fund manager, record the "lost (abnormal)" situation in the integrity file of the organization, and report to the China Securities Regulatory Commission (CSRC).

 

 Q: Will the special legal opinion be publicized?

 

 A: It may be publicized.

 

According to the Announcement, if the abnormal operation of a private fund manager affects the judgment of potential investors or involves the public interest, the written notice of the Association, the explanation of the private fund manager and the special legal opinion submitted will be publicized on the website of the Association.

 

Any organization does not want to be published by the Association of special legal opinion, therefore, no "abnormal" is the operating limit of private equity institutions.

 

Private equity lawyers suggest that knowing the bottom line of compliance, eliminating the possibility of "abnormality" and choosing a professional compliance team will make your operation much easier.

 

Zhao Yuanzhen team from Shanghai Landing Law Offices (Beijing) will continue to release a special manual on the in-depth interpretation of the new regulations in the field of private placement with the professional concept of sharing and advancing together, and we hope that you will continue to pay attention to this manual.