The release of the "One Map Pass" for the registration and filing of private equity funds and changes in business further enhances regulatory transparency

LABEL： Private Equity & Funds ,

Recently, the China Securities Investment Fund Industry Association ("CICA") released the "Private Fund Registration and Filing Dynamics (2024) Issue 1" ("Filing Dynamics") and the "One Map of Business Process for Changing Registration Information of Private Fund Managers" and supporting instructions ("One Map of Change Process"). Among them, the "Filing Dynamics" aims to enhance the transparency of private fund registration and filing, which is a major measure taken by regulators to meet the urgent needs of the market. It focuses on the latest practices of private fund registration and filing, and strives to analyze common, typical, hot, and difficult issues in practice; The "One Map of Change Process" is based on the "Registration Business Process of Private Fund Managers" released in April 2024, and provides a detailed introduction to the process of major changes. The Fund Industry Association has released two "One Map" business processes, fully demonstrating the Association's efforts to reduce information asymmetry, improve regulatory transparency and service levels, and guide private equity institutions to strengthen implementation and supervision of rectification.

It should be noted that the release of the "Record Dynamics" and "Change Process One Map" did not add new regulatory requirements or registration thresholds. Their focus is on responding to industry concerns and integrating fragmented information, aiming to "clarify standards, promote communication, and improve services".
1、 The main content and analysis of "Change Process One Diagram"

The "Change Process One Diagram" released this time is divided into three parts, namely the business process diagram of private fund manager registration information change ("Change Process Diagram"), the business description of private fund manager registration information change ("Business Description"), and the introduction of the change process ("Process Introduction").

The change process diagram is marked in orange, yellow, and red to indicate the various procedures processed by the AMBERS system, the employee system, and the fund industry association. It distinguishes between three types: "basic information changes," "significant information changes," and "actual control changes." The three major processes of preparing change materials, submitting change materials, and handling by the fund industry association are explained and prompted in detail, with clear and concise content, which can effectively respond to procedural issues before and after private equity institutions handle them.

The business description specifies the basis and rules for handling the registration information change business of private fund managers, the processing channels, fee standards (free of charge), processing time limits, and supervision and complaint channels. It also publishes the hotline for anti-corruption reporting by the Discipline Inspection Commission of the Fund Industry Association and the email for reporting illegal and disciplinary violations by staff.

The process introduction provides detailed explanations of the three major processes involved in the change process diagram, including submission deadlines and material requirements, information and material submission methods, consultation channels, and other important matters scattered in various regulations or notices, for the convenience of private equity institutions to view together.
2、 Main content and analysis of "Filing Dynamics"

This "Filing Update" focuses on three key registration issues for private fund managers: "providing false registration materials", "financial and operational status of controlling shareholders and actual controllers", and "professionalism of controlling shareholders, actual controllers, and executives". There are six major cases, and the Fund Industry Association has also provided analysis and explanations after each case, as follows:
（1） Typical cases of providing false registration materials

The Fund Industry Association has always taken a strict stance against false information and forged materials, and relevant regulations also clearly stipulate the serious consequences of violating the principle of good faith. "Case 1: Falsifying Executive Resume and Investment Performance Materials" ("Case 1") demonstrates the Fund Industry Association's "zero tolerance" regulatory attitude towards fraudulent behavior, aiming to warn a small number of speculators not to have a lucky mentality.

In Case One, Company A intends to register as a senior executive responsible for investment. He has actually served as an administrative assistant in Company B for three months without participating in investment business and has declared himself as an investment manager for at least five years. He has also forged employment certificates, project due diligence reports, investment decision documents, and social security payment records through image synthesis technology. In response to the aforementioned situation, the Fund Industry Association has decided to terminate the registration of A Company's private fund manager in accordance with the provisions of the "Registration and Filing Measures for Private Investment Funds" (the "Registration and Filing Measures"), and take corresponding self-discipline management or disciplinary measures against the controlling shareholder, actual controller, legal representative, executives, law firms, and handling lawyers, including:

The controlling shareholder, actual controller, legal representative, responsible senior management personnel, and directly responsible personnel (Party A) of Company A shall be prohibited from serving as the controlling shareholder, actual controller, general partner, major investor, or corresponding senior management positions of the private fund manager for a period of three years;

For the main responsible personnel of Company A, the Fund Industry Association has taken the measure of not accepting the registration of fund industry qualifications within 3 years in accordance with Article 37 of the Fund Industry Personnel Management Rules;

For lawyers and law firms who fail to fulfill their duty of prudent verification in the registration of legal business with private fund managers, and whose documents contain false records, misleading statements, or significant omissions, the Fund Industry Association shall take measures such as holding talks, issuing written warnings, or refusing to accept documents issued by the lawyers or law firms in accordance with regulations, and publicize them on the official website.

（2） Typical cases regarding the financial and operational status of controlling shareholders and actual controllers

There are two cases under this category of issues, namely "Case 2: Controlling Shareholders and Actual Controllers Do Not Have Good Financial Conditions" ("Case 2") and "Case 3: Controlling Shareholders Have Poor Financial Conditions and Irregular Operations" ("Case 3"), mainly targeting the financial and operational situations of controlling shareholders and actual controllers, aiming to prevent risks from other fields from being transmitted to the private equity fund field and protect the legitimate rights and interests of investors. Among them:

In Case 2, the controlling shareholder and actual controller of Company A, Company B, has debts of several billion yuan, and financing methods include bank loans, bonds, non-standard financing, etc. The asset liability ratio is high, and the asset profitability is low. The daily operating income is insufficient to cover the debt cost. Regarding the situation where the controlling shareholder and actual controller have large debts, high asset liability ratio, and insufficient operating income to pay for debt costs, the Fund Industry Association has made a comprehensive judgment that it does not comply with the provisions of Article 9, Paragraph 1, Item 2 of the Registration and Filing Measures. It is determined that the shareholder does not have a good financial condition, appropriate asset liability and leverage ratio, and does not have the ability to continuously supplement capital that matches the operating conditions of the private fund manager. Therefore, the Fund Industry Association has decided to terminate the registration of the private fund manager of Company A in accordance with the provisions of the Registration and Filing Measures.

In Case Three, the controlling shareholder B Group of applying institution A not only has a debt of over one billion yuan and a high asset liability ratio, but also has significant abnormal financial transactions between shareholders and related parties. The Fund Industry Association has determined that B Group's financial condition is poor, there are many related parties, and the equity relationship is complex, resulting in conflicts of interest and risks of interest transmission. In addition, in the case analysis of "Case Three", it was mentioned that the Fund Industry Association "learned through interviews that the applying institution intends to provide financial support to construction projects controlled by its group through private equity funds, which may violate the provisions of Article 9, Paragraph 1, Item 4 of the" Several Provisions on Strengthening the Supervision of Private Equity Investment Funds "that" use private equity fund assets to directly or indirectly invest in private equity fund managers, controlling shareholders, actual controllers, and their actual controlled enterprises or projects ", and there is a significant self financing risk". Accordingly, the Fund Industry Association has decided to terminate the registration of A Company's private fund manager in accordance with the provisions of the Registration and Filing Measures.

Case Two and Case Three are typical cases mainly targeting the financial and operational situations of controlling shareholders and actual controllers themselves. We understand that the Fund Industry Association will make a comprehensive judgment based on the relevant provisions of the Registration and Filing Measures, combined with the financial and operational status of the shareholders of the applying institution, regarding whether the liabilities and operational status of the controlling shareholder and actual controller of the applying institution may substantially affect the sustainability and compliance of the applying institution's future business development.
（3） Typical cases of professionalism for controlling shareholders, actual controllers, and executives

Regarding this type of issue, the Fund Industry Association has compiled three typical cases for market reference, namely "Case Four: Special Purpose Vehicles as Controlling Shareholders" ("Case Four"), "Case Five: Experience Requirements for Actual Controllers of Natural Persons" ("Case Five"), and "Case Six: Professional Recognition of Executives" ("Case Six"). Among them:

Case Four mainly focuses on the question of whether special purpose vehicles can serve as controlling shareholders

In Case Five, the controlling shareholder of the applying institution A is B Limited Partnership Enterprise, which has not engaged in any business activities since its establishment and only serves as a holding platform for relevant investors and senior executives of the applying institution. Due to the controlling shareholder's lack of experience in operating, managing, or engaging in asset management, investment, related industries, etc., the Fund Industry Association has requested the institution to return and make corrections in accordance with the provisions of the Registration and Filing Measures.

According to Article 9, Paragraph 1, Item 3 of the Registration and Filing Measures, the controlling shareholder, actual controller, and general partner serving as a private fund manager shall have at least 5 years of relevant experience in operating, managing, or engaging in asset management, investment, related industries, etc. Some applying institutions simply understand this provision as being satisfied after 5 years of establishment, ignoring the experience requirements for "operating, managing, or engaging in asset management, investment, and related industries".

Case Five mainly focuses on the issue of experience requirements for the actual controller

According to Article 10, Items 3 and 5 of the "Guidelines for Registration of Private Equity Fund Managers No. 2" (Guideline No. 2), if the actual controller of a private equity fund manager is a natural person, relevant experience includes engaging in equity investment or serving as senior management personnel in a private equity fund manager. The private equity fund manager they serve should operate normally, comply with regulations and be stable, and have no major records of illegal or irregular activities during their tenure; Serve as the head of the equity investment management department, senior management personnel, or have equivalent management experience in a well functioning, compliant and stable enterprise with a certain scale of operation.

In Case Five, although the actual controller of Company A, Mr. A, had previously served as a senior executive in Company B and Company C, during his tenure as a senior executive in Company B, there were significant violations of laws and regulations by Company B, which did not meet the requirements of "a private fund manager should operate normally and be compliant and stable"; From the perspective of investment scale and profitability, Company C, where Mr. A works, does not meet the criteria of being a "well functioning, compliant and stable enterprise with a certain operating scale". Therefore, Mr. A's work experience as a senior executive in Company B and Company C does not meet the experience requirements for serving as the actual controller, as the compliance and operating conditions of Company B and Company C do not comply with the requirements of Guideline No. 2.

Case Six mainly focuses on the issue of professional recognition of senior executives of private equity securities fund managers

Company A intends to register as a private securities fund manager. Although its legal representative, Mr. A, has worked for private securities fund managers B and C in the past two years, he has not engaged in investment management or held executive positions during his tenure at Company B; During my tenure at Company C, the company's management scale was relatively small, consistently below 30 million yuan, and its financial condition was poor, all of which did not meet the relevant regulatory requirements. The general manager of Company A, Mr. B, had previously worked at Bank D, but his business was interbank fund lending, which was unrelated to securities investment management and did not comply with relevant regulations. Therefore, the Fund Industry Association has determined that the relevant work experience of these executives does not meet the requirements of the relevant guidelines and has terminated the registration of Company A.

The professional certification materials of senior executives are one of the core materials in the registration application materials of private fund managers. Since the promulgation of the "Registration and Filing Measures", many application institutions have doubts about the preparation of experience materials for senior executives, especially those responsible for investment. "Case Four", "Case Five" and "Case Six" have to some extent answered the key issues of market concern and made the professional standards for senior executives clearer.

Based on the above three typical cases, we can see that the Fund Industry Association is trying to take various measures to enable the industry to timely and accurately grasp the latest registration and filing situation and business standards, correctly understand policy intentions and self regulatory guidance, and continuously improve regulatory transparency. The "Record News" has been permanently posted on the official website of the Fund Industry Association under the "Institutional Registration and Product Filing" column in the "Service Hall". We believe that in the future, this column will become an important window for the Fund Industry Association to improve the transparency of private fund registration and filing business supervision and industry satisfaction, providing strong demonstration and guidance for the standardized and healthy development of the private fund industry and market participants.