Much excitement has been generated by recent developments towards the launching of Wealth Management Connect, a pilot scheme that allows residents in the Greater Bay Area to invest in eligible investment products distributed by banks across the border.
The huge potential of this latest financial innovation to facilitate greater co-operation and interaction between Hong Kong, Macau and Guangdong province is highlighted by the fact that three of the top ten cities with the most number of entrepreneurs with US$1 billion of assets – Hong Kong, Shenzhen and Guangzhou – are located in the GBA, according to a report by Hurun Research Institute.
“The upcoming Wealth Management Connect scheme is aimed at facilitating cross-border flows of capital and accommodating GBA residents' growing demand for cross-boundary wealth management and investment services,” says Daniel Tang, partner at law firm Withers.
The scheme, once implemented, is expected to further open the floodgates for cross-border money flows. Residents of the nine GBA cities in Guangdong, for example, are estimated to have combined annual savings of US$567 billion, while those in Hong Kong and Macau hold about US$119 billion, a recent Deloitte report finds, adding that current connectivity schemes account for less than 10% of the total of US$686 billion.
Chinese regulators tend to take their time in rolling out implementing rules and regulations concerning new financial schemes, but so far developments towards establishing the Wealth Management Connect scheme are gathering momentum. Last month, regulators in the GBA signed a memorandum of understanding (MoU) to pave the way for its launch.
“The MoU covers the principles of supervisory co-operation among authorities in the three jurisdictions under the Wealth Management Connect Scheme, such as law enforcement cooperation, regulatory information exchange, investor protection, liaison and consultation scheme,” says Tang.
So far, however, the regulatory structure being cobbled for the scheme appear somewhat conservative for some industry players. “There are limitations to the type and amount of investments by individuals under the Wealth Management Connect scheme. Not only are investments restricted to low- to medium-risk funds and non-complex products, individuals are also subject to a quota, which is presently not specified. These would limit the scope of investment products available and restrict the opportunities for wealth management businesses,” says Tang.
He says further requirements or restrictions are likely to be added to the rules to minimize risks.
Such concerns notwithstanding, Tang advises financial institutions and enterprises to lose no time in seizing the emerging opportunities: “Despite the policy and regulatory uncertainty, companies should begin to consider which city best aligns with their investment strategies and the range of government incentives and policies applicable to their industries. At the same time, companies should bear in mind ways to limit exposure to financial sanctions and develop enhanced work systems and controls.”