Policy Interpretation | Overview of the Content of the Regulations on the Supervision and Administration of Private Equity Investment Funds

introduction

On July 9, 2023, the "Regulations on the Supervision and Administration of Private Equity Investment Funds" (referred to as the "Regulations on Private Equity") were officially released and will be implemented from September 1. After ten years of careful refinement (starting from 2013), this regulation marks the first time that China's private investment fund industry has had administrative regulations. The release and implementation of the Private Equity Regulations have greatly improved the legislative level of private equity fund regulation, filling the upper legal gap of the China Securities Regulatory Commission and the Fund Industry Association in regulating private equity investment funds. This means that the top-level design of China's private equity investment fund industry regulatory system has been preliminarily completed.

The Private Placement Regulations include seven chapters, totaling 62 articles. On the basis of departmental regulations and self-discipline rules such as the "Interim Measures for the Supervision and Administration of Private Equity Investment Funds" (hereinafter referred to as the "Interim Measures") and the "Registration and Filing Measures for Private Equity Investment Funds" (hereinafter referred to as the "Registration and Filing Measures"), this regulation clearly defines the concept of private equity funds and further stipulates the qualification requirements and product operation rules for private equity fund managers, And strengthened the means and paths of accountability for illegal and irregular behaviors. The highlights of each chapter include:

The General Provisions section of Chapter 1 provides a clear framework and guiding principles for the entire regulation, highlighting the importance of fairness, impartiality, honesty, and information disclosure, which is crucial for protecting the rights and interests of investors and maintaining the stability of financial markets. Private investment funds in different organizational forms, such as contractual, corporate and partnership, are included in the scope of application. It is stipulated that raising funds in private, establishing investment funds or legally establishing companies and partnerships for the purpose of investment activities, managed by private fund managers or General partner, and investing for the interests of investors are all applicable to the Private Placement Regulations, Emphasized the definition or characteristics of private investment funds.

Chapter 2 starts from the perspective of private fund managers and conducts core management. The management requirements are detailed from the perspectives of the manager's corporate nature, shareholder qualifications, filing methods, scope of responsibilities, violations, business requirements, and information disclosure. Detailed regulations have been established for the management and custody of private equity funds, with the aim of ensuring their normal operation and protecting the rights and interests of investors. The requirement for information disclosure helps to improve market transparency.

Chapter 3 focuses on regulating the fundraising and investment operation of private equity funds, with further refinement and concretization of core requirements. Emphasizing that private equity funds must adhere to the bottom line of the qualified investor standard, which cannot be broken through in any form. For a single project investment, if multiple funds managed by the same manager invest in the same project, the number of private fund investors should also comply with the limit, that is, the total number of private fund investors for all funds cannot exceed 200. This regulation covers the entire process of "fundraising, investment, management, and exit" for private fund products, and manages the entire cycle of private fund management to ensure that the operation of private fund is more lawful.

Chapter 4 promotes differentiated management to promote innovative development. Provide policy support for venture capital funds, guide them to invest in growth and innovative enterprises, and encourage long-term capital flow to venture capital funds. For this reason, this chapter stipulates to design "differentiated" supervision for venture capital funds that dominate long-term investment, Value investing and technology transformation, and to facilitate investment exit. Develop special regulations for venture capital funds in private equity investment funds that focus more on early projects, simplify registration and filing procedures, and attract more market funds to invest in "deep technology, hard technology". Faced with the financing difficulties of venture capital funds, the market is looking forward to more supportive policies and differentiated management measures.

Chapter 5: This chapter clarifies the regulatory body of the private equity investment fund industry for the first time through administrative regulations, establishes the legal status of the industry regulatory department of the China Securities Regulatory Commission, and enriches the types of administrative measures that the China Securities Regulatory Commission can take to carry out its supervisory and management responsibilities. These regulations have broadened regulatory measures and clarified legal responsibilities. This will help to strengthen supervision and management of the private equity fund industry at a higher level, ensuring market order and the legitimate rights and interests of investors.

The sixth chapter of the regulations clarifies the legal responsibility for illegal acts and increases the intensity of punishment. The provisions of Chapter 6 implement a dual punishment system, which simultaneously penalizes illegal institutions, their directly responsible supervisors, and other directly responsible personnel. Compared to the Provisional Measures, the amount and upper limit of fines for specific illegal matters have also been increased.

Chapter 7 clarifies the implementation date and interpretation power of the regulations, providing a legal basis for their implementation.

The impact of private placement regulations

Private equity funds have played an important and positive role in serving the real economy, supporting entrepreneurship and innovation, increasing the proportion of direct financing, and serving residents' wealth management. In recent years, China's private equity funds have developed rapidly. As of May 2023, there are 22000 private equity fund managers registered in the Asset Management Association of China, with 153000 managed funds and a fund scale of about 21 trillion yuan. The scale of private equity funds has been equivalent to that of public funds. The promulgation of the "Regulations on the Supervision and Administration of Private Equity Investment Funds" has undoubtedly marked a milestone in the legal development history of private equity investment funds in China, and its impact is far-reaching.

Impact 1: Upgrade the legal system of private equity funds and clarify key industry issues

For a long time, the private equity fund industry has been plagued by insufficient legal basis and relatively inadequate regulatory and enforcement measures. The issuance of the Regulations on the Supervision and Administration of Private Investment Funds has supplemented a missing link in the past legal system of the industry, making the private investment fund industry have a perfect legal system from the upper law, namely the Investment fund Law, to the middle Regulations, to the rules of the CSRC, namely the Interim Measures for the Supervision and Administration of Private Investment Funds, to the self-discipline rules of the fund industry association.

In the past, there has been a dispute over whether the Investment fund Law can be applied to private equity funds investing in the equity of unlisted enterprises, especially private equity funds of companies or partnerships. In response to this critical issue, the Regulations have made clear adjustments to private securities funds and private equity funds with different organizational forms such as contractual, corporate, and partnership, responding to previous controversies over this issue and resolving the issue of insufficient legal basis for private equity funds, making the legal logic clearer.

Impact 2: Enriching in-process and post event regulatory methods to further improve the regulatory system

The Regulations specify that the China Securities Regulatory Commission may take measures such as on-site inspection, investigation and evidence collection, account inquiry, and access, copying, sealing, and storage of relevant materials; If a private fund manager is found to have violated laws and regulations, measures such as ordering suspension of business, changing personnel, mandatory auditing, and taking over can be taken in accordance with the law, depending on the circumstances. We will standardize such acts as evading the obligation of registration and filing, misappropriating and seizing fund assets, implementing "rat storehouse", and Pay-to-play, and increase punishment. Compared to the "Interim Measures for the Supervision and Administration of Private Equity Investment Funds" in which the China Securities Regulatory Commission can only take administrative regulatory measures such as ordering correction, regulatory talks, issuing warning letters, and public condemnation, the handling of problem institutions by the China Securities Regulatory Commission is now more diverse. In addition, the Regulations have also supplemented and adjusted the punishment standards, increasing the maximum amount of punishment to 5 times the illegal income, and increasing it to 1 million for those who have no illegal income or have less than 1 million illegal income. This is consistent with the punishment standard for similar acts in the Investment fund Law. The refinement of regulatory requirements and the improvement of standards have further unified rules and enforcement standards, improved the regulatory system, and is conducive to rectifying past industry chaos and enhancing the standardization of the private equity fund market.

Impact 3: Emphasize differentiated regulation of venture capital funds, greatly unleashing the vitality of venture capital investment

China's financial structure is indirectly integrated.

Original link：https://www.gov.cn/zhengce/202307/content_6891340.htm