New Rules on QFII Custodian Banks

The State Administration of Foreign Exchange (SAFE) issued the QFII Foreign Exchange Operation Circular (the Circular) on September 9 2003. The Circular provides that, while custodian banks may keep payment records for the special RMB accounts of the QFII licensees, they are not allowed to establish sub-accounts for these RMB accounts. RMB accounts for QFII investment purposes are also prohibited from being used for other purposes by QFII licensees.

Rules about custodian banks' role in the QFII scheme can be found in many regulations, including: the Administration of Securities Investments in China by Qualified Institutional Investors Tentative Procedures (the Tentative Procedures, issued November 5 2002); the Securities Transactions by Qualified Foreign Institutional Investors Implementing Rules (issued December 1 2002); the Registration and Settlement for Securities Investments in China by Qualified Foreign Institutional Investors Implementing Rules (the Settlement Regulations, issued December 1 2002); the Questions Relevant to Commercial Banks' Applications for Engaging in Custodian Services for Securities Investment in China of Qualified Foreign Institutional Investors Circular (issued December 17 2002); and the Foreign Exchange Control on Securities Investments in China by Qualified Foreign Institutional Investors Tentative Provisions (issued November 28 2002).

Duties of the Custodian Banks