On May 7, according to the website of the China Securities Regulatory Commission, the decision-making and deployment of the Political Bureau meeting of the Central Committee on September 26, 2024 to "steadily promote the reform of public funds", the China Securities Regulatory Commission recently publicly issued the "Action Plan for Promoting the High-Quality Development of Public Funds".

The action plan proposes a total of 25 measures, including optimizing the charging model of active management of equity funds; strengthening the interest binding between fund companies and investors; and improving the scale and stability of equity investments for public funds. The key points of the plan include:

Fund companies have comprehensively established an assessment system with fund investment income as the core, and appropriately reduce the assessment weight of operating indicators such as scale ranking, income and profit. Fund investment income indicators should cover fund product performance and investor profit and loss. The former includes indicators such as fund net value growth rate and performance benchmark comparison, while the latter includes indicators such as fund profit margin and profitable investors. When the fund company's shareholders and the board of directors evaluate the company's senior executives, the weight of the fund investment income indicator shall not be less than 50%; when the fund managers are evaluated, the weight of the fund product performance indicator shall not be less than 80%. A long-term assessment mechanism will be fully implemented for fund investment income, of which the weight of medium- and long-term income assessment for more than three years shall not be less than 80%.

For fund managers whose performance of products exceeds 10 percentage points below the performance benchmark for more than three years, their performance compensation should be significantly reduced; for fund managers whose performance of products exceeds the performance benchmark for more than three years, their performance compensation can be reasonably and moderately improved.

Include investors' profits and losses and proportions, performance benchmark comparison, equity funds share, investment and research capabilities evaluation status, etc. into the fund company evaluation index system. The bonus points for indicators such as medium- and long-term performance for more than three years, the scale of equity funds purchased by itself, the stability of investment behavior, and the growth scale of equity investment will be increased by 50% on the existing basis. The above indicators account for the total scoring weight of "Serving Investors Ability" shall not be less than 80%.

Steadily reduce fund investor costs. The "Regulations on the Management of Sales Expenses for Public Funds" was issued to reasonably reduce the subscription fees and sales service fees of public funds. Guide industry institutions to lower the management and custody rates of large-scale index funds and money market funds in a timely manner. Promote the reduction of fixed fees related to fund registration and settlement, index authorization and use, information disclosure, audit and legal services.

Optimize the registration arrangements for equity funds. Implement a rapid registration mechanism for stock trading open-end index funds (ETFs in English), and in principle, the registration will be completed within 5 working days from the date of acceptance. For actively managed equity funds and off-market mature broad-based stock index funds, in principle, registration will be completed within 10 working days from the date of acceptance. For mixed funds and bond funds that clearly stipulate the minimum shareholding ratio requirements, in principle, registration will be completed within 15 working days from the date of acceptance.

Establish a normalized countercyclical adjustment mechanism and dynamically adjust product registration rhythm and progress according to market conditions. Strengthen the supervision of theme funds registration, issue self-discipline rules for supervision of investment styles of theme funds, and strengthen the monitoring, analysis and tracking and inspection of fund investment transactions. Supervise fund companies to improve the new stock pricing decision-making mechanism and promote reasonable and prudent quotations. Reasonably constrain individual fund managers to manage the number and scale of products, and strengthen the monitoring and risk warning of the holding concentration of fund managers with larger management scale. Rules for participating in the governance of listed companies by public funds have been issued to help improve the quality of listed companies.

Support the innovative development of high-quality leading fund companies and promote the dual improvement of asset management and comprehensive wealth management capabilities. Formulate a demonstration plan for high-quality development of small and medium-sized fund companies to support characteristic operations and differentiated development. The "Regulations on the Management of Public Fund Operation Services" was issued to promote the reduction of information technology system leasing and usage fees, and help industry institutions reduce costs and increase efficiency. Support market-oriented mergers and acquisitions of fund companies, and promote clearance of serious violations of regulations in accordance with the law.

Detailed text:

To implement the decision-making and deployment of the Political Bureau meeting of the Central Committee on September 26, 2024 to "steadily promote the reform of public funds", the China Securities Regulatory Commission recently publicly issued the "Action Plan for Promoting the High-Quality Development of Public Funds".

The action plan adheres to the Party’s overall leadership over the public fund industry, highlights the political and people-oriented nature of industry development, adheres to the investor-oriented development concept, takes strengthening supervision, preventing risks, and promoting high-quality development as the main line, explores and establishes a new model of public fund development that suits China’s national conditions and municipal conditions; adheres to problem-oriented and goal-oriented, proposes a series of reform measures to respond to market and social concerns, and strives to urge fund companies, fund sales institutions and other industry institutions to transform from "focus on scale" to "focus on return", forming a "turning point" for the high-quality development of the industry. The action plan proposes a total of 25 measures, with the following key points:

1. Optimize the charging model for active management of equity funds. For active management of equity funds, a floating management fee charging model linked to fund performance is implemented. For investors who meet certain holding period requirements, differentiated management fee rates will be applied based on their product performance during their holding period. If the performance is significantly lower than the comparative benchmark, less management fees must be charged to effectively reverse the phenomenon of fund companies' "profits that are guaranteed by drought and flood".
2. Strengthen the interest binding between fund companies and investors. Comprehensively establish an industry assessment and evaluation system with fund investment returns as the core, introduce indicators such as performance comparison benchmarks, fund profit margins, etc. that directly affect investors' interests into the assessment system, and correspondingly reduce the assessment weight of indicators such as product management scale ranking, fund company income and profit. Increase the proportion and lock-up period requirements for fund company executives and fund managers to follow-up investment in the company's managed products. Urge fund companies to establish and improve a salary management system linked to fund investment returns, and require fund managers with poor medium and long-term performance to significantly reduce their performance salary, which better reflects the "sharing of joys and sorrows" with investors.
3. Improve the industry's ability to serve investors. Guide fund companies and fund sales institutions to comprehensively optimize resource allocation such as investment research, product design, risk management, and marketing promotion based on the best interests of investors, practice long-term investment, value investment, and rational investment, and strive to bring better returns to investors. We will speed up the issuance of regulations on the management of public fund investment consultants, promote the standardized development of fund investment advisory business, and provide investors with portfolio investment services that adapt to their characteristics and needs. Accelerate the launch of the direct sales service platform for institutional investors to facilitate various institutional investors to participate in fund investment.
4. Improve the scale and stability of equity investment in public funds. Optimize fund registration arrangements, launch more on-site and off-market index funds and medium- and low-volatility equity-containing products, and promote the innovative development of equity funds. Strengthen the binding force of the benchmark for performance of fund products, give full play to its role in reflecting product positioning and measuring product performance, fully implement long-term assessments of fund investment performance for more than three years, improve the stability of investment behavior of public funds, and promote the balanced development of investment and financing in the capital market.
5. Promote strong supervision and risk prevention in an integrated manner to promote high-quality development. Improve the regulatory system, enrich law enforcement methods, and implement "toothed thorns". Improve the level of fund company governance and urge major shareholders, board of directors and management to return to their posts and fulfill their responsibilities. Improve the industry's multi-level liquidity risk prevention and control mechanism and continuously improve the industry's compliance level. Improve the industry's reputation management capabilities, sing the theory of economic brightness, and give full play to the positive role of guiding and shaping expectations. Vigorously promote and practice the "five musts and five nos" financial culture with Chinese characteristics and accelerate the construction of first-class investment institutions.

In the next step, the China Securities Regulatory Commission will steadily and orderly promote the implementation of various policy measures to promote the industry to continuously improve its ability to serve residents' wealth management, serve the reform, development and stability of the capital market, and serve the real economy and national strategies.