2022.07.11 DONG, Xiao (Marissa)、LU, Sipei (Ryo)、LIU，Chang
On June 2, 2022, the Asset Management Association of China ("AMAC") issued the Administrative Measures for Electronic Contract Business for Private Investment Funds (Trial) (the "Measures"), which aims to regulate and promote the practice of electronic contracts in the private fund industry. The Measures came into effect on the date of promulgation.
The private fund industry has long been dominated by paper contracts, which are inefficient and prone to tampering. Electronic contracts have been promoted in recent years and the demand for electronic contracts has further increased during the epidemic. Some electronic contract service agencies have accelerated the rollout of electronic contract business. The Measures not only regulate and promote electronic contracts for private funds, but also provide for scenarios whereby custodians perform the investment supervision functions, fund distribution agencies implement the investor suitability requirements, and the fund unit registration agencies register the ownership of fund units. This lays a foundation for strengthening the use of technology in supervision and promotes the stable and healthy development of the private fund industry. The Measures consist of 32 articles in five chapters. The key points of the Measures are summarized as follows:
I. Clarifying the Definition and Scope of Electronic Contracts for Private Funds
The Measures specify that electronic contracts shall include not only the private fund contract and its supplementary agreement, but also the risk disclosure statement, subscription form, service agreement, custody agreement, economic operation agreement and other documents. It further recognizes that electronic contracts shall have the same legal force as paper contracts. In terms of the scope of application, the Measures apply not only to the signing of electronic contracts, but also to the identity management of the parties, data inquiries and other electronic contract business services.
II. Specifying the Rights and Obligations of the Parties to Private Fund Electronic Contracts
The Measures clarify the rights and obligations between the parties involved in a private fund relationship (including investors, fund managers, custodians and other private fund service agencies, the “Private Fund Parties”) and the electronic contract business service agencies. In particular, private fund parties shall, before entrusting an electronic contract business service agency, conduct due diligence on the backup of human resources, business segregation measures, software and hardware equipment, professional competence, integrity, and other conditions of such service agency, and assess its operational capacity and service levels on an ongoing and regular basis. Private fund parties shall not be exempt from liability in accordance with the law by virtue of the use of electronic contract services. Electronic contract business service agencies and their practitioners shall fulfill their duties, compete fairly, and perform their obligations in good faith and with prudence and diligence, and shall not disclose, tamper with, damage or lose the relevant data of the private fund parties.
III. Specifying the Requirements on the Registration and Submission of Materials by Private Fund Electronic Contract Business Service Agencies
The Measures explicitly require electronic contract business service agencies to register with AMAC. They must submit the relevant materials specified in the Measures to AMAC by referencing the provisions of the Administrative Measures for Private Investment Fund Services (Trial) that require information technology system service agencies to register with AMAC to carry out their business.
IV. Allowing Qualified Fund Distribution Agencies to Build Electronic Contract Business Systems
The Measures stipulate that electronic contract business service agencies and the parties to the contracts it serves in principle, shall not be the same one. As an exception, fund distribution agencies that meet the conditions set out in the Measures may build an electronic contract business system on their own. Such fund distribution agencies are further required to properly handle risk isolation between the electronic contract business and other businesses such as custodian business and ensure the safety of the data.
V. Providing the Requirements on the Operation, Internal Control and Data Management for Electronic Contract Business
Pursuant to the Measures, before providing private fund electronic contract business services, an electronic contract business service agency shall sign a service agreement with the relevant private fund parties to clarify the scope and contents of the service, the rights and obligations of each party, the methods and standards of fees, the methods of information interaction and data storage. In addition, the Measures specifically provide for requirements on the data security of electronic contract business service agencies. It is worth mentioning that the Measures require that data such as client information and business materials obtained in the process of business carried out by electronic contract business service agencies shall be retained and stored within the territory of China. The Measures also require that the relevant data shall be stored for at least 20 years from the date of the closing of the fund accounts and be submitted to the Asset Management Business Electronic Registration System of AMAC and the designated platform provided by core institutions in the securities and futures industry in a timely manner.
VI. Clarifying the Requirements on Self-Discipline
The Measures stipulate that AMAC shall publicize the qualified electronic contract business service agencies and conduct self-discipline on these agencies and their electronic contract business activities in accordance with the laws, regulations and self-disciplinary rules. Electronic contract business service agencies can join AMAC as a member.
In 2014, AMAC issued the Operation Guidelines on Electronic Signature Contracts for Asset Management Business for Specific Client by Fund Management Companies and Their Subsidiaries (Trial) to implement the operational procedures and rules for electronic signatures in public fund business. Since then, electronic signatures in the private fund industry have experienced eight years of development. With the promulgation of the Measures, the private fund industry has officially entered the era of electronic contracts. This is an inevitable result of the development of this industry and a practice of the green ESG development in the fund industry.
