Cross-boundary WMC – Key risks of the Northbound Scheme

Cross-boundary WMC
Mainland investments

Investment risk

Mainland investment products (including Mainland wealth management products and Mainland funds) involve investment risk. For example, there is no guarantee that the investors will be able to recoup their investment principal or receive any dividends or distributions, or the investment products will achieve the established investment goals or successfully execute the established investment strategy.

Quota limits

The Cross-boundary WMC is subject to both aggregate quota (RMB 150 billion for Northbound Scheme and RMB 150 billion for Southbound Scheme) and individual quota (RMB 1 million) limits. If a quota is exhausted, the bank may suspend at any time the remittance of funds from an investor’s dedicated remittance account to his/her dedicated investment account. (However, investors can still remit funds back to the dedicated remittance account, or remit funds in the dedicated remittance account to other local accounts where no cross-boundary remittances to/from the Mainland are involved.)

Different market conventions and practices on the Mainland and in Hong Kong

The classification and naming of Mainland investment products may differ from those in Hong Kong (including SFC-authorized funds). Investors should refer to the offer documents of Mainland investment products and contact the Mainland banks concerned for details on the features and investment strategies of the investment products, and should not rely solely on the product name or classification in making an investment decision.

Concentration risk/Mainland market risk

Mainland investment products are mainly those invested in Mainland market-related securities and may face additional concentration risks. Investing in the Mainland market may involve different risks, including policy, taxation, economic, foreign exchange, legal, regulatory, and liquidity risks.

Currency risk

All cross-boundary remittances under the Cross-boundary WMC are conducted in renminbi. Investors holding investment denominated in currencies other than renminbi may also face currency exchange risk arising from renminbi exchange rate fluctuations. As with any other currencies, the exchange rate of renminbi may rise as well as fall.

Liquidity risk

Mainland investment products may come with lock-up periods and may only open for subscriptions and redemptions during designated periods. Investors may not be able to redeem their investment at any time.

Risks associated with Mainland wealth management products

  • Information disclosure risk: Mainland wealth management firms or Mainland distributing banks will disclose information according to the product offer documents. Investors should take note on the arrangement and check the relevant information proactively.
  • Payment delay: Mainland wealth management products may not be able to sell their assets in the market to pay for the gains and repay principal to investors in a timely manner. Investors may not be able to redeem their investment timely and are exposed to the risks of product maturity delay.
  • Product return comparison benchmark: the return comparison benchmark is for reference only and by no mean warrant or guarantee returns by the product issuers. Investors’ actual returns will depend on the final payouts of the wealth management products.
  • Early termination: Wealth management firms have the right to terminate the products before the maturity dates. Investors may not be able to have the expected returns and subject to re-investment risks.

Besides, Mainland investment products invest in different Mainland assets, e.g. money market instruments, bonds, equities etc, and thus will involve in the risk of the relevant assets. For example, investment in bonds or debt instruments is subject to the credit risk of the issuers which may not be able to make timely payments of principal and/or interest. In the event of a default or credit rating downgrading of the issuers of the bonds or debt instruments held by the Mainland wealth management product, valuation of the product’s portfolio may become more difficult and investors may suffer a substantial loss as a result.

Investors should refer to the product offer documents (including the risk disclosure statement, available for download at the online or mobile platform of the Mainland banks) for the detail risks of the relevant products.

10 September 2021