EUROPE’S main funds regulator has introduced a “fast-track” procedure for approving mutual funds that wish to participate in a landmark Hong Kong-Shanghai equity trading program.

    The announcement, made by the Association of the Luxembourg Fund Industry (ALFI) yesterday, comes amid growing industry frustration over European regulatory hurdles that have prevented many asset managers from participating in the Hong Kong-Shanghai stock connect program.

    Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF) will fast-track applications from mutual funds sold to retail investors, also known as UCITS, whose investment policy already permits exposure to China shares and which only need to adapt their existing paperwork, the ALFI said.

    The move will make it much easier in theory for many large institutional investors to use the Chinese stock link, although how many funds will benefit from the new process in practice is unclear.

    More than 13,000 mutual funds are domiciled in low-tax Luxembourg and regulated by the CSSF, but only a small proportion of them already invest in Chinese shares through cross-border investment schemes known as QFII and RQFII.

    Currently, the CSSF has approved one UCITS fund to use stock connect and has just two other applications for it pending.

    Sally Wong, chief executive of the Hong Kong Investment Funds Association, said she was analyzing the details of the announcement but added: “I reckon a large number of UCITS funds will be able to avail of this process.”

    The stock connect program, launched Nov. 17, allows foreign investors to trade Shanghai-listed shares via the Hong Kong stock exchange, and mainland investors to buy Hong Kong shares via the Shanghai bourse.

    But within a week of its launch, trading volumes had dwindled to less than 20 percent of the maximum allowance.

    Foreign media reported last week that the CSSF’s concerns about investor protection prevented most European Union (EU) funds from participating.

    Market participants said the CSSF wants to ensure that Chinese shares EU savers buy through the link-up can be adequately monitored and recovered should the bank that guards the stocks — the custodian bank — or one of the exchanges, go bust. (SD-Agencies)