China Bond Connect: Central Bank of Ireland completes its review

The China Bond Connect initiative launched in July 2017. Before Bond Connect, international investors wishing to access China's bond market could use the China Interbank Bond Market (CIBM) Direct, QFII and RQFII routes. Bond Connect is an alternative, more straightforward and efficient method to access the China Bond market. There is no need to obtain quotas under QFII and RQFII or implement the associated infrastructure and process.

The CBI has been reviewing Bond Connect. On 21 March 2019, the CBI sent a letter to Irish Funds concluding that from 21 March 2019 Bond Connect may be applied by Irish UCITS and AIFs.  This is timely given the proposed inclusion of bonds traded on CIBM in a number of internationally recognised indices. Bloomberg Barclay Global Aggregate Index may include CIBM bonds from as early as April 2019. Other examples are FTSE World Government Bond Index and JP Morgan Government Bond-Emerging Market Index. Subject to opening the relevant accounts, Irish regulated funds tracking those indices will be able to access the China bond market via Bond Connect.  Irish UCITS wishing to access Bond Connect should review the markets list in the UCITS' prospectus to establish if the list needs to be updated to include CIBM.

One objective of the CBI review was to ensure the custody and settlement arrangements for Bond Connect satisfy the depositary requirements under UCITS and AIFMD. The CBI reviewed the China Stock Connect scheme in 2015 and submissions in relation to custody and settlement arrangements for Stock Connect were relevant and useful in the Bond Connect review.  Similar to Stock Connect, the CBI will require Irish depositaries to be satisfied that they will be in a position to comply with their safekeeping obligations in respect of Irish collective investment schemes accessing Bond Connect.

The Central Bank will shortly update its Q&As for Bond Connect and to reflect the depositary requirements. 

For more information on this topic please contact a member of the Asset Management & Investment Funds team.

Date published: 21 March 2019