Banking Regulator Tightens Trust Industry Oversight

(Beijing) — All trust companies in China, which oversee almost 23 trillion yuan ($3.5 trillion) in assets combined, must register with the banking regulator by the end of November — the country’s latest move to introduce more discipline to the financial system.

The China Banking Regulatory Commission (CBRC) had said in late December it would tighten rules that regulate the sector, after some companies that couldn’t get funding from banks turned to trust companies as a platform for lending.

On Wednesday, the CBRC said trust companies must report to the China Trust Registration Co., a government-backed agency set up in November. Such reports must include product name, category, underlying assets, beneficiaries and profits distribution.

The Wednesday rules also limit the number of trust beneficial accounts for each trust product, and clarify the liabilities and rights of all participating parties to better protect investors’ rights.

“The launch of this guideline could lower the risk of taking trust products for other uses and improve the order of financial industry,” that CBRC said in a statement, adding that it seeks to make the trust business more transparent and better-regulated.

China’s trust companies, unlike their namesakes in other countries, often act as a channel through which companies can get loans when they have trouble borrowing from banks. Such practices have been under tighter scrutiny since late last year as a national campaign scrutinized financial risks linked to overleveraging.

The rule-making process of trust product registration has been lagged since it was first mentioned in the Trust Laws in 2001. Many market insiders believe the absence of regulations has forced the market function of trust products to change.

There were 68 trust companies in China managing a combined 23 trillion yuan in assets as of the end of June, the CBRC said.

An earlier version of this story understated in the first and last paragraphs the amount in assets that all 68 Chinese trust companies combined are managing.

Contact reporter Leng Cheng (chengleng@caixin.com)