Caixin
Mar 21, 2017 06:11 PM
POLITICS & LAW

Financial Regulators to Roll Out New Rules for Asset Management Industry

(Beijing) — China’s financial regulators are about to roll out an overarching regulation for the country’s 100 trillion yuan ($14.5 trillion) asset management industry, sources close to the policymakers said.

Under the proposed framework, the People’s Bank of China will take charge of coordinating efforts of the three financial regulators for the banking, securities and insurance industries, the sources told Caixin.

The central bank will also start developing a new comprehensive system to collect information about asset management plans (AMPs) offered by various financial institutions, despite banking and insurance regulators’ preference to stick with the existing data reporting systems, according to the sources. The sources did not say when the regulation will be announced.

The new rules will form the basis of China’s first unified regulatory framework for AMPs, which have increased rapidly over the past few years, raising concerns about hidden risks largely because many are the result of financial institutions’ trading with each other in order to circumvent government restrictions.

A document about a draft of the new rules, which Caixin obtained earlier, shows that policymakers want to eliminate loopholes by unifying requirements for AMPs based on their structure and level of risk.

The proposals included, for example, the same standards regarding investor suitability for all AMPs. This would reduce the possibility of financial institutions selling risky products — which only investors with a greater amount of minimum capital can buy — indirectly through other AMPs to people who don’t meet the requirements.

The rules would apply to almost all AMPs, including but not limited to those managed by banks, trust companies, securities firms, insurers, futures brokerages, and private and public funds, as well as the AMPs’ subsidiaries, according to the document.

Figures from the Asset Management Association of China show that at the end of 2016, the value of AMPs managed by securities firms, fund management companies and futures brokerages had quadrupled to 51.79 trillion yuan from 13 trillion yuan at the end of 2014. The value of outstanding wealth management products issued by banks by the end of June 2016 was 26 trillion yuan, up from 15 trillion yuan at the end of 2014.

Implementation of the new rules will likely rely on the existing regulatory system, comprising the central bank and the three regulators, sources familiar with the matter said. It had been suggested that the central government might take this opportunity to consolidate the regulators, combining the agencies overseeing the insurance and banking sectors, or merging the banking regulator with the central bank, but those ideas have been ruled out, according to the sources.

It remains possible, however, that an agency might be created with greater authority than the current inter-ministry cooperation mechanism launched in 2013 to coordinate implementation work, according to sources.

Compared with the document viewed by Caixin, rules under discussion now show the central bank taking a softer stance on the need to punish officials for failing to perform their duties.

The original document contained a clause stating that the central bank had the authority to ask the State Council, the country’s cabinet, to pursue and punish regulatory agencies and officials if they failed to detect or purposefully omitted reporting major transgressions and risks within their jurisdictions.

The statement has been removed in a revised version of the regulation, according to sources.

“The central bank’s obligation is to unify rules that are to be implemented by the three industry regulators,” a source close to the central bank said. “As to how they will perform their duties, that’s their problem and beyond the power of the central bank.”

Contact reporter Wang Yuqian (yuqianwang@caixin.com)

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