China to Give Foreign Banks’ Local Branches Access to Fund Custody Licenses

What’s new: China will probably give foreign banks’ local branches access to fund custody licenses, draft revisions (link in Chinese) to relevant regulations showed Saturday.

Such branches have no independent legal personality and are currently barred from entering the sector, as foreign banks can only qualify for the license if they set up a local subsidiary. The license allows a company to provide custody services for fund products issued by fund firms or other asset managers in China, namely holding the products for safekeeping.

What else you ought to know: China will also probably set the asset requirement 10 times higher than it is currently, with the draft revisions requiring applicants’ net assets be at least 20 billion yuan ($2.8 billion). Current regulations (link in Chinese) require a candidate’s net assets be at least 2 billion yuan at the end of each of the last three fiscal years.

The 2 billion yuan floor, initially set in 2004, is out of date, the China Securities Regulatory Commission (CSRC) said (link in Chinese). In practice, banks acting as fund custodians always need to have net assets of at least 40 billion yuan at the end of each of the last three fiscal years to be qualified to engage in the settlement of fund products, a key part of the complete chain of the fund custody business, it said.

Foreign banks’ local branches would be qualified to apply for the license if their headquarters’ net assets meet the 20 billion yuan requirement, the CSRC said.

What’s the background: In 2018, Standard Chartered Bank (China) Ltd. became the first foreign bank to obtain a fund custody license in China. Previously, the license was limited to local players.

Quick Takes are condensed versions of China-related stories for fast news you can use.

Contact reporter Lin Jinbing (jinbinglin@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)