Central Bank Delays New Rules for $12.9 Trillion WMP Industry
What’s new: China’s $12.9 trillion wealth management industry got a one-year reprieve from new rules set to take effect in December, the central bank said Friday.
Taking into account the impact of the Covid-19 pandemic on the economy and the finance sector, the central bank acknowledged that financial institutions face pressure in transforming their businesses to comply with sweeping new asset management rules and extended the transition period till the end of 2021.
In a notice issued Friday, the People’s Bank of China (PBOC) stressed that the extension doesn’t mean any changes in the regulatory standards set by the new rules and that financial institutions should adjust their restructuring plans and continue to explore innovative ways to offload nonstandard assets or return them to their balance sheets.
The background: The extension was widely expected as regulators have hinted since the start of 2020 of an extension of at least a year.
The revamped asset management rules are aimed at curbing off-balance sheet “shadow banking” activities that were increasingly seen as a threat to financial stability. A chief goal is to ban banks from guaranteeing returns on WMPs, a long-standing practice that encourages investors to dump money into risky, high-yielding assets while expecting state protection if the underlying investments fail, thus posing significant risk to the financial system.
However, amid talk of a possible extension, banks have made little progress in overhauling their WMPs. Banks’ nonstandard asset ratios have largely stayed put since the release of the new rules.
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