China steps up regulations on wealth management products, asset management business

BEIJING (Reuters) - China released draft rules and guidelines to strengthen regulations of financial institutions’ wealth management and asset management businesses, the latest step by Beijing to fend off systemic financial risks.

Earlier on Friday, the China Banking and Insurance Regulatory Commission (CBIRC) released long-awaited draft rules on commercial banks’ wealth management products (WMPs), saying that these WMPs should be managed based on their net value.

Banks must also standardize the management of their fund pools to prevent shadow banking risk, according to an online statement issued by the regulator.

The rules also aim to push banks to standardize their wealth management businesses and to invest WMP funds into the capital markets in a compliant way. The banking regulator also aims to force banks to break the practice of providing investors with implicit guarantees against investment losses.

At end-June, the outstanding amount of non-guaranteed bank WMPs stood at 21 trillion yuan ($3.09 trillion), with about 70 percent invested in standardized assets such as bonds, deposits and money market instruments, according to the CBIRC.

About 15 percent of WMP funds is invested in non-standard debt assets, which typically refers to shadow lending. Bank WMP’s non-standard investment is not allowed to exceed 35 percent of the net asset of their WMPs or 4 percent of bank total asset.

Banks are also required to strengthen liquidity management and stress test to control risk. They will not be allowed to use WMPs to invest in any bank WMPs or provide “channel service” for other institutions to bypass regulations.

The new rules will lower the minimum amount of client subscription to any single public WMPs to 10,000 yuan from 50,000 yuan, in line with the central bank’s asset management rules.

The banking regulator is also drafting rules that regulate bank subsidiaries created to conduct wealth management businesses, it said.

The CBIRC’s new rules supplement China central bank’s overarching guidelines aimed at tightening supervision of the country’s $15 trillion asset management products issued by banks, trust firms, insurance asset management companies, securities firms, funds and futures companies.

In separate statements issued later on Friday, China’s central bank released guidelines saying that publicly raised asset management products can invest in non-standard debt assets based on regulations on disclosure and quota limits.

The transition period for the new regulations will last until end-2020, the regulator and the central bank said.

During the transition period, the central bank, or the People’s Bank of China, will also allow financial institutions to issue its existing products to invest in new assets.

Reporting By Beijing monitoring desk, Lee Chyen Yee and Twinnie Siu; Writing By Shu Zhang; Editing by Shri Navaratnam and Michael Perry and Matthew Mpoke Bigg