China regulates fund outsourcing business in fresh move to curb shadow banking: Sec Times

FILE PHOTO: An advertising board (L) showing a Chinese stone lion is pictured near an entrance to the headquarters (R) of China Securities Regulatory Commission (CSRC), in Beijing, China, September 7, 2015. REUTERS/Jason Lee/File Photo

SHANGHAI (Reuters) - China’s securities regulator has introduced new restrictions for financial institutions seeking to outsource fund management to external fund managers, the official Securities Times reported on Monday, as the government tightens shadow banking.

Financial institutions such as banks and insurers have been giving fund management mandates for funds exceeding 1 trillion yuan ($144.90 billion) to mutual fund houses as they outsource their wealth management operations, the newspaper said.

Regulators are worried that such funds are used as a shadow banking channel by lenders to make risky bets in corporate bonds or equities, without effective management by the external fund house.

To prevent this, the China Securities Regulatory Commission (CSRC) issued rules on Friday requiring funds where single institutions control 50 percent or more to operate as closed-end funds, and barring them from receiving subscriptions from individual investors, according to the report.

Additionally, mutual fund houses, their senior executives or fund managers must invest a minimum 10 million yuan into such funds, hold the stake for at least three years, and operate independently, the Securities Times reported, citing the new rules.

Reporting by Samuel Shen and John Ruwitch; Editing by Sam Holmes