China sets new rules for asset management firms

Government enlists help of various regulators to provide oversight on the largest component of the “shadow banking” industry

China sets new rules for asset management firms

Insurance News

By Gabriel Olano

China’s financial regulators have released a draft of new rules regarding the asset management industry in a bid to reduce risks in the rapidly-growing sector.
The rules were drafted by China’s central bank, alongside its securities, banking, and insurance regulatory agencies as part of the government’s efforts to increase oversight of financial assets such as wealth management products (WMPs), amid concerns about mounting debt in the economy.
Among the new regulations include standardization of leverage ratio limits and mandating firms to create a risk reserve fund equivalent to 10% of product management fees.

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Once the rules come into effect, it will be illegal to promise a guaranteed return for asset management products. This is currently a common practice among bank WMPs.
Many insurance companies also own asset management firms or offer services similar to asset management products. Many Chinese investors are attracted by high yields promised by financial institutions. These products, which have trillions of yuan invested, are lightly regulated and are considered the largest component of China’s “shadow banking” industry.
“The goals of the guidance are very clear – to prevent financial institutions from adding multi-layers of leverage in order to expand scale,” analysts at Minsheng Securities told Reuters.

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