China to increase scrutiny of insurers’ related-party transactions

Several firms were found to have used the system to profit illegally, says regulator

China to increase scrutiny of insurers’ related-party transactions

Insurance News

By Gabriel Olano

China’s financial regulator is issuing new rules governing insurers’ related-party transactions, as well as subjecting these deals to further scrutiny.

The China Banking and Insurance Regulatory Commission (CBIRC), in the new regulation, clarified the definition of major related-party transactions, Xinhua reported. The regulator also set caps on the amount that insurers can invest in related parties – such as subsidiaries – or in financial products related to the company’s controlling shareholders.

According to the report, the new rules were put in place after several insurers were found in recent years to have abused related-party transactions to create non-financial subsidiaries or apply complex financial instruments to gain profits in an improper manner, the regulator said.

The commission will mandate insurers to strengthen their internal controls and formulate procedures to punish those who are proven to have engaged in irregular related-party transactions.

These irregular transactions and other illicit actions, according to the CBIRC, are exposing the world’s second-largest insurance market to substantial financial risk.

From January to August, the CBIRC has imposed over RMB76.8 million (US$10.8 million) in fines on the insurance sector due to various offences such as forgery and false advertising, the report added.

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