The Asia Global Payment Summit. Bali, Indonesia. 10-11 October 2019

Regulators Caution Trust Companies as Shadow Banking Crackdown Continues

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The China Banking Regulatory Commission plans to target the country’s colossal trust industry in 2018 as part of ongoing efforts to curb shadow banking activity.

Reuters reports that two sources close to the matter said that Beijing will focus specifically on the trust sector next year, as the regulatory crackdown on shadow banking continues unabated.

According to the sources CBRC has already informed trust companies in Beijing that it will take concerted measures to contain rapid growth of the sector, and subject any firms that engage in “reckless and irresponsible behaviour” to the maximum penalties.

The news follows the launch of a ban by CBRC last week on the use of trust firms by banks to side step regulatory constraints or conceal risk.

Trusts are a mainstay component of the shadow banking sector in China, enabling financial institutions to perform “regulatory arbitrage” by disguising loans as investments for the purpose of dodging capital requirements, or facilitating the channeling of funds towards sectors where investment and lending are restricted, such as real estate, resources and overcapacity industries.

Figures from the China Trustee Association indicate that outstanding trust assets were 24.41 trillion yuan (approx. USD$3.75 trillion) at the end of September, for a year-on-year increase of 34.33%.

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