The Chinese central government has given the final green light to new rules that promise to shake up China’s 100 trillion yuan (approx. USD$15.87 trillion) asset management sector.
On the afternoon of 28 March President Xi Jinping convened a meeting of the Central Comprehensively Deepening Reforms Commission, which gave its approval to the “Guidance Opinions Concerning Standardisation of Financial Institution Asset Management Operations” (关于规范金融机构资产管理业务的指导意见).
The meeting said that “standardisation of financial institution asset management operations must be based upon the the entire asset management sector, uphold the mutual integration of macro-prudential management and micro-prudential management, and the mutual integration of institutional regulation with functional regulation; unify regulatory standards in accordance with asset management product types, implement fair market entry thresholds and regulations, expunge room for regulatory arbitrage to the greatest extent possible, and expedite the standardised development of asset management operations.”
The draft version of the Guidance Opinions triggered much trepidation within the Chinese financial sector when it was released in November last year, due to concerns over its targeting of the “implicit guarantees” provided by banks for certain asset management vehicles such as wealth management products, and the potential impact this could have upon the operations of small and medium-sized lenders.
China’s smaller banks remain dependent upon wealth management products as a source of funds, given that they lack the extensive branch networks and access to retail deposits of the larger, incumbent lenders.
The Chinese banking sector was so concerned about the potential impacts that the new asset management regulations could have on financial stability that they reportedly convened a meeting with the People’s Bank of China, in order to demand that the restrictions be dialled back.
According to 21st Century Business Herald the final version of the regulations will strengthen the auditing requirements for asset management products, and perhaps further clarify the auditing period.
They will also contain supplementary explanations stipulating that some non-standard investments will not be subject set restrictions, as well as permitted to employ cost-method valuation.
The transition period for the new asset management regulations is likely to start from their issuance, which could be longer than the transition period outlined for the draft regulations, and extend to as far as the end of 2019.