Chinese Banks Allowed to Invest WMP Proceeds Directly into Stocks Via Subsidiaries

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China’s banking regulator has issued new regulations that will allow the country’s banks to invest the proceeds of wealth management products (WMP’s) directly into shares.

On 19 October the China Banking and Insurance Regulatory Commission (CBIRC) issued the “Wealth Management Subsidiary Administrative Measures” (理财子公司管理办法), which provides further guidance on WMP’s following the launch of far-reaching asset management rules in April of this year.

The Measures allow Chinese banks to establish wealth management subsidiaries to engage in asset management operations, freeing banks form the need to engage win wealth management operations themselves.

The wealth management subsidiaries will operate independently in order to prevent risk from spreading to their founding banks.

Wealth  management subsidiaries will also be subject to the same standards and requirements of other asset management institutions, which will enable them to directly invest the proceeds of publicly offered WMP’s in stocks, as well as remove the minimum threshold on their sale of WMP’s.

The move comes just after CBIRC launched the “Commercial Bank Wealth Management Operation Supervisory Administrative Measures” (商业银行理财业务监督管理办法) at the end of September, allowing the proceeds from publicly WMO’s sold by banks themselves to be invested indirectly in the share market via publicly offered funds.

Those measures also dramatically reduced the minimum threshold for the sale of a single publicly offered WMP, cutting it to 10,000 yuan from 50,000 yuan previously.

Pan Dong (潘东), general manager from the asset management department of China Everbright Bank, said to Financial News that the establishment of wealth management subsidiaries by banks would have a major impact on the Chinese asset management sector, helping to strengthen risk segregation and remove the “implicit guarantees” that WMP’s are perceived by the market as enjoying.

 

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