New regulations governing the wealth management subsidiaries founded by Chinese banks promise to have a far-reaching impact upon the 20 trillion yuan bank wealth management sector.
On 2 December the China Banking and Insurance Regulatory Commission (CBIRC) launched the “Commercial Bank Wealth Management Subsidiary Administrative Measures” (商业银行理财子公司管理办法), after soliciting opinions and feedback on a draft version of the Measures during the period from 19 October to 18 November.
The move comes after the launch of new asset management regulations in April of this year which had a profound impact upon wealth management products (WMP’s) in China by removing the implicit guarantees they were perceived by the general market to enjoy.
The new Measures implement far-reaching changes to rules governing the conduct of the wealth management subsidiaries of Chinese banks, including:
1.Allowing direct investment of proceeds from publicly offered WMP’s in shares.
The new measures allow wealth management subsidiaries to directly invest the proceeds of publicly issued WMP’s in equity securities.
CBIRC had previously given the green light to privately offered WMP’S investing directly in shares and publicly offered WMP’s investing indirectly in shares via publicly offered funds, with the launch of the “Commercial Bank Wealth Management Operation Supervisory Administrative Measures” (商业银行理财业务监督管理办法) on 28 September.
2. Expansion of sales channels
The Measures allow the WMP’s of bank subsidiaries to be told by banking sector financial institutions, as well as other entities approved by CBIRC, on the condition that regulations concerning the audio-visual recording of the sales process, customer risk assessments, risk matching principles and information disclosure are all observed.
3. Allowing banks to issue ranked WMP’s, paving the way for structured products.
While Chinese banks were previously prohibited from issuing ranked WMP’s, the new Measures allow their wealth management subsidiaries to do so on the condition that asset management regulations and the Measures themselves are observed.
4. Encouraging foreign investment
While the new Measures state that wealth management subsidiaries should be established by commercial banks registered in China who serve as controlling shareholders, they also allow domestic and foreign financial institutions as well as domestic non-financial enterprises and to contribute capital to the establishment of such subsidiaries.
5. Minimum registered capital
The minimum registered capital of wealth management subsidiaries is set at 1 billion yuan.
6. Subsidiaries permitted to invest in their own wealth management products
Bank wealth management subsidiaries are allowed to invest no more than 20% of their own capital in WMP’s, although they are barred from investing in lower-grade products.