China | New rules for asset managers as concerns over debt grow

New rules for asset managers as concerns over debt grow

Previous efforts have failed to curb the shadow-banking time bomb

February 23, 2017 11:58 AM (UTC+8)
But what's inside? Lightly regulated wealth management products may pose a systemic risk to China's financial stability. Photo: George Hodan via Creative Commons
But what's inside? Lightly regulated wealth management products may pose a systemic risk to China's financial stability. Photo: George Hodan via Creative Commons

China’s financial regulators have circulated a proposed framework of new rules aimed at curbing risks in the country’s booming asset management industry, according to several Chinese news outlets and details of the draft seen by Reuters.

The rules, formulated by the central bank in conjunction with China’s securities, banking and insurance regulators, are the latest effort to bolster oversight of financial assets, including wealth management products, amid concerns about growing debt in the economy.

Deleveraging and the prevention of financial risks are two major goals for China’s financial regulators this year. The proposed rules aim to unify regulation of the asset management industry under leadership of the central bank.

The rules would standardize leverage ratio limits and require sellers of asset management products to put aside risk reserve funds equivalent to 10% of product management fees. Promising guaranteed returns would be barred under the rule also.

Chinese investors have poured trillions of yuan into lightly regulated wealth management products, the biggest component of so-called shadow banking in China. Wealth management products  are typically kept off banks’ balance sheets, making it difficult for regulators to assess the stability of a banking sector reliant upon them for growth.

Risks are heightened by banks’ holdings of each others’ wealth management products, which doubled to 4 trillion yuan (US$581 billion) in the two years to June .

There was no immediate comment on the draft regulation from the People’s Bank of China, the China Securities Regulatory Commission, the China Banking Regulatory Commission or the China Insurance Regulatory Commission.

 

It was not clear when the rules would be finalized or implemented.

 

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