MNI: China Regulators Unveil New Rules Covering AMPs, WMPs

     BEIJING (MNI) - China's top financial regulators on Friday unveiled new

rules covering asset-management products, including wealth-management products,

that aim to better control financial risks related to the products. 

     The new rules will take effect on June 30, 2019, after a period of public

comment, the People's Bank of China said. The new rules were jointly released by

the PBOC, the China Banking Regulatory Commission (CBRC), the China Securities

Regulatory Commission (CSRC), the China insurance Regulatory Commission (CIRC)

and the State Administration of Foreign Exchange (SAFE).

     The new rules ban "capital pooling," and state that each AMP needs to be

managed and accounted for individually. In order to lower duration mismatch

risks, the lowest duration of closed-end AMPs shall not be lower than 90 days.

And the new rule suggests that management fees shall be lower if the term of

AMPs is longer.

     In addition, financial institutions will be required to control the

"concentration level" of each wealth management product in the corresponding

investment instrument. For example, one mutual-fund wealth management product's

investment amount into a single security or security investment fund could not

exceed 10% of the total net assets of the security or security investment fund.

     The new regulation states that the total assets of structured private funds

cannot be higher than 140% of its net assets. 

     Financial institutions will also be required to prepare certain amounts of

loan-loss provisions -- usually 10% of the management fees financial

institutions receive from their AMP clients.

     The regulators stressed that financial institutions should no longer

promise certain profit rates for AMPs and WMPs, but should let the market

reflect yields and risks of fundamentals. The central bank noted specific

regulations would be created and announced later on this matter.

     As the regulation gives a clearer definition on what could be defined as

bailout redemption or financial institutions' blindly promising to return

principal and interest to investors even when huge losses occur in the

investment, it also said depository financial institutions and non-depository

financial institutions could be punished by different financial regulators who

run afoul of the rules. 

     The central bank and China Banking Regulatory Commission (CBRC) would be in

charge of the depository financial institutions while "other financial

regulators" would take care of cases caused by non-depository ones. It also

added if no regulator has stepped in, the PBOC would bear the responsibility to

publish related financial institutions.

     Financial institutions also cannot invest their AMP capital into credit

products of commercial banks, according to the new rules, and financial

institutions cannot provide guarantees or repurchases of any non-standard bond

assets or equity assets invested by AMPs.

     The PBOC stressed that individuals cannot use capital they do not

themselves own, like loans, to invest in AMPs or WMPs.

     The new rule also prohibits non-financial institutions from issuing or

selling AMPs, unless regulators allow them to.

     As of the end of 2016, the outstanding value of wealth management products

on and off of banks' balance sheets totaled CNY5.9 trillion and CNy23.1

trillion, respectively, the PBOC said. 

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

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