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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.
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