China issues draft rules on wealth management products
China's Banking and Insurance Regulatory Commission (CBIRC) issued draft rules on banks' wealth management businesses on Friday, saying that the commercial banks’ wealth management products (WMPs) should be managed based on their net value.
According to the online statement issued by the regulator, banks must manage open and close funds in separate ways. The new rules will lower the minimum amount of client subscription to any single public WMPs to 10,000 yuan (about 1,477 USD ) from 50,000 yuan in line with the central bank’s asset management rules.
WMPs should be calculated using the principle of fair value, the statement said.
Banks should also standardize the management of fund pools and guard against shadow banking risks. About 15 percent of WMP funds are invested in non-standard debt assets, which typically refer to shadow lending.
At end-June, the outstanding amount of non-guaranteed bank WMPs stood at 21 trillion yuan (3.09 trillion US dollars), with about 70 percent invested in standardized assets such as bonds, deposits and money market instruments, according to the CBIRC.
Bank WMP’s non-standard investment is not allowed to exceed 35 percent of the net asset of their WMPs or four percent of bank total asset.
Meanwhile, the nested investments are forbidden under the rules while leverage should be used cautiously.
Banks should set investment caps on single funds to prevent concentration risks.
They are also required to strengthen liquidity management and select licensed financial institutions as partners. They will not be allowed to use WMPs to invest in any bank WMPs or provide channel service for other institutions to bypass regulations.
The draft rules also urge banks to foster information disclosure and register wealth management products in a national system.
These rules aim to push banks to standardize their wealth management businesses and to invest WMP funds into the capital markets in a compliant way. The banking regulator also aims to force banks to break the practice of providing investors with implicit guarantees against investment losses, CBIRC said.
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