Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (Mainland China)

Joline Chen

To regulate the asset management business of financial institutions, unify the regulatory standards for similar types of asset management products, and effectively prevent and control financial risks, the People’s Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange issued the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (the “Opinions”) on April 27, 2018 in which unified requirements for the asset management industry are formulated.  The Opinions are highlighted below:

1. The Opinions maintain the bottom line principle of risk control and service to the real economy; they follow the regulatory philosophy of combining macro prudential administration and micro prudential supervision, targeted problem guidance, and the fundamental principle of stable and prudent implementation to regulate the asset management business of financial institutions. The protection of the rights and interests of financial consumers will be enhanced through the comprehensive coverage of effective supervision.

2. The Opinions classify asset management products according to the product placement methods used and nature of the investment, and they also categorize investors into two major types, namely non-specific public investors and accredited investors. Financial institutions issuing and selling asset management products are required to strengthen its management over investor appropriateness of the products and only sell to investors asset management products that are commensurate with their risk profiles. If entrusted funds are used for investment, prudent operation principles shall be adhered to, and scientific and reasonable investment strategies and risk management systems shall be formulated to effectively prevent and control risks.

3. The Opinions clarify the obligation of financial institutions to fully disclose information. Financial institutions shall actively, truthfully, accurately, completely and timely disclose information about their fund management products, including matters such as placement information, fund flow, leverage level, income distribution, trust arrangements, investment account information and major investment risks.

4. The Opinions adhere to the combination of risk prevention and orderly regulation. Financial institutions are to manage the funds of each asset management product separately, establish separate accounts, and conduct separate accounting. There shall not be any development of or participation in fund pooling with rolling issuance, collective operation, and separate pricing.

5. The Opinions set up a unified reporting system for asset management products.  All relevant departments will conscientiously implement the requirements of the Opinions pursuant to their duties.  Financial institutions shall, in accordance with the relevant provisions of the Opinions, conduct asset management business in accordance with laws and regulations.