Measures for the Administration of Wealth Management Subsidiaries of Commercial Banks (Mainland China)

2018.12.2
Di Wu

To strengthen the supervision and administration over the wealth management subsidiaries of commercial banks and protect the legitimate rights and interests of investors, the China Banking and Insurance Regulatory Commission promulgated the Measures for the Administration of Wealth Management Subsidiaries of Commercial Banks (the “Administrative Measures”), which came into effect on December 2, 2018. The Administrative Measures consist of six chapters, including Chapter I (General Provisions), Chapter II (Establishment, Amendment and Termination), Chapter III (Business Rules), Chapter IV (Risk Management), Chapter V (Supervision and Administration) and Chapter VI (Supplemental Provisions).

The Administrative Measures primarily provide for how banking regulatory agencies conduct supervision and administration of the wealth management subsidiaries of banks and their business activities, enhance regulatory coordination and information sharing, and prevent cross-market risks.

The wealth management subsidiaries of banks as defined in the Administrative Measures refer to non-banking financial institutions set up by commercial banks within the territories of the People’s Republic of China with the approval of the banking regulatory agency under the State Council, and they are primarily engaged in the wealth management business. The wealth management business refers to financial services relating to investment and management that the wealth management subsidiaries provide to investors who retained them based on the investment strategies, risk management and profit distribution methods that they have agreed with those investors in advance.

The Administrative Measures stipulate the establishment, changes to and termination of the wealth management subsidiaries of banks. Firstly, they shall take the form of a limited liability company or a company limited by shares. The name of a bank’s wealth management subsidiary is typically in a “designation + wealth management + organization” format.  No organization may use wordings such as “Wealth Management Limited” or “Wealth Management Co., Ltd” without the approval of the banking regulatory agency under the State Council.  Secondly, the wealth management subsidiaries of banks shall have articles of incorporation that comply with the regulations of the banking regulatory agency under the State Council.  They shall also have shareholders who meet the regulatory requirements; a minimum registered capital that is compliant with the Administrative Measures; directors and senior managers who meet the qualifications for their positions, as well as a sufficient number of qualified practitioners for wealth management functions such as research, investment, valuation and risk management.  In addition, they shall set up effective corporate governance, internal control and risk management systems, a business management information system that supports the independent management, independent account establishment and independent account settlement for their wealth management products, with technologies and measures that ensure the effective and safe operation of the information system.  Their business premises, security measures and other facilities that are appropriate to the business operation of the subsidiary.  Moreover, corresponding requirements are made for shareholders of financial institutions that are registered domestically in China or overseas, and for domestic non-financial enterprises serving as wealth management subsidiaries of banks.  Finally, certain circumstances where subsidiaries may not serve as wealth management subsidiaries of commercial banks are also stipulated.

The Administrative Measures specifically explain the rules for the business by stipulating that the wealth management subsidiaries of commercial banks may engage in the following businesses: public offering of wealth management products to unspecified members of the public and the investment and management of any investors who decide to retain them; private offering of wealth management products to qualified investors and the investment and management of their assets; as well as general financial advisory and consulting services.

The Administrative Measures also point out specific matters in risk management and supervision and administration by requiring the wealth management subsidiaries of banks to set up a corporate governance structure with sound organization and clear responsibilities, effective checks and balances and reasonable incentives and constraints.  Clarify the division of labor for risk management among the shareholders, the board of directors, the supervisors, the senior management, the business departments, the risk management department and the internal audit department so as to set up connected and coordinated management mechanisms. Under the applicable regulations, the wealth management subsidiaries of banks shall submit to the banking regulatory agency the financial and accounting statements, statistical statements, external audit reports, the risk reserve fund usage status and other materials required by the banking regulatory agency, as well as an annual report on wealth management business within two months after the end of each year.

The Administrative Measures stipulate a reporting system for major risks and losses. They provide that if the wealth management subsidiaries of banks were to engage in wealth management activities that are in violation of the Administrative Measures, the corresponding regulatory agency shall impose rectification requirements.  For the wealth management subsidiaries of banks which fail to take effective corrective measures, or whose actions have seriously undermined the stable operation of the companies and the rights and interests of investors, the banking regulatory agency under the State Council or its provincial dispatched agency shall take measures such as ordering to suspend the issuance of the wealth management products, require adjustments to the directors or senior managers or restricting their rights.

The promulgation of the Administrative Measures aims to regulate the management of the wealth management subsidiaries of commercial banks, better supervise business development, minimize risks and protect the rights and interests of investors.