Bank-trust business risk control under new asset management rules

Stringent regulation has remained a theme in the financial industry this year, and the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (the New Rules), which the regulators issued on 27 April 2018, are a significant milestone and have a major impact on the bank-trust cooperation business. This column proposes to examine risk controls in, and the direction of transformation of, the bank-trust cooperation business under the New Rules.

The definition of “bank-trust cooperation” is first seen in the Guidelines for Bank and Trust Company Business Cooperation. With the evolution of the bank-trust cooperation model, the scope of bank-trust cooperation business is also expanding. The Notice on Regulating Bank-Trust Business also incorporates banks’ on balance-sheet funds and beneficial rights into the bank-trust business and defines bank-trust channel business for the first time.

The term “bank-trust business” refers to the act whereby a commercial bank, as the client, entrusts on and/or off-balance-sheet funds or assets (beneficial rights) to a trust company to invest in or establish a fund trust or property right trust. In turn, the trust company carries out management, application and disposal thereof in accordance with the trust documents. Based on the different roles of the bank and the trust in the management, application and disposal of the trust property, bank-trust cooperation business may be divided into the following:

Bank-trust channel business. Here, both the fund end and asset end come from the bank and the attendant risks are likewise mainly borne by the bank, with the trust charging a certain channel fee only as the channel. This business may be further divided into channel finance business and channel investment business, with the former being the more common.

Wang Mengjing is a partner at Co-effort Law Firm