Impact and prospects of detailed new asset-management rules

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 jointly issued on 27 April 2018 the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (the new rules). On 20 July, the Notice on Further Clarifying Relevant Matters in the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (the detailed rules) were issued. These further explain and clarify details in the implementation of the new rules. On the whole, while adhering to the general direction set forth, the detailed rules push forward the steady transition to the new rules mainly by adjusting the rhythm and intensity, while allowing a suitable amount of slack in the details and the transition arrangements.

In principle, the detailed rules do not go beyond or revise the new rules, and they do not modify such principles as the elimination of mismatching terms, dismantling of fund pools, etc. The main points of the detailed rules are: (1) they specify that publicly offered asset-management (AM) products can appropriately invest in non-standard assets; (2) during the transition period, existing products can invest in new assets; (3) qualified fixed-term open-ended AM products are measured at their amortized costs; (4) the rules relax the requirements for returning non-standard assets to the balance sheet and encourage the offering of Tier 2 capital bonds; and (5) the rules do not set rigid step-by-step pressure-reduction requirements with financial institutions to effect rectification at their own discretion.

MARKET IMPACT

Stabilizing market expectations. Since the official release of the new rules, such situations as overly rushed implementation or adoption of wait-and-see stances by certain financial institutions have arisen due to the lack of clarity in numerous details, thereby exacerbating some level of anxiety in the financial market. In eliminating misunderstandings of the policies and resulting deviations, the issuance of the detailed rules is conducive to clarifying and stabilizing market expectations. During the transition period, financial institutions can determine the pace of shrinking and clearing of existing products at their own discretion, without having to rely on a “one size fits all” schedule. The detailed rules also strengthen the practicability of financial institutions, ensuring a stable operation of the financial market and better supporting the adjustment, transformation and upgrading of the economic structure.

Wu Jiayin is a partner and Li Sixian is an associate at Boss & Young