Underlying assets review of non-standard asset-management products

Non-standard debt assets are debt assets not traded in the interbank and stock exchange markets, including, but not limited to, credit assets, trust loans, entrusted claims, acceptance bills, letters of credit, accounts receivable, various types of beneficial rights (rights to yields) and equity financing with repurchase terms. Under the context of financial deleveraging, traditional financing channels have been tightened sharply and the threshold for issuing bonds has been greatly raised, while financing methods using non-standard asset-management products, such as trusts, have risen rapidly.

The China Banking and Insurance Regulatory Commission released on its website the Beijing Banking Regulatory Bureau’s decision to punish two trust companies within its jurisdiction in June 2018. The punishment was for not identifying downward the authenticity and compliance of the underlying assets, according to the principle of “penetration”. So, it is evident that the regulators’ supervision of the underlying assets has become increasingly strict, though unified standards for such reviews are still lacking. The review boundary is still widely being discussed in the industry.

UNDERLYING ASSETS

Generally, underlying assets result from the penetration of basic assets. In the case of uncomplicated basic assets, such as accounts receivable, these are underlying assets. However, funds, trusts and wealth-management products are all “packaged” asset-management products. Underlying assets, backed by such basic assets, are relatively complex.

Yao Xiaomin is a partner and Wang Meilin is an associate at Lantai Partners