China’s central bank tightens rules on asset management firms in move to reduce risks
The rules, first unveiled in draft form in November, cover such areas as putting aside income for risk reserves and a ban on implicit guarantees
China’s central bank unveiled far-reaching rules on the asset management sector on Friday, including regulations on leverage limits and a ban on implicit guarantees, as part of broader efforts to reduce financial risks.
Market players have been awaiting the release of the final version of the new rules for China’s US$15 trillion asset management sector. Banks have protested that the draft rules are too stringent, and could be a potential trigger for systemic risks.
The rules, a draft of which was published in November, will close loopholes that have allowed regulatory arbitrage, reduce leverage levels to curb asset price bubbles and rein in shadow banking activity.
The rules were as onerous as expected, with leverage limit caps for financial institutions managed by financial institutions unchanged from levels outlined in the draft guidelines.
The total assets to net assets ratio will be capped at 140 per cent for open-end mutual funds, and at 200 per cent for closed-end and private funds, the People’s Bank of China (PBOC) said in a statement on its website. The regulations will kick in after the end of 2020, it said.
The transition period is a few months longer than the one stated in the draft guidelines, which had said the rules will come into play on June 30, 2019.
Financial institutions will also be required to provision 10 per cent of their commission income from asset management products as risk reserves, the statement said. Financial institutions also cannot offer implicit guarantee on asset management products, and they will be punished for promising payouts.
