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China issues strongest supervision standard for financial products

By Chen Jia | | Updated: 2017-11-17 22:33

China's top financial regulators issued guidance Friday for overseeing asset and wealth management products from all types of financial institutions, serving as the country's first unified and strongest supervision standard on this area of business.

The new regulation aims to solve the issues of high leveraging, supervisory arbitrage and implicit guarantee of potential returns on these products, seen as the main sources of worrisome "shadow banking" risks, said a statement from the People's Bank of China (PBOC) on its website.

Financial institutions should reserve 10 percent of product management fees as a provision, unless the provision is higher than 1 percent of the products' total value, the guidance said.

"Asset and wealth management products belong to off-balance business, so investment risks should be taken by investors themselves," it said.

Personal investors cannot use bank lending as investment capital in these products, while enterprises with high debt levels are banned from this investment, according to the statement.

It is the first unified regulatory standard covering all asset and wealth management products issued by banks and companies involved in securities, trusts, futures, insurance and fund management. This standard is based on a coordinated policymaking procedures composed by the central bank, the foreign exchange regulator, and other financial regulatory commissions on banking, securities and insurance.

"Nonfinancial institutions are forbidden to offer or sell asset and wealth management products," according to the guidance.

The regulations will not take effect until July 2019, providing institutions ample time to comply with the newly announced guidance.

By the end of 2016, the total value of banks' asset and wealth management products reached 29 trillion yuan, including 23.1 trillion yuan of products off the balance sheets, taking into account 28.4 percent of all the asset management business done by Chinese financial institutions, according to data from the PBOC.

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