CBRC releases the Rules on the Capital Management of Financial Assets Management Companies

 

Recently, the CBRC released the Rules on the Capital Management of Financial Assets Management Companies (Provisional) (hereinafter referred to as the Administrative Rules) to step up regulatory efforts on the capital requirements of financial asset management companies (hereinafter referred to as the AMCs), in a bid to shore up systemic weak links and improve regulatory effectiveness, guide the AMCs to focus on their original mandate, i.e. NPA disposal, serve the real economy and supply-side structural reform and standardize diversified business operations. The Administration Rules will come into effect on January 1, 2018.

 

In 2011, to update the regulation for AMCs after its shareholding reform, the CBRC formulated and released the Consolidated Regulation Guidelines on Financial Asset Management Companies (Provisional) (Yin Jian Fa No.20, 2011) (hereinafter referred to as the Guidelines), which raises the regulatory capital requirements for AMCs for the first time. In 2014, together with the Ministry of Finance, People’s Bank of China, China Securities Regulatory Commission and China Insurance Regulatory Commission, the CBRC issued the Regulatory Measures on Banking Asset Management Companies (Yin Jian Fa No.42, 2014) (hereinafter referred to as the Regulatory Measures), which further improved the regulatory rules and requirements on the capital of AMCs.

 

On the whole, a basic capital regulatory framework for AMCs was largely in place, with a set of applicable rules of capital measurement and regulation issued previously by the CBRC. However, the up-to-date regulatory provisions are not systematic enough, which makes it necessary to formulate a set of capital regulatory measures tailored to AMCs. After fully drawing on the international experiences and good practices in capital regulation both at home and abroad, the CBRC formulated the Administrative Rules based on rules and regulations such as the Guidelines and the Regulatory Measures.

 

The Administrative Rules consists of 84 articles in 6 chapters, including General Provisions, Regulatory Capital Requirements for the Group Parent, Regulatory Capital Requirements for the Group, Regulation and Inspection, Information Disclosure and Supplementary Provisions. The Administrative Rules lays emphasis on the following 5 aspects: 1) setting an appropriate capital adequacy requirement in line with the AMC’s business operations, clarifying regulatory requirements for Pillar II and information disclosure, and enhancing regulators’ role and market discipline; 2) setting differentiated asset risk weights to guide AMCs to focus on their primary business of NPA disposal in accordance with the principle of “keeping business relatively concentrated with emphasis on the main business”; 3) ensuring 100% coverage of capital regulation by imposing prudential regulation on asset management groups’ unregulated non-financial subsidiaries that engage in investment and financing activities and have relatively high leverage ratios; 4) incorporating the leverage ratio into the Administrative Rules to form a unified capital regulatory framework, adjusting and improving the calculation methods for the groups’ financial leverage to prevent and control risks associated with off-balance-sheet assets management; 5) requiring the group parents and their relevant subsidiaries to incorporate credit risk, market risk and operational risk into capital measurement, with appropriate measurement methodology adopted.

 

The issuance of the Administrative Rules will help improve the framework of consolidated supervision and capital regulation of AMCs, which can promote the effective implementations of the Regulatory Measures, and thus make regulation better targeted and more effective. It will also allow AMCs to enhance capital utilization efficiency, better play its role in NPA disposal and forestall risks associated with diversified business operations so as to realize steady and sustainable development.

 

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