China steps up regulations of $3 trillion bank wealth management products

BEIJING (Reuters) - China's banking and insurance regulator on Friday released long-awaited draft rules to strengthen regulations of commercial bank wealth management businesses, the latest step by Beijing to fend off systemic financial risks.

The regulator said wealth management products (WMPs) should be managed based on their net value and banks must standardise the management of their fund pools to prevent shadow banking risk, according to an online statement.

The new rules will supplement China central bank's overarching guidelines to tighten supervision of the country's $15 trillion asset management products issued by banks, trust firms, insurance asset management companies, securities firms, funds and futures companies.

They also aim to push banks to standardise their wealth management businesses and to invest WMP funds into the capital markets in a compliant way. The banking regulator also aims to force banks to break the practice of providing investors with implicit guarantees against investment losses.

At end-June, the outstanding amount of non-guaranteed bank WMPs stood at 21 trillion yuan ($3.09 trillion), with about 70 percent invested in standardised assets such as bonds, deposits and money market instruments, according to the China Banking and Insurance Regulatory Commission (CBIRC).

About 15 percent of WMP funds is invested in non-standard debt assets, which typically refers to shadow lending. Bank WMP's non-standard investment is not allowed to exceed 35 percent of the net asset of their WMPs or 4 percent of bank total asset.

Banks are also required to strengthen liquidity management and stress test to control risk. They will not be allowed to use WMPs to invest in any bank WMPs or provide "channel service" for other institutions to bypass regulations.

The new rules will lower the minimum amount of client subscription to any single public WMPs to 10,000 yuan from 50,000 yuan, in line with the central bank's asset management rules.

The transition period for the new regulations lasts until December 31, 2020, the statement said.

The banking regulator is also drafting rules that regulate bank subsidiaries created to conduct wealth management businesses, it said.

($1 = 6.7867 Chinese yuan renminbi)

(Reporting By Beijing monitoring desk; Writing By Shu Zhang; Editing by Shri Navaratnam and Michael Perry)