China tightens rules for scandal-hit confidence sector in campaign to contain risks
China has revised regulations governing the country’s $ 3 trillion trust sector, tightening oversight to help contain financial risks in a key area of shadow banking that has become a growing concern for authorities after a series of scandals and defaults.
The new rules, which come into effect on January 1, represent the first major update to trust regulations since June 2015. They set stricter requirements for shareholders and managers of trust companies and tighten standards for trust companies. persons authorized to engage in investment activities, according to a statement released Tuesday by the China Banking and Insurance Regulatory Commission (CBIRC). They also relax the criteria for foreign financial institutions to invest in the sector and strengthen corporate governance obligations.
“The measures aim to further strengthen regulatory guidance for the sector and improve the effectiveness of oversight of companies entering the sector,” the CBIRC said in a statement. declaration (link in Chinese), adding that the changes were in line with State Council reforms aimed at “delegating power, streamlining administration and optimizing government services.”
Policymakers are increasingly concerned about the potential financial risks in the trust industry, which plays an important role in shadow banking by providing loans to higher-risk companies and those who have difficulty obtaining credit from traditional banks. There are currently 68 companies licensed to conduct trust business in China. Data (link in Chinese) of the China Trustee Association show that at the end of 2019, they managed 21.6 trillion yuan ($ 3.1 trillion) in assets invested in a wide range of financial products, including bonds, stocks, loans to private companies and local government financing vehicles. .
In 2019, nearly a third trusts have been sanctioned by regulators for a range of violations, including making illicit off-balance sheet loans and illegal real estate investments. Shanghai-listed Anxin Trust Co. Ltd. was once the darling of the trust industry, collapsed last year and turned out to be 50 billion yuan black hole in his books.
Slowing economic growth and the fallout from the Covid-19 pandemic have increased financial pressure on the corporate sector, which has had a ripple effect on the health of the trust industry. Many trust companies are now looking for new shareholders to strengthen their financial strength. Huaxin Trust Co. Ltd. announced on November 17 that she was looking for one or more strategic investors inject 3.4 billion yuan to 6.8 billion yuan into the company to help it overcome a liquidity crunch that has already forced it to default on dozens of investment products over the past few years. last months.
Policymakers have highlighted corporate governance failures as a key factor that has contributed to the ills of the financial sector and stepped up a campaign to improve the way companies are run, make them more accountable, improve transparency and s ” ensure that shareholders do not abuse their positions to use companies as personal ATMs.
The new measures require that companies that have become shareholders of trust companies have a track record of profitability in the last three fiscal years. Their net assets must represent at least 40% of their total assets after deduction of the end-of-year profit distribution. In the effort to encourage foreign institutions To invest in the trust industry, the rules remove the requirement that they need at least $ 1 billion in total assets at the end of the previous fiscal year to qualify.
The final version of the regulation contains some minor modifications of the Rough draft released in April of this year. Trust companies must have no record of major violations of laws and regulations in the past three years, against a two-year condition required in the draft. The measures also require trust companies to obtain CBIRC approval before appointing a managing director and chairman, while the draft only stipulated that they had to register personnel changes with the regulator.
Timmy Shen and Han Wei contributed to this report.
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