BEIJING: China's central bank has issued sweeping guidelines to tighten rules governing asset management businesses, the latest step by Beijing to fend off systemic risks in the huge "shadow banking" sector.
The new guidelines unify rules covering asset management products issued by banks, trust firms, insurance asset management companies, securities firms, funds and futures companies, the People's Bank of China (PBOC) said in a joint statement with the banking, insurance, securities and foreign-exchange regulators.
At the end of 2016, the collective outstanding volume of all asset management businesses was 102 trillion yuan (US$15.38 trillion), according to the central bank.
Financial institutions are not allowed to use asset management products to invest in commercial banks' credit assets or provide "channel service" for other institutions to bypass regulations, according to the statement.
Also, financial institutions will be required to set aside provisions of 10% of their management fee income from asset management products as risk reserves.
The draft guidelines are the latest and most comprehensive set of rules proposed by regulators to fend off shadow banking risks that could spread across different asset classes.
PBOC Governor Zhou Xiaochuan has warned that China's financial system is becoming increasing vulnerable due to high leverage and accumulating "hidden, complex, sudden, contagious and hazardous" latent risks.
"Clearly, this is a critical turning point of the financial regulations." said Zhou Hao, a Singapore-based analyst at Commerzbank."Over the past few years, while the financial risks are rising, the overall regulations were actually behind the curve."
He pointed to two significant developments: "First, the PBOC will play a key role in the new regulatory framework. Second, China is on the track to improve its firewall, to prepare for the new opening up [of financial markets]."
Earlier this year, China set up a top-level committee under the State Council to safeguard financial stability, with the central bank playing a leading role.
China announced last week that it would lift foreign ownership restrictions on local banks and asset management companies.
In the new guidelines, the central bank said financial institutions are forbidden from conducting capital pools to manage funds raised through asset management products.
Financial institutions would also be punished for providing implicit guarantees for asset management products, the central bank said.
Non-financial institutions are prohibited from issuing or selling asset management products.
The central bank said it would control leverage levels for asset management products to curb asset price bubbles. Highly indebted companies are not allowed to invest in such products.
The transition period for the new regulations will be until June 30, 2019, the central bank said.