CBIRC Solicits Comments on New Approval Rules of Trust Companies

On April 4, 2020, the China Banking and Insurance Regulatory Commission (“CBIRC”) released the Implementing Measures on Administrative Approvals for Matters of Trust Companies (Consultation Paper) ("Draft Measures") for public comment. The Draft Measures proposed new rules for the administrative approval and supervision of trust companies, following the implementation of the Guiding Opinions on Regulating Asset Management Business of Financial Institutions (“Guiding Opinions”) with an increased opening-up of China’s financial market in the foreseeable future. Below are our observations of some key points in the Draft Measures.
Relaxing Market Access Requirement for Foreign Investors
The Draft Measures propose to lift the requirement on the total assets of a foreign financial institution shareholder, namely, its total assets shall be more than one billion USD, which loosens the market access requirement applicable to foreign investors for investing in trust companies and may facilitate more foreign financial institutions investing in domestic trust companies. However, it is worth noting that the Draft Measures do not remove the other remaining qualification requirements for foreign shareholders, and further explicitly require that foreign shareholders shall use their own proprietary funds to make such investment.
Although previously the regulators did not limit the proportion of foreign equity in a trust company, in part due to the imposition of stringent qualification requirements on foreign shareholders, in practice there have been only very few foreign-invested trust companies and foreign financial institutions have normally invested in trust companies as financial investors. Currently, since the Draft Measures relax the restrictions on the foreign investors and the Guiding Opinions encourage investments in standardized products, foreign financial institutions with extensive experience in this area may have more incentive to invest in trust businesses.
Clarifying Details on Administrative Approvals
The Draft Measures amend the details of some administrative approval procedures, in line with the policies of “streamlining administration and delegating governmental authorities”, “smart and reasonable supervision” and “providing efficient services”. For example, the Draft Measures no longer require a trust company with business qualifying for overseas wealth management to report to the CBIRC when conducting such business, thereby loosening the regulation in this regard; remove the provision that trust companies may issue financial bonds and subordinated bonds, to remain consistent with the existing policy that trust companies shall generally not operate any business by using loaned funds, whereas financing by listing is still a viable option under the Draft Measures, which may encourage trust companies to go public; and provide the procedures for trust companies to obtain approval for using proprietary assets to invest in private equities which enable trust companies to properly diversify their businesses.
Facilitating Transformation of Trust Industry
The Draft Measures elaborate in detail on the principle for financial institutions to serve the real economy under the Guiding Opinions by specifying the core businesses of trust companies serving the real economy, such as corporate annuity management business, require the adjustment or expansion of business scope to be subject to CBIRC’s approval, and underscore the regulator’s authority and relevant procedures for reviewing and approving matters regarding trust companies, such as corporate governance, adjustment of business scope, and compliance management. The aforesaid requirements offer guidance to trust companies with respect to improving corporate governance, conducting businesses that serve the real economy, and transforming into a new mode/role of “acting as an investment bank serving the real economy”.
The Draft Measures and the Interim Draft Measures for the Administration of Equity Ownership in Trust Companies implemented on March 1, 2020 together constitute the guiding documents regarding the access to trust business within the framework of the Guiding Opinions. The further opening-up of China’s market for foreign investors and the regulatory trend to encourage businesses to focus on serving the real economy are expected to open a window for foreign financial institutions that have strong investment capabilities with respect to standardized products to participate in the trust businesses of China.
We will continue to monitor the situation and keep our clients apprised of any important developments.