China tightens regulation of asset management products

In a joint statement released last week, the People's Bank of China and banking, insurance, securities and foreign exchange regulators announced new unified regulations on asset management products. The rules not only bring consistency to regulation of products and providers, but clarify the properties of investment products. The new rules also seek to rein in banks' efforts to circumvent financial regulation through the use of asset management products. Seller can no longer promise fixed or guaranteed returns. Firms must also set aside 10 % of their fees collected from investors to offset investment losses. The comment period on the proposed regulations runs until mid-December, and the period of transition to the new regime extends through June 2019.

Demand for asset management products in China has soared on the promise that such products offer much higher returns than bank deposits. Even with a vast range of investment options, large investment losses are seldom reported as the asset product sellers prefer to cover investor losses out of their own pockets. Investors also assume asset management products to be implicitly backed by the government.