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December 29, 2017

CBRC published a notice on the Administrative Measures to strengthen the capital supervision of financial asset management companies and to safeguard the stable operation of these asset companies. These measures enter into force on January 01, 2018. The measures have been formulated in accordance with the "Regulations of the People's Republic of China on Banking Supervision and Administration" and the "Regulations of the Financial Assets Management Companies."

The notice covers general provisions and specifies that these measures shall apply to a group of assets companies and their affiliates. The key topics covered in this capital approach include capital adequacy ratio calculation and regulatory requirements, risk-weighted asset measurement, group minimum capital requirements measurement, group regulatory requirements for capital, supervision, information disclosure, and by-laws. CBRC has set up a capital regulatory framework for asset-backed companies and has explored the formation of a system of capital measurement and regulatory rules applicable to asset-backed companies. However, the existing regulatory requirements are relatively fragmented and not systematic enough. Therefore, it became necessary to formulate a capital management approach specifically for asset-backed companies. Emphasis is on the following five aspects:

  • First, the bank sets appropriate regulatory standards for capital adequacy in light of the characteristics of the business operations of asset-backed companies, clarifies the regulatory requirements for Pillar II and regulatory requirements for information disclosure, and strengthens the regulatory oversight and market restraint.
  • Second, by setting a differentiated asset risk-weight, asset companies are guided to focus on the main businesses of non-performing assets, in accordance with the principle of "relative concentration and highlighting the major businesses."
  • The third is to impose prudential supervision requirements on non-financial subsidiaries that are not regulated but have investment and financing functions and high leverage in the assets and corporate groups to ensure full coverage of capital controls.
  • The fourth is to leverage the regulatory indicators and requirements into the "capital approach" to form a unified capital regulatory framework.
  • Fifth, it requires the parent companies and related subsidiaries of the Group to include credit risk, market risk, and operational risk in the scope of capital measurement—and in combination with the actual selection of the appropriate risk measurement method by the asset company.

 

Related Links (in Chinese)

Effective Date: January 01, 2018

Keywords: Asia Pacific, China, Securities, Asset Management Companies, Regulatory Capital, Disclosures, Proportionality, CBRC

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