Extension of the Transition Period to Guide the Smooth Transformation of AMB

Keywords: New AMB Rules | Policy Interpretation | Review Criteria

Since the promulgation of the New AMB Rules in April 2018, the PBOC, in concert with other relevant authorities, has constantly improved the regulatory regime of the AMB industry, and promoted the smooth transformation and standardized rectification of the AMB. With the joint efforts of all parties, the asset management chaos has been effectively curbed, shadow banking risks have been significantly converged, and asset management business has gradually returned to its origin, showing a trend of steady development.

According to the original arrangement, the transition period for the New AMB Rules will end by the end of 2020. Considering the impact of the COVID-19 on the economy and finance, the production and operation of some enterprises have increased, and the standardized transformation of asset management business of financial institutions has been under great pressure. With the approval of the State Council, the PBOC, in concert with five ministries and commissions, made a prudent study and decision to put forward the policy of "appropriately extending the transition period + handling of individual cases", and officially extend the transition period to the end of 2021.

The main considerations for appropriately extending the transition period for the New AMB Rules are as follows:

Firstly, the rectification of asset management stock business shall be carried out smoothly. The COVID-19 has had a two-way impact on asset management business from both the capital and asset sides. In particular, on the asset side, some industries and enterprises have increased operating difficulties, and the original repayment arrangements for some investment projects face adjustments. Appropriately extending the transition period can mitigate the impact of the COVID-19 on asset management business, and is conducive to easing the pressure on rectification of financial institutions.

Secondly, a relaxed environment will be provided for financial institutions to cultivate standardized asset management products. Appropriately extending the transition period can provide AMIs with a better environment and conditions for investment research and innovation of new products, strengthen investor education and long-term capital cultivation, and is conducive to increasing the allocation of various types of compliant assets by asset management products.

To steadily promote the implementation of the New AMB Rules and the standardized transformation of asset management business, the specific arrangements are as follows:

Firstly, the transition period for the New AMB Rules is extended to the end of 2021, and financial institutions may independently adjust their rectification plans based on the locked up assets in 2019. The reason for extending the transition period for one year is based on three considerations: firstly, balance steady growth and risk prevention. Extending the transition period for one year, so that more long-term assets can mature naturally, which is conducive to avoiding the pressure on financial institutions caused by concentrated disposal of existing assets. Secondly, the transition period should not be extended too much. The original purpose of the transition period is to ensure the smooth transformation of asset management business and the smooth transition from old products to new products. An extension of one year can encourage and promote early rectification and transformation of financial institutions, while hedging the impact of the epidemic. Thirdly, maximizing policy effectiveness. The transition period is extended for one year, and the relationship between the rectification of existing business and the development of innovative business can be well coordinated, and the standardized rectification of existing assets can be driven through the transformation and upgrading of asset management business.

Secondly, with regard to individual financial institutions that still fail to make complete rectification by the end of 2021, the financial institutions shall deal with them individually after explaining the reasons and obtaining the consent of the financial regulators, list the detailed disposal plans, monitor the implementation of such plans month by month, and implement differentiated regulatory measures.

Thirdly, the supporting measures for the disposal of existing assets shall be improved. It is encouraged to orderly dispose of existing assets by taking on new products, market-oriented transfer, contract change, balance sheet return or otherwise. Permitted credit assets shall be transferred back to the balance sheet provided that the credit conditions are met, and the regulatory tolerance shall be increased appropriately. Defaulted credit assets, after being returned to the balance sheet, may be disposed of by means of cancellation upon verification and cancellation, batch transfer or otherwise. It is encouraged to dispose of equity assets through market-oriented transfer or otherwise. It is required to properly dispose of the existing assets of stocks invested by banks and avoid any rectification in the form of mere sale. The environment for the issuance of capital replenishment instruments by banks shall be optimized to further enhance the capital strength of financial institutions. The development of financial markets shall be promoted and the continuity ability of new products shall be enhanced. The asset management industry shall be guided to provide long-term and stable funding support to capital markets.

In summary, the policy of "appropriately extended transitional period + handling of individual cases" reflects the idea of "gradual reform" and "time for space" of the regulatory authorities, which facilitates the implementation of the New Asset Management Rules to create a more relaxed environment and relieve the pressure on financial institutions. On the one hand, the policy stabilizes the expectations of financial institutions and reduces the pressure on rectifying non-conforming products in a short period of time; on the other hand, financial institutions have gained more time to obtain long-term funding and enhanced the ability to issue new products to carry on matured assets. The extension of the transitional period will not involve any change or adjustment of the relevant regulatory standards in the New Asset Management Rules.