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Two Major Problems in Developing China’s Unified Trust Market
2005-02-11
Xia Bin, Research Institute of Finance of DRC
Research Report No.159, 2004
I. The Banking Regulatory Commission and the Securities Regulatory Commission Must Further Unify the Regulatory Policies
In light of the inadequate and diverse supervision system in China’s trust asset management market, as well as the serious emerging problems and potential risks, the author called in early 2001 for the construction of a unified asset management system, or a trust asset management system in China as soon as possible (see Economic Magazine, May 2001). Now, two years later, the problems not only still exist, but also become more serious, with endless market disputes, continuous emergence of investment risks and a sea of red-lights given by the regulatory agencies. China Banking Regulatory Commission (CBRC) stopped the trust lending business of Minsheng Bank in March 2003, followed by the call of the Securities Regulatory Commission (CSRC) to stop asset management schemes of banking and securities institutions on May 22 of the same year. Under this situation, the author further called to"end the chaotic situation of diverse policies on trust asset management", reported his thoughts to relevant department leaders, and made his voice in newspaper (see Financial & Economic Times, 24 Many 2003). He criticized the lack of coordination and prudence of the supervision system of relevant regulatory agencies, which led to severe risks already emerged.
Now, with the lapse of another year, what are the institutional choice for trust asset management business of banks, securities institutions and trust companies, or otherwise named as"client asset management business"or"collective asset management business"?
There has been no new development since the suspension of the trust lending business of commercial banks. The CBRC has not announced the nullification of the original system, neither has it made any explanation on further modification. At least, the contents of the original system still conflict significantly with the stipulations on trust fund management of trust companies supervised by the CBRC. Notably, in some parts of China, banks are still engaged secretly in trust lending business, either out of ignorance or acquiescence and support of the regulatory agencies.
At the end of 2003, the CSRC announced the nullification of the documents on trust investment management formulated respectively in 2001 and the middle of 2003, and issued the new trial methods for trust asset management business thereupon. Many areas of the new methods were similar and close to that of the methods for trust fund management of trust companies, such as the"one to multiple" trust asset management, non-guaranteed minimum returns, minimum requirements for trust funds, and independent account settlement. Overall, they have indeed drawn from past lessons, and are conducive to the standardization of trust asset management business of securities companies and further prevention of financial risks.
However, it is still necessary for us to think carefully, or for the relevant regulatory agencies to answer after coordination, that why a client uses the same trust fund management service separately in both a securities company and a trust company, and why different regulatory agencies have different supervision systems and policies. For example, the CBRC stipulates that the minimum requirement for trust fund of a single client is RMB50,000, while the CSRC stipulates that the minimum requirement for trust fund of a single client in restrictive collective asset management is RMB50,000, and for non-restrictive aggregate asset management is RMB100,000.
The CBRC stipulates that the number of clients of each trust scheme may not exceed 200 persons, or 200 contracts, while the CSRC does not limit the number of clients of collective asset management scheme.
The CBRC stipulates that the aggregate fund management schemes should be submitted to the regulatory agency for record only; while the CSRC stipulates that the restrictive collective asset management schemes must go through compliance examination, and non-restrictive aggregate asset management scheme must go through comprehensive examination (relevant rules stipulate that there are three kinds of approvals of the administrative departments – examination, certification and putting on record).
The CBRC has no clear stipulation on if the trust funds of clients must be turned to trust management of a third party; while the CSRC stipulates that trust funds of clients must be turned to trust management of a trust asset management institution, such as a third party commercial bank.
The CSRC allows securities companies to participate in the collective asset management schemes of their own companies with their own funds; while the stipulations of CBRC clearly forbid such practice.
The CSRC demands that the investment schemes of collective asset management operation open their accounts in stock exchanges. However, trust investment companies still have difficulty to open their accounts for such schemes so far in stock exchanges (It is said that they may be able to do it after October 1).
The CSRC has no restriction on geographic areas of collective asset management operation of securities companies, while the CBRC clearly restricts trust companies in setting up branch agencies and operating in other areas.
What justifies such different policies and institutional restrictions for a client who trust his funds to the hands of both a trust company and a securities company for the same type of securities transaction, such as stock transaction? As government regulatory agencies, what do the CBRC and the CSRC regard as the rights and interest of the same consumption acts of the same financial consumer, and what is the legal basis of their regulation acts? Is it necessary to unify and coordinate inter-agency policies and give financial consumers the right to get information? In fact, some undue financial risks emerged exactly because of the long-term conflicts between diverse regulatory policies.
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