China wants to get a grip on the country’s shadow banking sector with stricter regulation of the popular trust fund industry. The banking and insurance regulator CBIRC published the draft of a set of rules for the approximately three trillion dollar industry. According to this, the trust companies (trusts) are to divide their business into three categories – wealth management, fund services and charitable foundations – and thus adapt to international standards and concentrate on their original tasks. They should have three years to do this. The opaque structures of the long-unregulated trusts had been used by corporations to raise money despite difficulties in obtaining credit from the banks. Private individuals, banks and companies could also invest in high-risk financial products via the trust companies. This is a thorn in the side of the regulators, because the complex product structures make it difficult for them to identify risks at an early stage. The CBIRC now wants to put a stop to this and prohibit the trusts from setting up such channels to circumvent regulations or other pools of capital outside of the usual structures.
China – Fight Shadow Banking – Economy
