China’s central bank issued the final version of the tightened asset management regulations on April 27, forbidding guarantee of investment products’ fixed-yield returns and limiting leverage levels to curb potential financial risks.
The new policy will take effect after a transition period by the end of 2020, one and a half years longer than the proposed version, to ensure sufficient preparation for financial institutions and avoid market vulnerability, according to a statement on the website of the People’s Bank of China.
Compared with the proposal released in November, the final version also eased restrictions on the assessment method of invested financial asset value, allowing some to maintain the previous method on the basis of the post-amortization costs, but to encourage using the market value, it said.
The target of the new rules is to restrict banks from investing in high-risk and short-term funding vehicles, while preventing unexpected risks rising from the tightening, especially liquidity risk, experts said.
The regulation has set limits on leveraging based on different investment products’ risk levels, after considering the market’s demand and risk tolerance, given the large amount of asset management products outstanding, according to the statement.
“It is a sign that the nation’s asset management sector is entering a new era, which will lead to a healthy development of the bond and stock markets, as well as reduce the banking system’s vulnerability in the long term,” the Bank of Communications said in a research note.