China Banking Regulatory Commission will issue new regulatory that aims at reducing liquidity risks associated with off-balance-sheet wealth management products (WMP) by forbidding trusts from operating pools of cash and credit assets that enable them to fund cash payouts on maturing products with the proceeds from new WMP sales. Last year, assets under management at Chinese trust firms rose to $1.8 trillion. Regulators prefer trusts to strictly match each WMP with a specific set of underlying assets, rather than pooling cash and assets from different products together into common pools. Further, new rules require trust companies to develop clear mechanisms for shareholders to provide emergency support to the trust firm during periods of liquidity stress and to reduce lending when their capital levels fall due to losses. Finally, the regulator will tighten the approval process for trusts to expand into new business lines.
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3rd February 2021