Overview:
CSRC tightens supervision of private equity.
PBOC removes limits on credit card interest rates.
Pilot of secondary market of personal non-performing loans, using asset management companies.
CBIRC restructures supervision of personal insurance companies.
Product pricing and payout ratios are in focus for health insurance.
Limits on credit card interest rates removed. The People’s Bank of China (PBOC) has implemented a change to credit card policy by removing both upper and lower limits on interest rates, starting January 1. The policy is aimed at creating a higher level of competition between banks and fintech rivals alike, in turn lowering costs for borrowers. The new policy outlines that credit card issuers are able to determine their own interest rates for outstanding monthly balances. Furthermore, according to a notice from late 2020, credit card operators must fully disclose annualised interest rates to card holders. Regulators are looking to restructure the credit cards sector so that it regains a mainstream status within the consumer credit market.
Stricter regulations for the private equity sector. On 8 January the China Securities Regulatory Commission (CSRC) issued with immediate effect Regulations on Strengthening the Supervision of Private Equity Investment Funds, dictating behavioural norms of PE practices and introducing a list of prohibitive requirements for PE fund managers. PE funds can provide short-term loans and guarantees for invested companies for the purpose of equity investment, with the balance of loans or guarantees not to exceed 20% of the actual paid amount of PE funds. CSRC aims to curtail opportunities for untoward manipulation and 「financial engineering」 that disadvantages investors and bring disrepute to the overall PE industry.
SAFE changes market maker rules for interbank FX market. On January 8, State Administration of Foreign Exchange (SAFE) issued revised guidelines for market makers in the interbank FX market. Under the new guidelines, SAFE will delegate the entry and exit management of market making institutions to China Foreign Exchange Trade System (CFETS). Entry thresholds for firms participating in market making will also be lowered, allowing more financial institutions to be involved so providing increased numbers of quotes and liquidity. Monitoring and evaluation mechanisms are also being enhanced. The Guidelines clarify the obligations of market makers to comply with self-disciplined rules and to trade honestly.
Pilot for secondary market for personal non-performing loans. On 11 January, China Banking and Insurance Regulatory Commission (CBIRC) issued a Notice on the Pilot Work for the Transfer of Non-Performing Loans. The first batch of participating banks include: six large state-owned banks and 12 national joint-stock banks. The non-performing loan acquisition agencies participating in the pilot program include financial asset management companies, qualified local asset management companies and financial asset investment companies. Among them, the local asset management companies participating in the pilot program should have good regulatory ratings from the Asset Management Association of China. CBIRC aims to strengthen internal constraints and strictly control operational risks in the transfer process.
New standards for the health insurance industry. CBIRC issued the Notice on Regulating Issues Concerning Short-term Health Insurance Business. The notice focusses on regulating product pricing and payout ratios. It stipulates that insurance product pricing should have a clear rationale and computation and must not promote inflated pricing. Furthermore, insurance institutions are required to regularly disclose their comprehensive payout ratios on the company's official website. The notice addresses outstanding problems hindering the growth of health insurance and provides recommendations for the sustainable development of the industry.
Supervision of majority of personal insurance companies shifts to local BIRC bureaus. On 12 January, CBIRC issued the Reform Plan for the Responsibilities of the Supervisory Body of Personal Insurance Companies. Presently, all personal insurance companies are directly supervised by CBIRC. Of the existing 91 personal insurance companies, CBIRC will retain direct supervision of 39 companies, while 52 companies will be supervised by provincial or local BIRC offices. The criteria by which companies would be retained by CBIRC are based upon their importance, asset scale, risk status and other indicators. The change is designed to deliver a more efficient and flexible regulatory regimen for stimulating market vitality.
Supervision of asset management companies to be segmented based on ratings. On the 12 January, CBIRC issued Interim Measures for the Regulatory Rating of Insurance Asset Management Companies, announcing that the insurance asset management supervision will shift to a segmented system, based upon their industry rating. Insurance asset management companies will be classified into four levels: A, B, C, and D. Each classification will be subject to differentiated regulatory measures in terms of market access, business scope and product innovation. Additionally, the measures set a one-year pilot to prepare the industry for compliance requirements based on evaluation indicators. For example, class A institutions will receive appropriate support, and class C and D institutions will be subject to strengthened supervision. This could include suspending business qualifications when necessary. The new supervision mechanism will include positive incentives, prompting the transformation of the industry by companies integrating external supervision requirements into internal company norms of operations and managements.
Expansion of digital currency (E-CNY) pilots now includes milk tea! The use of E-CNY is gradually increasing by a series of distinct pilots. On 8 January in Lujiazui, Shanghai its pilot was expanded to even include a milk tea café. This was in keeping with president of PBOC Yi Gang’s recommendation to develop progressively pilots into a great variety of situations and applications. These pilots will ensure that China’s legal digital currency will meet the expected public demands within the emerging digital economy. Another pilot allowed Alipay employees to use E-CNY payments in certain circumstances while 「ordinary users」 are unable to do so. Beijing’s first central bank digital currency terminal was positioned in a coffee shop in Fengtai district. In Suzhou, users could place orders using digital RMB on JD.com. Didi, Meituan Dianping and Bilibili have all cooperated with a number of banks participating in previous E-CNY projects.