A Re-Reading of the Asset Management New Rules: "Guiding Opinions" | A New Era for Asset Management

Source Code Capital Policy Research

Issue 1

In recent years, asset management has grown rapidly, with institutions and capital of all kinds rushing to establish positions. By the end of 2017, total industry scale had surpassed 100 trillion yuan.

This swift expansion has brought a proliferation of market participants, competing interests, and complex operational standards. The need for regulatory coordination had become urgent. On November 17, 2017, the People's Bank of China, together with the CBRC, CIRC, and SAFE, issued the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (Draft for Comment) — known widely as the "new asset management rules." This sweeping policy document thrust the entire industry back into the spotlight. What followed was a cascade of supporting measures: the CBRC issued the Commercial Bank Entrusted Loan Management Measures; the CSRC directed brokerages and private funds to halt investments in entrusted loans and credit assets; and the Asset Management Association of China suspended registrations of collective plans investing in loan projects. Together, these rules touched nearly every aspect of asset management.

On March 28, 2018, the Central Committee for Comprehensively Deepening Reforms approved the draft. On April 27, the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (hereinafter referred to as the "Guiding Opinions") were formally issued. The new regulatory framework for an industry worth over 100 trillion yuan and employing tens of thousands of professionals was now in place. The era of strict oversight had officially begun.

These rules will set the regulatory tone for every sub-sector of asset management going forward, profoundly reshaping how banks and asset managers operate and exerting decisive influence on the performance of various asset classes.

In this new era of tightened regulation, where will asset managers turn? How can business be conducted compliantly? This research brief offers a comprehensive review and interpretation of the new rules and the regulatory thinking behind them; analyzes their impact on asset management operations and emerging opportunities; and proposes strategies for adaptation and business transformation — all to help our firm, strategic investors, and portfolio companies engaged in asset management understand the regulatory landscape and optimize their business development and industry positioning.

Reinterpreting the Guiding Opinions

China's asset management industry, after years of steady growth, has reached a scale exceeding 100 trillion yuan. Now, shaped by evolving market conditions and regulatory philosophy, the industry faces fresh opportunities and challenges.

On November 17, 2017, the "one central bank, three commissions, and one administration" jointly released the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (Draft for Comment) — the "new asset management rules" — ushering in a new era of unified financial regulation. This was followed by the CBRC's Commercial Bank Entrusted Loan Management Measures and the CSRC's window guidance halting brokerage and private fund investments in entrusted loans and credit assets. These measures covered nearly every dimension of asset management.

After four months of public consultation, on April 27, 2018, the PBOC, CBIRC, CSRC, and SAFE jointly issued the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (hereinafter referred to as the "Guiding Opinions or new asset management rules"). The regulatory framework for an industry worth over 100 trillion yuan and employing tens of thousands was now finalized. The era of strict oversight had officially begun.

As the most consequential policy document in asset management history, the new rules introduced unprecedented requirements spanning from basic business definitions to product design, sales, and operations — systematically constructing an entirely new paradigm for the industry. Under this paradigm, the 100-trillion-yuan asset management landscape will be fundamentally reshaped.

Beyond a thorough interpretation of the Guiding Opinions, this brief focuses on the core regulatory principles and objectives underlying them, analyzing their impact on asset management operations, emerging opportunities, and offering strategic recommendations for adaptation and transformation.

According to PBOC data, by end-2017 — excluding cross-holdings — Chinese financial institutions' asset management business totaled approximately 100 trillion yuan. This comprised: bank off-balance-sheet wealth management products at 22.2 trillion yuan; trust companies' entrusted fund management at 21.9 trillion yuan; public funds at 11.6 trillion yuan; private funds at 11.1 trillion yuan; securities firms' asset management plans at 16.8 trillion yuan; fund and subsidiary asset management plans at 13.9 trillion yuan; and insurance asset management plans at 2.5 trillion yuan. Meanwhile, non-financial institutions including internet companies and investment advisory firms have also been actively engaged in asset management.

Yet this rapid growth has exposed serious problems. Inconsistent regulatory rules and standards across similar asset management businesses have fueled regulatory arbitrage. Some products feature multi-layered structures with opaque risk profiles. Pooling models carry liquidity risks. Certain products serve as channels for moving loans off bank balance sheets. Widespread implicit guarantees have fostered shadow banking outside formal regulatory oversight, to some extent interfering with macroeconomic control, raising social financing costs, weakening financial services' effectiveness in supporting the real economy, and amplifying cross-industry, cross-market risk transmission. These challenges threaten the industry's long-term healthy and sustainable development, making regulatory coordination imperative.

The formal issuance of the Guiding Opinions will profoundly reshape banks' and asset managers' business models and decisively influence asset performance. The industry's very survival patterns will be gradually reconfigured.

Asset Management Defined: Exclusively Off-Balance-Sheet

The Guiding Opinions clarify the definition and scope of asset management: it is a financial service in which banks, trusts, securities firms, funds, futures companies, insurance asset managers, and financial asset investment companies accept investor mandates to invest and manage entrusted assets — an off-balance-sheet activity for financial institutions. On-balance-sheet asset management is prohibited.

The Guiding Opinions add "financial asset investment companies" compared to the draft — broadening the scope of institutions covered. The rules also explicitly address performance fee collection and specify that private funds remain subject to dedicated private fund regulations.

Covered products include, but are not limited to: RMB or foreign-currency denominated bank non-principal-guaranteed wealth management products; fund trusts; and asset management products issued by securities companies, securities subsidiaries, fund management companies, fund subsidiaries, futures companies, futures subsidiaries, insurance asset management institutions, and financial asset investment companies. Asset securitization conducted under financial regulatory rules and pension products issued under human resources and social security rules are exempt.

The rules classify products along two dimensions. First, by funding source: public offerings and private placements. Public products target the general public with weaker risk identification and tolerance capacity, carry stronger risk externalities, and face stricter regulatory requirements on investment scope — primarily standardized debt instruments and exchange-listed stocks, with unlisted equity prohibited except as otherwise specified by laws and regulators. Private products target qualified investors with stronger risk capacity, face relatively looser regulation respecting market autonomy more fully, and may invest in debt assets, listed or traded stocks, unlisted equity, income and beneficiary rights, and other assets compliant with laws and regulations.

Second, by capital deployment: fixed income, equity, commodities and derivatives, and mixed products. Following the principle that higher investment risk warrants stricter leverage constraints, different tiering ratio limits apply, with differentiated disclosure emphases for each category.

Core Elements of the New Rules

The Guiding Opinions revolve around seven key themes: pooling, layered structures, implicit guarantees, leverage, asset management entities, products, and channel business. The core focuses are eliminating implicit guarantees, regulating pooling operations, and controlling product leverage. Applied to specific operations, the rules impose further requirements on the funding side, business models, and asset side of financial institutions' asset management activities.

On the funding side: On-balance-sheet asset management is prohibited; principal or return guarantees are banned; and unified leverage requirements apply to all products in the same category. Each open-end public product's total assets may not exceed 140% of net assets; each closed-end public product and each private product may not exceed 200%. Drawing on existing industry standards, the rules unify leverage requirements from both liability and tiering perspectives — stricter for higher-risk investments. Investors seeking amplified returns through leverage will face significant constraints.

On business models: Layered structures and channel business must be eliminated; implicit guarantees must be broken to return asset management to its essence; pooling is prohibited and maturity mismatch regulated. The rules permit investment in one additional layer of asset management products, but that product may not invest further except in publicly offered securities investment funds. For pooling, each product's funds must be managed, accounted, and recorded separately. To reduce maturity mismatch risk, closed-end products must have terms of at least 90 days.

On the asset side: Non-standard assets represent a core regulatory focus for off-balance-sheet business. The Guiding Opinions restrict non-standard development from both demand and supply sides. First, they establish look-through principles: upward to investors, downward to underlying assets. Second, they prohibit direct investment in commercial bank credit assets. With demand contracting, some non-standard-dependent borrowers will return to on-balance-sheet lending or bond issuance, while weaker credits will be forced out. Non-standard supply will also diminish post-implementation.

Our analysis suggests this regulatory round's core objective is complete separation of on- and off-balance-sheet activities, bringing off-balance-sheet business back on balance sheet. The industry may be exiting an era of exploiting regulatory gaps, entering one of finding new business models and directions within regulatory frameworks.

Changes from the Draft for Comment

Five Major Revisions in the Final Guiding Opinions

The final Guiding Opinions largely track the draft, with five significant changes:

1. Clearer, stricter definition of non-standard assets

The Guiding Opinions specify that non-standard debt assets are all debt assets other than standardized debt instruments. Standardized debt instruments must: (1) be divisible and tradable; (2) have adequate disclosure; (3) have centralized registration and independent custody; (4) have fair pricing and sound liquidity mechanisms; and (5) trade on markets established with State Council approval, such as the interbank and exchange markets. Specific recognition rules will be formulated separately by the PBOC with financial regulators.

Condition 5 — "markets established with State Council approval" — is stricter than the draft's "markets approved by financial regulators." This suggests that instruments listed on the China Banking Registration and Settlement Center and Beijing Financial Assets Exchange may not qualify as standardized debt, increasing non-standard volumes and complicating institutions' disposal of such assets.

2. Nuanced approach to mark-to-market requirements

Certain eligible closed-end products may use amortized cost accounting, with all products requiring custodian verification and periodic reporting, plus external audit confirmation.

Amortized cost method application is subject to "dual 5%" constraints. Non-standard assets may still underlie wealth management products, but maturity mismatch is prohibited.

3. Higher qualified investor thresholds

Building on the draft, the Guiding Opinions add a requirement that household financial net assets exceed 3 million yuan, and emphasize investors must have over two years of investment experience.

4. Relaxed tiering restrictions for closed-end private products

The draft prohibited tiering for four product types; the final rules only prohibit it for two — public products and open-end private products.

5. Extended transition period

The transition deadline is set at end-2020, extending the draft's June 30, 2019 deadline by 18 months. Notably, while the transition is longer, banks must still orderly compress legacy business during this period. Some non-standard assets will still face disposal or transfer challenges post-transition.

While the final rules appear somewhat more lenient than the draft on the surface, the overarching regulatory principles remain firm — with enhanced professionalism, uniformity, and look-through. In reality, the rules' impact is only beginning.

Coming next:

Regulatory Thinking and Arrangements Under the New Asset Management Rules

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