CBIRC rolls out new policies to stabilize financial markets

China’s top banking and insurance regulator announced on Friday a slew of measures, including allowing banks’ wealth management funds to be invested into stocks, aiming to help bring the country’s financial markets back on track for healthy development.

The move came at a time when the A-share market saw a big sell-off on Thursday, with the benchmark Shanghai Composite hitting a new low since November 2014.

Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC), noted in an interview with the China Securities Journal that the recent abnormal turbulence in the A-share market, triggered by various factors, is “out of line with the fundamentals of China's economic development and inconsistent with the overall soundness of its financial system."

The watchdog said on its official website that it will begin to seek public feedback from 19 October to 18 November on the draft rules for banks to set up wealth management subsidiaries.

The new policy proposes to allow funds from products publicly sold by banks' wealth management subsidiaries to be directly invested on the stock market, in addition to the money raised from privately-sold products. And there will be no more minimum investment requirements for investors to buy such products from the new entities.

The minimum registered capital for bank wealth management subsidiaries is 1 billion yuan (US$140 million) and wealth management subsidiaries launched by the lenders will be asked to set aside a risk reserve fund, according to the draft rules.

The watchdog said that it will be conducive for commercial banks to strengthen their capabilities of risk isolation by encouraging them to establish special institutions to do wealth management business. And the move will also be helpful to break the rigid payment practice across the banking industry in an orderly manner.

Financial banking institutions are also required to manage the risk related with equity pledge financing in a scientific and reasonable manner.

CBIRC added in the announcement that it aims to bring full play to the long-term stable investment of insurance funds, and increase their financial and strategic investment in high-quality listed companies.