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1 September, 2016
The China Insurance Regulatory Commission (CIRC) has promulgated the Notice on Strengthening Supervision over Portfolio Management in respect of Insurance Asset Management (Notice) which came into force on 13 June 2016. The Notice imposes requirements on insurance asset managers' qualifications, the scope of underlying assets, and issuance and registration of portfolio products.
In addition to those requirements set out in the Notice on Issues regarding Trial Operation of Asset Management Product Business by Insurance Asset Management Companies which was issued by the CIRC in 2013, an insurance asset manager is now required to meet the following requirements:
- it has been qualified to manage insurance funds for at least one year;
- it has a dedicated department for insurance asset management products, which is equipped with at least five professionals with experience in product development and design, investment management, legal and compliance, as well as risk management;
- it has the management capability as required by the CIRC for the underlying assets invested if it is to issue a portfolio product;
- it submits an external special audit report on the internal control of utilisation of insurance funds for the preceding year;
- it is not being investigated by any regulatory or judicial body or under rectification due to any act in violation of laws or regulations; and within the last three years, it has not received any administrative charges or criminal penalties as a result of any severe breach of laws and regulations or from acting in bad faith.
The underlying assets which may be invested have been categorised into the following types:
- domestic liquid assets, which include cash, money market funds, demand deposits, call deposits, as well as government bonds, quasi-government bonds and reverse repurchase agreements with a remaining period of one year or less;
- domestic fixed-income assets, which include term deposits, agreement deposits, bond funds, (non-)financial institution (corporate) bonds, as well as government bonds and quasi-government bonds with a remaining period of more than 1 year;
- domestic equity assets, which include publicly offered and listed shares (excluding shares traded on National Equities Exchange and Quotations), equity funds and hybrid funds; and
- infrastructure investment plans, equity investment plans and asset-backed plans issued by an insurance asset management company.
If a product is directional and the investors are not insurance institutions, the categories of underlying assets to be invested can be agreed upon with the investors in the agreements and other legal documents.
Insurance asset management companies are required to specify the types of products in the offering documents.
The CIRC also requires that the registration, issuance, subscription and repurchase of a product and the information disclosure shall be made through the designated asset trading platform. The detailed rules and requirements will be issued separately.
For those products which were issued before promulgation of the Notice, insurance asset managers need to adjust the products if no definite term has been set for the products, or not to permit new subscription requests if a definite term has been set for the products.
The CIRC has issued various notices and regulations regarding utilisation of insurance funds. It is the aim of the regulator to reduce the number of prior approvals, give more flexibility to market players and in the meantime, to better ensure the safety of insurance funds and improve the risk control by market players.
For further information, please contact:
Carrie Yang, Partner, Clyde & Co
carrie.yang@clydeco.com
