Impact of New Banking Regulations on Private Fund Distribution
On March 21, 2025, the National Financial Regulatory Administration (NFRA) issued the Administrative Measures for the Agency Distribution Businesses of Commercial Banks (“Measures”). Article 2 of the Measures defines the Agency Distribution Business as the activity whereby commercial banks entrusted by financial institutions under the supervision and administration of financial regulatory authorities under the State Council and holding financial licenses (“Cooperating Institutions”), promote and distribute financial products issued by such Cooperating Institutions to banks’ customers. The following is our brief commentary on the impact of the Measures on the distribution of private funds by commercial banks.
Commercial banks serve as the main channel for financial product distribution in China, with a wide range of products including wealth management products, public funds, private asset management products, insurance asset management products and trust plans.
As private fund managers are not licensed financial institutions (as defined in Article 2 of the Measures), commercial banks are not permitted to directly distribute private funds. The Measures keep alignment with such restriction, but it is important to note that the Measures allow cooperation between commercial banks and private fund managers through two indirect models:
Model 1
Commercial banks distribute asset management products issued by Cooperating Institutions that are wrapped with or invest in private funds.
This model currently serves as one of the primary fundraising channels for private fund managers, including QDLP fund managers. Generally, private funds may be wrapped within private asset management plans or trust plans, thereby allowing the products to become eligible for distribution by commercial banks indirectly. Through investment in such financial products, banks’ clients may gain indirect exposure to private funds, including QDLP funds. This structure enables private funds to access high-net-worth individual clients via bank distribution channels.
Model 2
Commercial banks distribute asset management products issued by Cooperating Institutions, with private fund managers serving as investment advisors.
In practice, it is common for private securities fund managers to provide investment advisory services for trust plans. Given the relatively relaxed requirements for investment advisors under trust plans, private fund managers can easily participate in the investment management of these trust plans. Under this model, products distributed by commercial banks are also issued by licensed financial institutions, with the private fund managers merely providing investment recommendations, thereby ensuring compliance with the regulatory requirements.
These two models allow commercial banks onboarding private funds in compliance with regulations, facilitating business cooperation between private fund managers and commercial banks.
Nevertheless, the Measures impose relatively high thresholds on private fund managers under these two models. These include, the AUM of private funds shall not be less than RMB 500 million for PE-type funds and not be less than RMB 300 million for private securities-type investment funds; managers must be registered with the Asset Management Association of China (AMAC) for no less than three years, with no administrative penalties or disciplinary actions imposed by the AMAC in the past three years, and they must comply with other statutory and regulatory requirements set by the financial regulatory authorities of the State Council.
Given that the Measures will come into effect on October 1, 2025, there is a transition period for existing private fund managers to make the necessary adjustments to meet these requirements. However, for newly established private fund managers, whether WFOE PFMs or QDLP managers, this essentially stops banks from directly or indirectly distributing their products. This will have a significant impact on newly established private fund managers who rely on bank distribution channels to quickly grow their AUM. As a result, these managers will need to seek alternative distribution channels (such as securities companies or third-party distribution agencies), thus increasing the difficulties and challenges for distribution.
The Measures further require commercial banks to establish and effectively implement a due diligence, evaluation, and approval system for their Cooperating Institutions (i.e., those licensed financial institutions), which is commonly referred to as a bank “whitelist” system. On this basis, the Measures impose stricter requirements on the management of Cooperating Institutions by banks. Banks are required not only to conduct rigorous evaluations when onboarding new Cooperating Institutions, but also to strengthen the management of their ongoing relationships, including holding periodic reviews and evaluations of the Cooperating Institutions. When reviewing financial products managed by these institutions, particularly if these products invest in private funds or entrust private fund managers as investment advisors, banks must obtain approval from senior management and involve different departments in comprehensive assessments, such as departments of distribution management, risk management, legal compliance, and consumer protection. Banks must enhance their review processes to prevent Cooperating Institutions from outsourcing management responsibilities or facilitating the circumvention of regulatory requirements for other institutions, individuals, or asset management products. These requirements elevate the compliance standards for banks and impose higher expectations on their Cooperating Institutions. These institutions must not only adhere to the banks’ ongoing scrutiny and evaluation requirements, but the products they manage must not be used as channels for investing in private funds or for transferring management responsibilities, nor for circumventing any regulatory restrictions.
Overall, the implementation of the Measures will have a profound impact on the distribution of private funds and the cooperation between private fund managers and commercial banks.
On one hand, private fund managers will need to strengthen collaboration with licensed financial institutions, such as public fund managers, securities companies, trust companies, and bank wealth management subsidiaries, in order to enter the bank distribution system through wrapper structures or advisory models (although direct investment in private funds by wealth management subsidiaries may still face practical challenges for onboarding). On the other hand, to avoid being criticized as engaging in so-called “channel business”, where banks lack sufficient due diligence on the underlying private fund products and fail to provide adequate investor education, the Measures explicitly require banks to implement stricter product screening and risk control measures for financial products issued by licensed financial institutions that invest in private funds. As a result, private fund managers will also need to optimize their product structures and improve compliance transparency to meet the risk control criteria for bank distribution businesses.
In addition, we note that the Measures also impose more stringent regulatory requirements on the distribution of asset management products. These include strengthening product screening, enhancing the qualifications of sales personnel, regulating sales practices, strengthening investor suitability management, and improving information disclosure systems. While these measures will prompt banks to enhance their compliance management capabilities, they will also increase operational and compliance costs. To meet these regulatory requirements, banks will need to reinforce their internal risk control mechanisms and ensure transparency and compliance in their distribution practices.
We will continue to monitor the implementation of the Measures and share the latest developments with our clients.
