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China's New Wealth Industry Regime Charges Up Global Banks

Nikita Kataruka
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Amid recent rules issued by China, aimed at strengthening the risk management practices of its commercial banks’ wealth management subsidiaries, foreign firms are being tempted to quicken their plans of entering and expanding in the local markets of this country. The news was reported by Reuters.

While the wealth management industry in China is the world’s fastest-growing business, its products are generally considered as illiquid high-risk products.

Therefore, in order to reduce debt and decrease the sale of risky products, the country has asked its domestic banks to separate their wealth management businesses, per sources.

The private banking units of China’s five major commercial banks — including Industrial and Commercial Bank of China — have already received regulatory approval to set up their wealth management units. Hence, these banks are expected to launch their operations soon, per the China Banking and Insurance Regulatory Commission (CBIRC).

Per the guidelines issued by China regulators in December, these units are required to maintain separate books of accounts and “perform the duties of entrusted wealth management honestly, diligently, and responsibly.”

This move comes after the China Securities Regulatory Commission (CSRC) announced in 2017 that it will allow greater access to global banks into the country’s financial markets, presenting foreign companies the chance to increase majority stake to 51% in securities’ joint ventures, up from the existing ceiling of 49%.

Notably, Swiss bank — UBS Group AG UBS — became the first foreign bank to get approval from CSRC to increase majority stake in its securities joint venture.

Moreover, Nomura Holdings Inc. NMR and JPMorgan JPM are looking to seek permission for majority stake. JPMorgan is considering the option of establishing a private bank in China and hence is conducting a feasibility study on its onshore wealth business.

Notably, in the past year, a 51%-owned securities joint venture was initiated in China by HSBC Holdings HSBC under rules permitting special rights to Hong Kong-based firms.

Morgan Stanley MS and Goldman Sachs GS are also among the major brokerages likely to acquire majority stakes in their China joint ventures.

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