China to further open up foreign investment in trust company
On 14 April 2020, the China Banking and Insurance Regulatory Commission (“CBIRC”) issued theImplementation Rules on Administrative Licensing of Trust Companies (Draft for Comments).
On 14 April 2020, the China Banking and Insurance Regulatory Commission (“CBIRC”) issued theImplementation Rules on Administrative Licensing of Trust Companies (Draft for Comments), which cancels the total asset requirement of a foreign financial institution before investing in domestic trust companies, and further implements the policy to open up foreign investment in trust industry in China.
Earlier this year,Interim Measures for the Equity Management of Trust Companies, effective on 1 March 2020, have eliminated the threshold requirement that foreign financial institutions must have a total asset of not less than US$1 billion before investing in domestic trust companies.
The successive regulatory policies aim to further relieve policy constraints, achieve equal treatment for domestic and foreign investors in China, and thus accelerate the opening-up of the trust industry to foreign financial institutions and attract them to enter the market or increase investment.
The first stage: Introduction of foreign capitals to domestic trust companies for the first time
In August 2007, the China Banking Regulatory Commission (“CBRC”, the predecessor to the CBIRC) issued theImplementation Measures for Administrative Licensing Matters Relating to Non-banking Financial Institutions, which stipulates that a single foreign financial institution’s shareholding in domestic trust shall not exceed 20%, and it and its affiliates shall not invest in more than two trust companies. This is for the first time that China lifted restrictions on equity holding in domestic trust companies by foreign financial institutions.
Since 2007, 11 trust companies have introduced foreign shareholders.
The second stage: Foreign financial institutions may have controlling right in trust companies
It is possible that due to the restrictions on the shareholding ratio of foreign shareholders, or their lack of understanding of the operation mode of domestic trust companies under China’s complex financial policies, foreign financial investors, brought in as strategic investors, cannot fully utilize their resources, or the investment return did not meet their expectations, and as a result some foreign shareholders began to withdraw their investments in 2015.
To build up confidence of foreign shareholders in domestic trust companies, the supervisory authorities proposed to encourage the trust industry to return to its origin of business, and cancel the restrictions on the shareholding ratio of foreign shareholders in trust companies:
In April 2014, the General Office of the CBRC issued theGuiding Opinions on Risk Supervision of Trust Companies. For the first time, the supervisory authorities proposed to encourage trust companies to take the path of differentiated development, and the integration of various businesses such as asset management, investment banking and fiduciary services, which intended to promote the domestic trust companies to develop into modern trust institutions with controllable risks, compliance with laws and regulations, continuous innovation, and core competitiveness.
In June 2015, the CBRC issued theImplementation Measures for Administrative Licensing Matters of Trust Companies, which stipulates that the number of trust companies which a foreign financial institution controls shall not be more than one, relaxing the shareholding restrictions on foreign shareholders for the first time. In other words, a foreign financial institution may have a controlling interest in domestic trust companies.
Although the supervisory authorities have policies to promote foreign capital to invest in trust companies, they have not resulted in foreign financial institutions to expand their investment in domestic trust companies, and no foreign financial institutions have become the controlling shareholders of any domestic trust companies.
The third stage: further reducing the requirements for foreign financial institutions to invest in trust companies
On 11 April 2018, Gang Yi, the Governor of the People’s Bank of China announced 12 measures for China’s financial reform and opening up at the Boao Forum for Asia, one of which is to encourage the introduction of foreign capital in the banking sector such as trust, financial leasing, auto financing, currency brokerage, consumer financing, etc.
On 27 April 2018, theAccelerated Implementation of the Opening-up Measures in the Banking and Insurance Industry by China Banking and Insurance Regulatory Commissionwas published onthe official website of the CBIRC, once again emphasizing the promotion of foreign investment facilitation, including the cancellation of the shareholding ratio restrictions of foreign investment in Chinese banks and financial asset management companies, and implementation of consistent equity investment ratio rules for both domestic and foreign, encouraging financial institutions such as trust, financial leasing, auto financing, currency brokerage, consumer financing and other banking financial institutions
to introduce foreign professional investors.
On 1 May 2019, Shuqing Guo, Chairman of the CBIRC, said in an interviewon the opening-up policies of the banking and insurance industry: “12 opening-up measures are to be introduced, one of which is to eliminate the threshold requirement that foreign financial institutions need to have a total asset of not less than US$1 billion to invest in domestic trust companies”.
In line with the above policies, theInterim Measures for the Equity Management of Trust Companies was implemented on 1 March 2020 and theImplementation Rules on Administrative Licensing of Trust Companies (Draft for Comments)was issued by the CBIRC on 14 April 2020, under which the requirement of total assets of US$1 billion for foreign financial institutions to invest in trust companies is eliminated with an intention to further lower the threshold for foreign institutions to invest in trust companies in China.