Guidelines on business co-operation between banks and trust companies

Content summary

The Guidelines consist of four chapters and 33 articles, containing general provisions and chapters covering wealth management co-operation between banks and trust companies, other co-operation between banks and trust companies, and risk management and control.

1. The chapter in respect of wealth management co-operation between banks and trust companies mainly covers the fundamental requirements for wealth management co-operation and the provisions abided by banks and trust companies, and specifies trust companies' management duties on wealth management products co-operatively structured by banks and trust companies, and information disclosure obligations respectively assumed by banks and trust companies.

Article 8 covers the basic requirements for management systems of wealth management co-operation between banks and trust companies. Banks and trust companies shall establish management systems suitable for their wealth management co-operation, including but not limited to the system of examination and approval of proposal initiation, the compliance and risk management system, and the information disclosure system, and they shall set up sound management systems for front, middle and back offices.

Article 9(4) of the Guidelines provides that in the absence of strict estimation and where no estimation basis and estimation methods are provided, words like “expected yield” or “highest yield” or similar expressions can not appear when promoting a wealth management plan. Such provision aims to rectify the inappropriate practices previously arising from co-operation between banks and trust companies before CBRC issued the Guidelines.

2. The chapter in respect of other co-operation between banks and trust companies mainly covers the obligations respectively assumed by banks and trust companies in the process of the securitisation of credit assets, and the requirements for other co-operation, such as trust plan promotion by banks on trust companies' behalf, collection and payment of trust funds on an agency basis, and banks acting as custodians for safekeeping funds of trust plans.

Article 15 stipulates that when banks and trust companies conduct co-operation on the securitisation of credit assets, matters such as the scope and type of the credit assets in the proposed securitisation shall be clearly specified and in line with the asset information actually disclosed; trust companies may engage intermediary institutions to audit such credit assets and shall at their own discretion elect institutions such as loan services institutions providing services for securitisation transactions; after securitisation of the credit assets, trust companies shall have access to information regarding the management situation of the credit assets at any time. This provision strengthens trust companies' status in the co-operation on the securitisation of credit assets, and clearly specifies their obligations.

In respect of the scenario where there has been a sharp decline in the issuance of wealth management products co-operatively structured by banks and trust companies after entry into a period of interest rate cutting, Article 20 of the Guidelines specifies that trust companies can use trust funds to make equity investments into financial institutions. This move may help improve trust companies' profitability to some extent, and promote mixed operations of financial institutions. However, the implementation of relevant detailed measures shall be decided by regulatory bodies.

3. The chapter in respect of risk management and control mainly covers the risk management system in the co-operation between banks and trust companies.

With a view to preventing circumvention of credit control by banks through off-balance-sheet guarantee instead of on-balance-sheet lending, Article 26 provides that banks must not provide any form of guarantee for trust products related to wealth management co-operation between banks and trust companies, and for the objects of asset operation under the trust plans of the products.

Article 27 stipulates that when trust companies invest in credit assets or instrument assets held by banks, this shall be carried out by means of buying out, and the banks shall not make a re-purchase in any manner. Such provision aims to restrain banks from undertaking guarantees in a disguised form through re-purchasing.

The Guidelines provide a clearer legal basis for business co-operation conducted by banks and trust companies, favourable to the long-term and healthy development of business co-operation between banks and trust companies.