In the News: Goldman, Morgan Stanley Approvals; Insurance Asset Management Rules; and Foreign Investment Complaints

China raised the cap to allow majority foreign ownership of local securities operations for the first time in 2018. Swiss investment bank UBS was the first foreign bank to take advantage of the new rules in 2018. U.S. investment bank JPMorgan became the first U.S. bank to gain approval to do the same in 2019, along with Japanese investment bank Nomura. Another Swiss investment bank Credit Suisse is still awaiting approval for its application. China has said that foreign banks will be able to apply for full ownership of their local securities operations from April, a pledge included in the phase one trade deal between China and the U.S. signed in January, which moved forward the timeline from December.

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CBIRC issues new rules for insurance asset management products

China has issued new rules regulating insurance asset management products and specifying the qualifying criteria for investors in such products. The China Banking and Insurance Regulatory Commission (CBIRC) published the Tentative Measures for the Administration of Insurance Asset Management Products (保险资产管理产品管理暂行办法) on Mar. 25, set to come into effect on May. 1.

The new rules state that insurance asset management products include both debt and equity investment plans, as well as other products approved by the CBIRC. The rules require private investors in insurers' asset management products to have at least two years' investment experience among other requirements including various asset requirements. By the end of 2019, the outstanding value of insurance asset management products in China was $390 billion, CBIRC data shows.

The latest rules are designed to implement in the insurance sector new regulations for the asset management industry more broadly. The industry-wide regulations were introduced in 2018, part of China's efforts to unify and standardize regulations across the asset management industry in recent years, covering the activities of multiple financial institutions including insurers and banks. The new rules will put the insurance sector in line with the broader set of regulations for asset management products, the CBIRC said. It added that insurance asset management products have largely been more prudent and focused on long-term investments in comparison with products offered by other financial institutions. The industry-wide regulations are set to take full effect in 2021, but the recent COVID-19 outbreak has meant that businesses are likely to be given more time to comply with the new rules, a CBIRC official said in early February. 

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MOFCOM publishes draft foreign investment complaint rules

China has issued new draft rules on complaints by foreign-invested enterprises (FIE) in the country. On Mar. 23, the Ministry of Commerce (MOFCOM) published the Draft Rules for Foreign Investment Complaints (外商投资企业投诉工作办法 (征求意见稿)) to solicit public comments, due by Apr. 22. The new rules are designed to "improve the working rules and methods for complaints… and better protect the legitimate rights and interests of foreign investment," a MOFCOM statement said.

The draft rules propose the establishment of a working group led by MOFCOM with the involvement of agencies at all levels of government to handle foreign investment complaints. Chapter 2 of the draft rules outlines the basic procedures for lodging a complaint, including documentation, response time, and possible remedies, which include a mediated dispute resolution with the offending agency or a change to local government's rules or requirements.

The draft rules are part of the implementation of the new PRC Foreign Investment Law (FIL) (中华人民共和国外商投资法), which stipulates that "[T]he state shall establish an FIE complaint mechanism, deal with issues reflected by FIEs or their investors in a timely manner and coordinate the improvement of relevant policy measures" (Article 26). Currently, no unified mechanism exists for handling FIE complaints, although there are avenues for lodging complaints in specific areas, such as the National Intellectual Property Rights Leading Group for licensing disputes. Article 14 of the draft rules stipulates that the working group handling the complaints must notify parties whether their complaint has been accepted within seven days of it being lodged, while article 18 states that a final decision must be made within sixty days. Moreover, article 21 guarantees the protection of trade secrets and private information throughout the complaints process. However, questions remain as to whether FIEs in China will take advantage of this new proposed complaints mechanism. There remains fear among FIEs in China of possible retribution by the authorities if they complain against their treatment, most recently highlighted by various U.S. businesses in China following the signing of the phase one China-U.S. trade deal in January, which included a dispute resolution mechanism.

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