By Yang Qiaoling and Wang Yuqian
(Beijing) — China's banking regulator said it is developing new rules for trust companies so they can shed their image as "shadow banking" channels to help uncreditworthy firms get loans.
The new regulations will center on dividing trust products and services into eight categories based on how funds are invested, said Yang Jiacai, assistant to the chairman of the China Banking Regulatory Commission (CBRC), which supervises trust companies. He made his remarks at a meeting organized by the China Trustee Association.
The classification will address some of the most pressing concerns the regulator has about trust companies. Unlike their namesakes in other countries, trust companies in China often act as a channel through which companies can get loans when they have trouble borrowing directly from banks.
"Next, the regulator will research what risk stands out in each category and what tools are needed to control it," Yang said. This will allow the CBRC to better control the risk of all trust company businesses and make them "throw away the hat of shadow banking," he said.
Yang did not say when the CBRC may announce the new regulations.
The categories Yang revealed include debt, investment in non-public company equities, securitized assets, both exchange-traded and over-the-counter securities, as well as transactions with other financial institutions such as banks and securities firms. Another two types of operation would be managing non-monetary assets for clients and running charitable trusts.
Trust companies would be required, for example, to group together and report all products that either receive money from or direct funds to other financial institutions, according to Yang. This would pave the way for better monitoring and regulation of "channel" businesses because such products are often used when trust companies serve as a conduit for loans.
"Interbank businesses must follow interbank rules and be all subject to the regulator's monitoring, so it can see and control where the funds come from and where they go," Yang said.
Measures that the regulator is considering to change how trust companies manage clients' investment include differential rates for provisions they must contribute to a centrally managed fund used to deal with emergencies, such as when a trust company goes bankrupt, Yang said.
To discourage trust firms from serving as a channel, for example, the regulator could require them to pay more into the fund for interbank businesses, he said.