The China Banking Regulatory Commission issued a consultation document on regulating wealth management, according to the Chinese-language 21st Century Business Herald.
The key changes are to tighten the requirement for investing in the equity market and non-standardised credit assets, or the NSCAs, and to implement a compulsory reserve requirement for wealth management product assets.
According to the report, the CBRC is looking to divide wealth management products into mass and comprehensive classes. It proposed that "mass-market” investors can only buy WMPs that invest in bonds or other money market instruments. "Comprehensive-market” investors can invest in bonds, equity and other NSCA products.
High net worth individuals with more RMB1m ($150,000) in financial assets may be considered as comprehensive investors.
The new classification of investors should reduce the number of novice investors investing in equities and the NSCAs, UOB Kay Hian said in a research note.
“To banks, this is positive in the long-term as this would reduce banks’ reputation risks. Most of these investors are not likely to be familiar with the associated risks for these products and are likely expecting banks to guarantee the returns. While banks should see lower fee income, such an impact should be manageable,” UOB said.
However, the new rules are expected to be a negative for China’s A-share markets due to concerns that there will be a lower inflow of new money into the market, UOB added.
The outstanding value of WMPs rose to RMB23.5trn, or 35% of China’s GDP, at the end of 2015 from RMB7.1trn three years earlier, according to China Central Depository and Clearing.