In January 2007, the China Banking Regulatory Commission (CBRC) amended and restated its trust regulations and published the Administrative Measures For Trust Companies and the Administrative Measures For Collective Fund Trust Plan Of Trust Companies. While the new regulations retain the key concepts of the previous regulations, the CBRC believes that the new regulations will create a more favorable environment for trust companies to compete with their asset management peers in the banking, securities and insurance industries.
The new regulations contain several positive changes. The terminology has been simplified by renaming the "trust and investment company" as a "trust company". This new name reinforces the trust function of trust companies, while retaining the investment function of trusts. Another change is the limitation of a trust company's on-balance-sheet business scope by limiting investments in financial institutions and financial products. This change greatly reduces the conflict of interest risk between a trust company's on-balance-sheet business and trust business. Also, pre-approval of CBRC or its local branches is no longer required to create a new trust, except in trusts involving cross-region sales promotion and connected transactions.
The most notable change of the new regulations is the introduction of the accredited investor. Previous regulations limited the selling of trust units to less than 200 investors per trust, regardless of the investor's qualification. The new regulations replaced this restriction with a less stringent private placement requirement. The new requirement allows a trust to have unlimited accredited institutional investors but no more than 50 individual investors. While the change is a welcome move in the right direction, it remains to be seen how CBRC as a trust industry regulator will implement such securities-type rules without the help of the China Securities Regulatory Commission (CSRC). The PRC Securities Law requires that any issuance of securities to more than 200 specific people shall be deemed as a public offering of securities which triggers registration requirements with CSRC. Although trust units are not generally included in the definition of securities, the PRC Securities Investment Fund Law has formally recognized as securities the fund shares of (both public and private) securities investment funds that are trusts by legal nature. Under this evolving legal and regulatory framework, the new-born trust regulations have an uncertain life ahead of them.
By Xusheng Yang