The China Banking and Insurance Regulatory Commission (CBIRC) issued the Interim Measures for Capital Trust Management of Trust Companies (Draft) on 8 May 2020. Since the release of the Guidance for Normalizing the Asset Management Business of Financial Institutions (the New Regulations of Asset Management, or NRAM), the already supposed rules on capital trust supervision were finally settled, and the standardized development of capital trust of trust companies has begun.
The draft makes the supervision standard of capital trusts dock with the NRAM, and explicitly stipulates that the service trust business and the public welfare (charitable) trust business are inapplicable to the draft. In future, from the aspect of supervision, the main business of trust companies will be divided into capital trust, service trust and public welfare (charitable) trust.
Apart from consistently applying to the Trust Law, the above-mentioned trust businesses shall apply to different supervision systems. For example, capital trust businesses belong to the asset management business, abiding by the NRAM, the draft and its affiliated rules. As for service trust businesses, currently there are no uniform supervision regulations issued. Public welfare (charitable) trust businesses mainly apply to the Charity Law and the Charity Trust Management Measures.
Compared with the previous relevant regulations of capital trust businesses, the draft has both tighten-ups and relaxations in the regulations, which further deepen the transformation of the trust industry.
(1) Clarify the private placement property of the capital trust. The draft makes it clear that the capital trust should be raised from qualified investors in a non-public way, and the number of investors should not exceed 200, which casts off the theoretical speculation on public offering trusts after the NRAM was issued. As a result, under the supervision system of the CBRIC, only commercial banks or bank finance subsidiaries can issue public offering finance products.
The draft restricts the business scale under capital trust. Theoretically, a trust company may “creatively arrange” the deal structure to break the scale limit. However, from the viewpoint of the authors, considering the current supervision regulations and practical feasibility, it is difficult to rely on the deal structure innovation to break the scale limit.
(2) Non-standard creditor’s investment trust business is restricted. The draft restricts the non-standard creditor’s investment business from two aspects, namely scale control and operation mode.
In terms of scale control, the draft stipulates that the total amount of all pooled capital trust plans managed by the trust company to invest in non-standard creditor’s rights assets of the same financier and its affiliated parties shall not exceed 30% of the net assets of the trust company (to control the concentration of newly added single financing customers). Unless otherwise stipulated, the total amount of all pooled funds trust plans managed by the trust company to provide loans to others, or invest in other non-standard creditor’s rights assets, shall not exceed 50% of the total paid-up trust of all pooled funds trust plans at any time (to control the overall scale of new non-standard creditor’s rights business). The above-mentioned controls of concentration of single financing customers may lead to the ineffective implementation of a “VIP strategy” by many trust companies, and the overall scale control of non-standard debt business will have a significant impact on the overall business composition of trust companies.
In terms of operation mode, the draft stipulates that the capital trust that directly or indirectly invests in non-standard creditor’s assets shall be a close-type trust, and the instalment raising will probably be prohibited. Therefore, the trust raising ability needs to be further improved, causing an adverse impact on the expansion of every single trust. In the future, the trust funds will largely develop into a “small but beautiful” trend.
(1) Reconstruct the regulations of related transactions. The current Measures for the Administration of Pooled Funds Trust Plan of Trust Companies prohibit the capital of a trust plan from directly or indirectly being used for the shareholders and their affiliates
of the trust companies (except that the trust capital is all from the shareholders or their affiliates) and the mutual transaction between the inherent property of the trust companies and the trust property, or different trust properties.
The draft continues to prohibit trust companies from trading the trust property of different capital trusts, but it is allowed to conduct other related transactions, which is conducive to the sunshine management of the related transactions of trust companies.
(2) Open up the repo financing business among banks and exchanges. According to the Measures for the Administration of Trust Companies, trust companies are not allowed to manage and use the trust property by selling or repurchasing. The draft stipulates that the trust companies should carry out the fixed income securities investment trust business upon the trust documents stipulated, or the written consent of all the investors, and can repurchase the standardized creditor’s rights assets in the open market, or raise capital in other ways approved by the banking regulatory authority under the State Council. The stipulation will help trust companies stand on the same starting line as other asset management institutions to compete for bond investment business opportunities.
In the context of the NRAM and draft, non-standard creditor’s trust business is limited to a large extent, and the future trend of trust companies mainly includes: (1) energetically developing standardized asset investment business, especially in the fixed income securities investment business, to create more lines and development space for trust companies to carry out non-standard creditor’s rights investment business; (2) converting non-standard creditor’s rights assets into standardized creditor’s rights assets through asset securitization and other means; and (3) vigorously developing family trust and other service trust businesses, and returning to the original purpose of trusts.
Ren Guobing is a partner and Lin Shulan is an associate at Jingtian & Gongcheng