The logic of reforming trust company operation and governance

By Yao Xiaomin and Cai Min, Lantai Partners
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According to the State Council Institutional Reform Plan, establishment of the National Financial Regulatory Administration (NFRA) evolves the new regulatory system from the original mixed-operation and sectoral model of regulation to a functional and integrated regulatory system.

The external regulatory policy environment has an important impact on improving the operation and governance of trust companies.


With institutional reforms over the years, the regulatory authority of trust companies has switched several times, from the People’s Bank of China to the China Banking Regulatory Commission in 2003, and to the China Banking and Insurance Regulatory Commission in April 2018. Regulatory trends from 1979 to the present can be roughly divided into four stages:

trust company operation and governance
Yao Xiaomin
Lantai Partners
    • From 1979 to 2000, regulation closely followed macro policies, and the trust industry underwent five rounds of restructuring. Ultimately, the number of trust institutions was reduced, trust businesses were cleaned up, and trust companies were separated from banks and securities companies, implementing the sectoral model of regulation.
    • From 2001 to 2007, the trust industry’s Trust Law, Trust Investment Company Management Measures, and Interim Measures for the Administration of Capital Trust of the Trust and Investment Companies were formally promulgated. In 2007, trust investment companies were renamed trust companies, divesting their industrial assets and clarifying their nature as non-bank financial institutions.
    • From 2008 to 2016, the trust business grew rapidly. Regulatory requirements were mainly focused on the business field and the industry was encouraged to develop. As trust products required registration, the industry trended towards channelisation and various “innovative” and “arbitrage” trading modes emerged, laying hidden risks for future developments.
    • From 2017 to the present, regulation has become stricter, emphasising a return to the essence of trusts. Regulatory authorities have carried out special rectification activities and issued several documents to clarify that the trust industry should return to its essence, compressing financing and channel trust products.


trust company operation and governance
Cai Min
Lantai Partners

As a highly regulated industry, the trust industry is directly influenced by external regulatory standards such as national macro policies and financial regulatory requirements. The Company Law established a new governance structure comprising the shareholders’ meeting, board of directors, supervisory board and senior management. As non-bank financial institutions, trust companies became subject to regulatory requirements for financial institutions, non-bank financial institutions and trust companies themselves.

To avoid redundant regulation and regulatory arbitrage, regulatory authorities often require trust companies to comply with banking-related regulations at the financial institution level. In addition to financial regulatory requirements, trust companies with state-owned enterprise backgrounds must comply with state-owned asset regulatory requirements.


Regulatory standards for trust companies mainly focus on the following aspects:

(1) Strengthening the party’s leadership. In recent years, the importance of the party’s leadership in corporate governance has been increasingly emphasised.

Chapter 2 of the Guidelines for Corporate Governance of Banks and Insurance Institutions stipulated the leadership of the Communist Party, and clarified the legal status of the party organisation in corporate governance.

(2) Implementation of macro policies.

Macro-policy regulation has two main features in terms of the trust industry clearance and rectification: (i) strict limitations on the number of trust companies; and (ii) periodic regulation of trust business, seeking to balance industry risks and promote economic development. Now emphasis is placed on the need for trusts to return to their roots and serve the real economy.

(3) Regulating shareholder behaviour.

Improper shareholder behaviour seriously affects the normal operation and management of trust companies. Regulators determine a shareholder’s improper behaviour based on the principle of penetration, with a particular focus on major shareholders and actual controllers.

(4) Improving governance systems and perfecting the role of the board of directors.

The new governance structure is the core of corporate governance, with the board of directors as the hub and centre. Regulatory focus at the director level includes, but is not limited to, the approval of director tenure and performance evaluation, the establishment of special committees, and the independent director system.

(5) Improving internal control systems.

The internal control system is closely linked to corporate governance. From article 3 of the Basic Norms for the Internal Control of Enterprises, the internal control system is broad in scope and needs to be implemented not only in corporate governance, but also as part of corporate governance with similar objectives.


From regulatory norms, administrative penalties and drafts for soliciting opinions, operational governance has been the key regulatory objective in recent years. Future regulators may make efforts in these areas:

(1) Focus on core business and return to the essence of trust.

Regulators want the industry to “insist on suppressing financing businesses with prominent shadow banking risks and emphasising the positioning of trustees of trust companies”.

(2) Prudent operation and risk prevention.

Effectively preventing and resolving major financial risks is the mission of financial regulation. The Financial Stability Law (Draft) has been released, and the corporate governance management of trust companies will undergo a more moderate and robust process.

(3) Unified regulation and convergence of standards.

The NFRA’s establishment aims to avoid multiple regulation and fill regulatory gaps. Unified regulation will reduce confusion from multiple regulators and reduce regulatory arbitrage.

(4) Strengthening the protection of financial consumer rights and interests.

The financial regulators’ reform unifies the functions of protecting the rights and interests of financial consumers under regulatory authorities, reflecting the importance attached to protecting financial consumers.


To better fulfil their responsibilities as trustees and carry out their duties in the face of increasingly stringent regulatory trends, trust companies should grasp their industry positioning, return to the original business, strengthen internal governance, operate prudently, prevent risks and protect the rights and interests of their financial consumers.

Yao Xiaomin is a partner and Cai Min is an associate at Lantai Partners

Lantai Partners
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A1 Shuguang Xili, Chaoyang District
Beijing 100028, China
Tel: +86 10 5228 7777
Fax: +86 10 5822 0039

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