The National Financial Regulatory Administration issued the "Interim Measures for the Supervision and Rating of Wealth Management Companies"

On March 16, the website of the National Financial Regulatory Administration published a notice. In order to thoroughly implement the Central Financial Work Conference’s decision and deployment on promoting the accelerated transformation and development of banking wealth management subsidiary companies, to improve the regulatory制度 system for wealth management companies, and to promote the establishment of a differentiated development and regulatory model that matches capabilities, the National Financial Regulatory Administration recently issued the Interim Measures for the Regulatory Rating of Wealth Management Companies (hereinafter referred to as the “Measures”), which shall come into force as of the date of issuance.

The Measures comprise five chapters and 26 articles, including general provisions, regulatory rating elements and rating methods, organization and implementation, application of rating results, and supplementary provisions. They set out provisions on the overall requirements, rating elements, basic procedures, and classified supervision for the regulatory rating of wealth management companies. First, to clarify the regulatory rating elements and methods. The Measures set up six major rating modules: corporate governance, asset management capabilities, risk management, information disclosure, investor rights protection, and information technology. They assign score weightings of 10%, 25%, 25%, 15%, 15%, and 10%, respectively, and, in a targeted manner, establish bonus items, penalty items, and level adjustment factors to conduct a comprehensive evaluation of the operational management and risk conditions of wealth management companies. Second, to clarify the basic procedures for regulatory rating. Regulatory rating includes such steps as institution self-assessment, initial assessment, review, and feedback of results. After the rating is completed, if the regulatory authority discovers material circumstances that were not known during the rating period, or if there is a major change in the risk or management condition of a wealth management company, the regulatory rating result may be adjusted dynamically. Third, to clarify the principles of classified supervision. Regulatory rating results are divided into Levels 1—6 and Level S. They are an important basis for the regulatory authority to allocate regulatory resources, carry out market entry, and adopt differentiated regulatory measures.

The issuance and implementation of the Measures are conducive to strengthening regulatory orientation, giving full play to the “lever” role of ratings, and prompting wealth management companies to effectively fulfill their entrusted management responsibilities; they are conducive to accelerating industry transformation and development, guiding wealth management companies to enhance their investment research and risk-control capabilities; and they are conducive to rationally allocating regulatory resources and improving the precision and scientific nature of supervision. In the next step, the National Financial Regulatory Administration will strengthen oversight and guidance, focus on implementing the Measures, and continuously improve the quality and effectiveness of the regulatory oversight of wealth management companies, so as to promote stable and standardized development and better serve residents’ wealth management needs and the high-quality development of the real economy.

Interim Measures for the Regulatory Rating of Wealth Management Companies

Chapter 1 General Provisions

Article 1 These Measures are formulated to strengthen tiered and classified supervision of wealth management companies, rationally allocate regulatory resources, and promote the accelerated transformation and development of wealth management companies, in accordance with the provisions of relevant laws and departmental rules, including the Law of the People’s Republic of China on the Supervision and Administration of the Banking Industry and the Administrative Measures for the Wealth Management Subsidiaries of Commercial Banks.

Article 2 These Measures apply to wealth management companies that have been in operation for more than one full accounting year.

Article 3 Regulatory rating of wealth management companies refers to the regulatory process in which the National Financial Regulatory Administration and its dispatched offices, based on information gathered through day-to-day supervision, make an assessment and judgment of a wealth management company’s overall risk and management condition in accordance with these Measures. It is the basis for implementing classified supervision.

Classified supervision refers to the regulatory policies under which the National Financial Regulatory Administration and its dispatched offices, based on the regulatory rating results of wealth management companies, implement differentiated requirements for wealth management companies at different levels in terms of market entry, regulatory measures, and the allocation of regulatory resources.

Article 4 The National Financial Regulatory Administration and its dispatched offices shall carry out regulatory rating work for wealth management companies in accordance with these Measures.

Chapter 2 Regulatory Rating Elements and Rating Methods

Article 5 The regulatory rating elements of wealth management companies include six aspects: corporate governance, asset management capability, risk management, information disclosure, investor rights protection, and information technology. They consist of two categories of rating indicators: qualitative and quantitative.

Article 6 The regulatory rating methods for wealth management companies mainly include the following:

(1) Weight setting for rating elements. The total score for the rating is 100. The score weightings for each rating element are as follows: corporate governance (10%), asset management capability (25%), risk management (25%), information disclosure (15%), investor rights protection (15%), and information technology (10%).

(2) Scores for rating elements. The scores for rating elements are determined by the National Financial Regulatory Administration and its dispatched offices, in comparison with the rating indicators and scoring principles, combined with professional judgment.

(3) Total rating scores. Total rating scores are obtained by summing the scores of all rating elements.

(4) Determination of levels. Based on the total rating score, and in combination with regulatory rating adjustment factors, the regulatory rating result is formed.

Article 7 Regulatory rating results for wealth management companies are divided into Levels 1—6 and Level S. The higher the numerical value, the greater the institutional risk, and the higher the degree of regulatory attention required.

A total score of 90 points (inclusive) or above corresponds to Level 1; 80—90 (inclusive) corresponds to Level 2; 70—80 (inclusive) corresponds to Level 3; 60—70 (inclusive) corresponds to Level 4; 50—60 (inclusive) corresponds to Level 5; and below 50 corresponds to Level 6. For wealth management companies with a regulatory rating result of Level 5 or 6, they are classified as high-risk wealth management companies. Wealth management companies in situations such as undergoing restructuring, being taken into custody, or implementing market exit shall, after being recognized by the National Financial Regulatory Administration and its dispatched offices, be directly listed as Level S and shall not participate in regulatory rating for the current year.

Article 8 Each year, the National Financial Regulatory Administration may, based on factors such as industry regulatory priorities, the development status of wealth management companies, and risk characteristics, appropriately adjust the rating elements, rating indicators, and scoring principles, and clarify them before the start of the annual regulatory rating work.

Chapter 3 Organization and Implementation

Article 9 The regulatory rating cycle for wealth management companies is one year, and the evaluation period is from January 1 to December 31 of the previous year. In principle, the regulatory rating work for the previous year should be completed by the end of April each year.

Article 10 In day-to-day supervision, the National Financial Regulatory Administration and its dispatched offices should continuously collect various types of information needed for regulatory ratings, including but not limited to: market entry; off-site supervision; on-site inspections; administrative penalties; special regulatory information such as corporate governance, data governance, and case management; relevant systems and measures of wealth management companies; operational management documents; internal and external audit reports; letters and visits and information on illegal reports; and other important internal and external information.

Article 11 Regulatory rating of wealth management companies shall be carried out through such steps as institution self-assessment, initial assessment, review, and feedback of results.

Article 12 Wealth management companies shall conduct self-assessment in accordance with these Measures, and truthfully provide the self-assessment results, the relevant data information for the self-assessment, and supporting evidence materials, reflecting their actual circumstances, existing problems, and regulatory measures that have been taken. The above materials shall be formally submitted to the National Financial Regulatory Administration and its dispatched offices by March 1 each year.

Wealth management companies shall ensure that the data information and supporting evidence materials they provide are true, accurate, and complete, and that the quality meets the requirements for rating. They shall not conceal material matters, and they shall not provide data and information containing false records, misleading statements, or material omissions.

Article 13 Dispatched offices of the National Financial Regulatory Administration, in accordance with the rating methods and standards prescribed in these Measures, shall conduct comprehensive analysis of relevant information of wealth management companies, carry out the initial assessment of regulatory rating, and form initial assessment results. If necessary, they may further verify the circumstances through methods such as on-site visits and regulatory discussions.

If dispatched offices of the National Financial Regulatory Administration find that the quality of data information or supporting evidence materials provided by a wealth management company does not meet the rating requirements, they shall promptly confirm and verify it with the wealth management company. They shall use the verified data information to conduct the regulatory rating, and, depending on the seriousness of issues regarding the quality of materials, take corresponding regulatory measures in accordance with law and regulations.

Article 14 The National Financial Regulatory Administration shall review the initial assessment results, adjust them if necessary, and form the regulatory rating result for the wealth management company.

Article 15 The Banking Wealth Management Registration and Custody Center and wealth management industry self-regulatory organizations shall support and coordinate regulatory rating work for wealth management companies in accordance with their respective responsibilities.

Article 16 The National Financial Regulatory Administration and its dispatched offices shall, through methods such as regulatory discussions, regulatory opinion letters, and regulatory briefings, inform wealth management companies of the regulatory rating results, as well as the main risks and problems identified, and propose regulatory opinions and rectification requirements.

After receiving the regulatory rating result briefing, the wealth management company shall promptly report to its major shareholders, board of directors, and senior management. The report content shall include, but is not limited to, the regulatory rating results, major risks and problems, regulatory opinions, and rectification requirements, and it shall carry out rectification in accordance with the requirements.

Article 17 After the regulatory rating work is completed, the National Financial Regulatory Administration and its dispatched offices shall properly file relevant documents and materials, including rating information, rating working papers, rating results, and feedback on rating results.

Article 18 After the regulatory rating work is completed, if the National Financial Regulatory Administration and its dispatched offices discover major circumstances that were not known during the regulatory rating period, or if there is a major change in the risk or management condition of the rated wealth management company, they may adjust the regulatory rating result dynamically. Dynamic adjustment shall be conducted by referring to Article 16 of these Measures for briefing, and by referring to Article 17 of these Measures for filing.

Article 19 The National Financial Regulatory Administration and its dispatched offices shall track and evaluate the implementation of regulatory rating work and continuously improve the regulatory rating work for wealth management companies.

Chapter 4 Application of Rating Results

Article 20 Regulatory rating results comprehensively reflect the operating management condition and risk level of wealth management companies. They are an important basis for the National Financial Regulatory Administration and its dispatched offices to allocate regulatory resources, carry out market entry, and adopt differentiated regulatory measures.

If the regulatory rating result is Level 1, it indicates that all aspects of the wealth management company’s operation and management are relatively sound, the problems arising are relatively minor, and they can be resolved through improving day-to-day operation and management. The company has strong risk-resilience capabilities. The supervision is mainly off-site supervision, with preferential support for innovation pilot-type businesses.

If the regulatory rating result is Level 2, it indicates that all aspects of the wealth management company’s operation and management are basically sound, with good risk-resilience capability, but there are some weak links and risk hazards. Targeted strengthening of risk monitoring and reminders is needed, and prompt improvements should be required.

If the regulatory rating result is Level 3, it indicates that although the wealth management company as a whole can basically withstand operational risks, there are certain risk issues in day-to-day management and in some business areas. It is necessary to strengthen supervision in key areas, reasonably control incremental risks, and promote early identification and early disposal of risks.

If the regulatory rating result is Level 4, it indicates that the wealth management company has relatively many or relatively serious risk issues. If measures are not taken in a timely manner, it is likely to affect continuous operations. It is necessary to continuously track the risk situation, take necessary regulatory corrective measures, and give equal weight to controlling incremental risks and reducing existing stock risks, in order to prevent the spread of risks.

If the regulatory rating result is Level 5, it indicates that the wealth management company has extremely serious risk issues and cannot operate normally. It is necessary to track risk changes in real time, strictly limit and resolve high-risk businesses, and appropriately initiate disposal plans to prevent risks from worsening.

If the regulatory rating result is Level 6, it indicates that the wealth management company faces severe risk problems and may experience a liquidity crisis. It cannot restore normal operations solely through self-rescue by the institution. It is necessary to implement risk disposal or market exit in an orderly manner.

Article 21 Based on the regulatory rating results of wealth management companies and the scores of individual rating elements, the National Financial Regulatory Administration and its dispatched offices shall, in accordance with the risk-based and incentive-constraint compatible principles, for wealth management companies with different regulatory rating results appropriately adjust regulatory requirements, the intensity of off-site supervision, the frequency and scope of on-site inspections, and take regulatory measures in accordance with law and regulations, and require wealth management companies to promptly rectify issues identified.

Article 22 The National Financial Regulatory Administration may, according to industry development situations and risk regulatory requirements, appropriately adjust classified supervision measures.

Article 23 When a wealth management company no longer meets the conditions for conducting relevant businesses due to a decline in its regulatory rating result, it shall not add any new business of that type. If the wealth management company’s regulatory rating result for the next year still has not been restored, it shall, in an orderly manner, reduce the existing inventory of such businesses.

Article 24 As a general rule, regulatory rating results of wealth management companies are for use only by the National Financial Regulatory Administration and its dispatched offices for regulatory work. Wealth management companies shall strictly keep regulatory rating results confidential, and shall not provide them to the outside world or use them for commercial purposes such as advertisements, publicity, or marketing.

Chapter 5 Supplementary Provisions

Article 25 These Measures are interpreted by the National Financial Regulatory Administration.

Article 26 These Measures shall come into force as of the date of issuance.

(National Financial Regulatory Administration)

(Editor: Qian Xiaorui)

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