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China mulls minimum net capital requirements for banks' wealth units

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China mulls minimum net capital requirements for banks' wealth units

The China Banking and Insurance Regulatory Commission said net capital of commercial banks' wealth management subsidiaries should be at least 500 million Chinese yuan and more than 40% of the units' net assets.

The commission is seeking public feedback on proposed rules on capital management for commercial banks' wealth subsidiaries until Oct. 27. Under the draft regulation, such units should conduct stress tests regularly and their net capital should also be no less than 100% of risk capital, according to draft released Sept. 20.

These units are also required to report to the commission within five business days if one of three metrics - net capital, percentage of net capital versus net asset, and percentage of net capital versus risk capital - changes by over 20%.

The draft aims at strengthening regulation and improving information disclosure for banks' wealth units, a spokesperson said in a separate statement. The Chinese regulator launched new rules for wealth and asset management industry in July 2018 in a bid to rein in systemic financial risks, and then relaxed the investment criteria in October 2018 by allowing banks' wealth units to directly purchase shares in listed companies.

As of Sept. 20, US$1 was equivalent to 7.09 Chinese yuan.