On 28 March 2018, the Leading Group on Internet Finance Risk Remediation issued the Notice on Expanding the Rectification of Asset Management Business Carried out through the Internet and Launching Inspection and Acceptance Work.
The notice signals the government's intent to impose order in China's rapidly growing Internet asset management market. The move, together with a recent announcement that the government is drafting asset management regulations, is part of a campaign begun in 2016 to protect the public by reducing systemic risks to China's Internet asset management industry.
The notice contains the following main points:
- It is unlawful to publicly issue or sell any asset management products over the Internet, unless the issuer or seller has a valid asset management operating licence or asset management product sales permit issued by the People's Bank of China (PBOC), China Banking Regulatory Commission or China Securities Regulatory Commission.
- Unlicensed Internet asset management companies must stop issuing or selling any asset management products and clear all their existing businesses by the end of June 2018, or face having their business licence revoked, their telecoms licence cancelled, and their website or mobile application banned.
- Online platforms are prohibited from selling asset management products for any types of exchange centers (including through any disguised form of providing redirecting services) with the intention to circumvent relevant laws and regulations.
According to the notice, asset management products include without limitation "targeted entrustment plans", "targeted financing plans", "wealth management plans", "asset management plans", and "revenue rights transfers".
Jun (Joe) Wan, Partner, Hankun Law Offices, Shanghai: “Upon issuance of the notice, traditional Internet asset management products such as ‘designated entrustment investment plans,’ ‘designated financing plans,’ ‘wealth management plans,’ ‘asset management plans,’ and ‘investment rights assignments’ are regarded as illegal financial activities, which may constitute illegal fund-raising, illegal absorption of public deposits and illegal issuance of securities. We have observed some big-name Internet wealth management platforms begin to remove non-compliant wealth management products from their platforms and begin to clear up their outstanding balances of such products. The requirement to complete the rectification by the end of June has become a great challenge for these platforms as the outstanding amount of such non-compliant products is usually huge.”
GC for any company engaged in the provision of wealth management products over the internet will want to immediately focus the attention of senior management and take steps to ensure compliance with the rectification within the timeline. Counsel also may wish to seek specialist advice.