China regulates fund outsourcing business to withstand shadow banking

China's securities regulator has recently introduced fresh restrictions for financial institutions considering outsourcing fund management to external fund managers, as the government tightens shadow banking. That’s what the official Securities Times informed on Monday

Financial institutions, including insurers and banks have been providing fund management mandates to funds exceeding 1 trillion Yuan to mutual fund houses because they outsource their wealth management operations.

Regulators are concerned that such funds are utilized as a shadow banking channel by many lenders for the purpose of making risky bets in corporate equities or bonds, without efficient management by the external fund house.

In order to prevent this, on Friday, the China Securities Regulatory Commission released rules, requiring funds where single institutions control 50% or more to operate exactly as closed-end funds, and barring them from getting subscriptions from individual investors.