Trustee Companies Have to Face Higher Pressure of Transformation after Standardizing Bank-Trustee Cooperation and Strengthening Net Capital Supervision by Regulators By Wilson Wei Huo 2010-08-16

After the oral notice suspending the cooperation between trustee companies and banks by the China Banking Regulatory Commission (“CBRC”), the “Notice of CBRC on the Relevant Matters concerning the Bank-Trustee Cooperative Product” (“the Notice”) was issued on August 10, 2010. The Notice clarifies the speculation related with the suspension of bank-trustee cooperative products and it allows trustee companies to issue a bank-trustee cooperative product under certain conditions. In addition, the Notice establishes the standards and limitations for these bank-trustee cooperative products.

Prior to the Notice, the CBRC promulgated the “Measures for the Management of Net Capital of Trustee Companies (Consultative Draft)” (“the Draft”) which relates a trustee company’s scale of assets under entrustment to its net capital. The Draft states that the risk control of a trustee company should be based on its net capital. Therefore, it will reduce the scale of assets under entrustment for a trustee company.

Both the Draft and the Notice are aiming to strengthen the risk control of trustee companies and to ensure that the trustee companies will transform their business according to their basic role of “managing the trustors funds with active and enthusiastic manners”. In the context of macro-economic control, the Draft and the Notice will have a significant effect on the operation and transformation of the trustee companies.