China's National Financial Regulatory Administration issues interim supervisory rules for local asset management companies including concentration caps and a 3x net-asset funding limit

China's National Financial Regulatory Administration has issued interim measures for the supervision and administration of local asset management companies, aiming to standardise business practices, tighten risk management and clarify supervisory responsibilities. The measures, structured in four chapters and 45 articles, define permissible business scope, business ratios, operating regions and eligible asset acquisitions, and set conduct expectations for debt collection and external transfers of non-performing assets. They also draw explicit prohibitions, including offering principal protection or fixed-return promises, requiring repurchase obligations from transferors, helping financial institutions disguise non-performing assets through false off-balance-sheet treatment, and providing financing channels to local government financing vehicles in ways that add implicit local government debt. Risk controls include limits on aggregate investment and financing exposures to a single client and a single group client of no more than 10% and 15% of the company’s net assets, respectively, a liquidity requirement to hold qualifying high-quality liquid assets at no less than net cash outflows over the next 30 days, a related-party credit cap of 50% of prior quarter-end net assets, and a ceiling on external funding with total funds raised not exceeding three times net assets. Provincial local financial management authorities assume overall responsibility for supervision and risk disposal in their jurisdictions, while the National Financial Regulatory Administration and its local offices will strengthen information sharing and coordination and guide implementation of the measures.