China's National Financial Regulatory Administration (NFRA) has released the Provisional Measures for Supervising Local Asset Management Companies, establishing comprehensive operational frameworks and risk controls. The regulations impose strict exposure limits, mandating that single-client investment balances cannot exceed 10% of a company's net assets, while group client exposures are capped at 15%.
The measures introduce robust liquidity requirements, compelling firms to maintain sufficient high-quality liquid assets—primarily cash and deposits—to cover net cash outflows over the next 30 days. In a significant governance reform, aggregate credit exposures to related parties must remain below 50% of the previous quarter's net assets.
External financing faces tight constraints with debt ceilings set at three times net assets, preventing excessive leverage accumulation. Provincial regulators assume primary oversight responsibility under the tiered supervision framework, coordinating closely with central authorities through information-sharing mechanisms.
Key operational restrictions include: - Mandatory localization: Companies must primarily operate within home provinces, with cross-regional expansion requiring provincial approval - Minimum bad-asset focus: At least 30% of new investments must target non-performing financial assets annually - Transaction transparency: Asset disposals exceeding 50 million yuan require public bidding processes - Prohibited practices: Banned activities include hidden repurchase agreements, fictitious asset purchases, and government financing platform exploitation
The rules establish stringent accountability protocols, requiring companies to: - Implement shareholder eligibility screenings - Develop specialized bad-asset disposal capabilities - Form independent audit functions - Establish conflict-of-interest barriers between advisory and proprietary operations
Non-compliance triggers escalating sanctions—from regulatory warnings to operational suspensions. Critically underperforming firms face removal from the approved bad-asset purchaser list. The regulations grant provincial authorities enhanced investigation powers, including on-site inspections and data seizure authorities.
Transition periods up to three years accommodate compliance adjustments, replacing previous guidelines issued in 2019. The framework represents China's most systematic effort to professionalize its 100+ local asset managers while containing regional financial risks.