Global Trustee and Fiduciary Services News and Views Issue 50

The guidance brings consistency by defining an asset management business as a type of financial service where a financial institution is entrusted by the investors to manage capital raised from such investors. Such a financial institution, which is entitled to a fee for provision of asset management services, shall exercise a duty of care and manage the assets for the benefit of those investors. Any investment risks should be borne by the investors. This definition will apply to all types of asset management products launched by financial institutions. Before the promulgation of the New Asset Management Rules, there was a significant difference between the business rules of asset management businesses, as they were regulated by different financial regulatory authorities. The common business model may have been as follows: An institution (e.g. a bank) whose regulatory requirements in respect of fund-raising are more relaxed is responsible for fund raising, whereas an institution (e.g. a fund manager) whose regulatory requirements in respect of investment are more relaxed is entrusted to conduct investment management. Any business cooperation between those two types of institutions may lead to some regulatory arbitrage, thus circumventing the strict regulatory requirements on both fund-raising and investment. The core objective of the New Asset Management Rules is to unify the rules of various types of asset management businesses so as to eliminate the ability to undertake regulatory arbitrage, facilitate fair competition among various types of asset management businesses and better serve the substantive economy. In the process of unifying the rules, there will be significant adjustments to, and impacts on, the original rules and business models of various types of asset management businesses. 4