SHANGHAI--China may soon allow foreign banks to distribute
products for domestic fund management companies, in a
long-anticipated move that will offer foreign lenders access to a
lucrative and fast-growing market in the country.
"As early as next month, China's securities regulator is
expected to unveil amended guidelines that will effectively make
foreign banks eligible to tap the domestic fund distribution
market," a person with direct knowledge of the matter told Dow
Jones Newswires Tuesday.
That will give foreign banks entry into a fast-growing niche in
the world's second-largest economy. China's 72 fund-management
companies managed 3.62 trillion yuan ($575.8 billion) as of the end
of last year, 31% more than a year earlier.
Major foreign banks operating in China, including Citigroup
Inc.'s (C) Citibank, Standard Chartered PLC (STAN.LN) and United
Overseas Bank Ltd. (U11.SG) have already submitted applications to
the regulator, the person said.
The Shanghai Branch of China Securities Regulatory Commission
said Monday in a statement posted on its website that it has
received the applications of these three banks.
Standard Chartered said in an email the bank will "prepare for
the business under requirements of the regulator." A Citibank
official in China declined to confirm its application. UOB didn't
immediately respond to queries.
The anticipated change will help foreign banks expand their
currently small customer bases in a tightly-controlled sector, but
the new business is unlikely to contribute meaningfully to
revenue.
The move is also part of Beijing's efforts to introduce a
broader variety of participants into the country's fund management
distribution market, which has been dominated by major state-owned
lenders for years.
Observers say the de facto monopoly by the big state-owned banks
with vast distribution networks and deep pools of retail deposits
have pushed up costs for fund investors.
China first amended the guidelines aimed at allowing foreign
banks to distribute fund management products two years ago, after
Beijing made a commitment to do so at the third Sino-U.S. Strategic
and Economic Dialogue, a high-profile meeting between officials of
China and the U.S.
However, none of the foreign banks in China has so far succeeded
in meeting the existing guidelines, which contain strict criteria
and virtually insurmountable hurdles such as a record clean of
administrative penalties for three consecutive years.
As part of easing restrictions on foreign banks, the securities
regulator will change the guidelines to allow foreign banks with no
record of "significant" administrative penalties for three years in
a row to distribute fund management products, said the person with
direct knowledge of the matter.
Many major foreign banks in China will meet this adjustment, the
person added.
With their dominance of the market, Chinese state-owned banks
enjoy strong bargaining power and their distribution charges
account for an average of a fifth of a fund manager's total
management fees to investors, analysts say.
In a bid to introduce more competition into the market, the
securities regulator has in recent years brought in more players,
including independent fund sale institutions, in addition to banks,
securities firms and fund houses. As of the end of last year, 65
banks, 96 securities companies, five securities investment advisers
and 14 independent fund sale institutions hold distribution
licenses.
--Shen Hong contributed to this article.
Write to Amy Li at amy.li@dowjones.com
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