The Financial Regulatory Authority: Guiding Financial Asset Management Companies to Optimize and Strengthen Non-Performing Asset Business

The National Financial Regulatory Administration issued guidelines on promoting the high-quality development of financial asset management companies and enhancing regulatory effectiveness. The guidelines mentioned guiding financial asset management companies to base themselves on their functional positioning, optimize and strengthen non-performing asset business, carry out orderly and standardized distressed enterprise relief business, explore models for serving and resolving financial and real economy risks under new circumstances, and promote the optimal allocation of economic and social resources. Deepen reform and transformation. Promote financial asset management companies to adhere to connotative, professional, and differentiated development, gradually build a high-quality development path that is legal, compliant, risk-controllable, and commercially sustainable, strengthen policy support and resource guarantees for high-quality development, and promote healthy market competition and sustainable development. Strengthen risk prevention and control. Make risk prevention and control the eternal theme of financial work, comprehensively strengthen corporate governance and risk management, strengthen the "five major regulations," identify, warn, expose, and dispose of risks early, and firmly hold the bottom line of preventing systemic financial risks.

Guidelines of the National Financial Regulatory Administration on Promoting the High-Quality Development of Financial Asset Management Companies and Enhancing Regulatory Effectiveness

To all financial regulatory bureaus and financial asset management companies:

In order to thoroughly implement the decisions and deployments of the Party Central Committee on financial work, further strengthen the supervision of financial asset management companies, effectively prevent and resolve risks, promote the high-quality development of financial asset management companies, and better play the role of financial rescue and counter-cyclical adjustment of financial asset management companies under new circumstances, the following opinions are proposed.

I. General Requirements

(1) Guiding Ideology

Adhere to the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, thoroughly implement the spirit of the 20th National Congress of the Communist Party of China, the Second and Third Plenary Sessions of the 20th Central Committee, the Central Economic Work Conference, and the Central Financial Work Conference, fully, accurately, and comprehensively implement the new development concepts, practice the political and people-oriented nature of financial work, and unswervingly follow the path of financial development with Chinese characteristics. Adhere to strong and strict supervision, continuously improve the regulatory system of financial asset management companies, focus on preventing substantive risks and solving practical problems, and continuously improve regulatory effectiveness. Guide financial asset management companies to focus on their main responsibilities and businesses, deepen reform and transformation development, balance the relationship between functionality and profitability, prioritize functionality, continuously improve the quality and effectiveness of serving and resolving financial and real economy risks, assist in the construction of a financial powerhouse, and better serve the overall situation of Chinese-style modernization.

(2) Basic Principles

First, strengthen the Party's leadership. Adhere to the centralized and unified leadership of the Party Central Committee over financial work, integrate the strengthening of the Party's leadership and Party building throughout the entire process of the reform and development of financial asset management companies, and ensure that financial asset management companies always maintain the correct development direction. Second, focus on main responsibilities and businesses. Guide financial asset management companies to base themselves on their functional positioning, optimize and strengthen non-performing asset business, carry out orderly and standardized distressed enterprise relief business, explore models for serving and resolving financial and real economy risks under new circumstances, and promote the optimal allocation of economic and social resources. Third, deepen reform and transformation. Promote financial asset management companies to adhere to connotative, professional, and differentiated development, gradually build a high-quality development path that is legal, compliant, risk-controllable, and commercially sustainable, strengthen policy support and resource guarantees for high-quality development, and promote healthy market competition and sustainable development. Fourth, strengthen risk prevention and control. Make risk prevention and control the eternal theme of financial work, comprehensively strengthen corporate governance and risk management, strengthen the "five major regulations," identify, warn, expose, and dispose of risks early, and firmly hold the bottom line of preventing systemic financial risks.

II. Strengthen the Party's Leadership and Continuously Improve the Effectiveness of Corporate Governance

(3) Continuously Strengthen the Party's Leadership and Party Building. Adhere to Party building as the guide, continuously strengthen the Party's leadership and Party building, effectively play the leading role of the Party Committee in setting the direction, managing the overall situation, and ensuring implementation, and accurately grasp the basic positioning and development direction of financial asset management companies. Adhere to and improve the "two-way entry, cross-appointment" leadership system, integrate the Party's leadership into all aspects of corporate governance, and promote the establishment of a modern financial enterprise system with Chinese characteristics. Seriously implement the "three major and one big" decision-making system, major business management matters must be pre-researched and discussed by the Party Committee before being decided by relevant governance bodies according to their authority and prescribed procedures. Promote the deep integration and mutual promotion of Party building and business, and promote high-quality development with high-quality Party building. Adhere to the standards of political competence, ability competence, and style competence, and forge a high-quality and professional financial cadre and talent team that is loyal, clean, and responsible.

(4) Improve the Construction of Corporate Governance Mechanisms. Optimize and improve the organizational structure of corporate governance in combination with the business characteristics and actual situation of financial asset management companies, clarify the boundaries of responsibilities, fully play the role of governance bodies such as the shareholders' meeting, the board of directors, and the senior management, and build a corporate governance mechanism with clear powers and responsibilities, each performing its own duties, coordinated operation, and effective checks and balances. Compress the responsibilities of shareholders, directors, and senior management, improve the performance evaluation mechanism, urge and promote diligence and due diligence, exercise powers and fulfill obligations in accordance with the law, and effectively participate in corporate governance. Adhere to honesty and trustworthiness, profit by righteousness, prudence and caution, integrity and innovation, and legal compliance, and practice financial culture with Chinese characteristics.

(5) Establish and Improve Incentive and Constraint Mechanisms. Adhere to problem orientation and goal orientation, establish and improve incentive and constraint mechanisms that are compatible with the company's development strategy and business characteristics, stimulate the endogenous motivation to adhere to positioning and operate steadily, and resolutely avoid blindly pursuing scale, disorderly expansion, and deviation from the main business. Play the guiding role of performance appraisal, optimize the performance evaluation mechanism, improve relevant assessment indicators, focus on long-term and counter-cyclical assessment, highlight compliance management and risk management, and strengthen the evaluation of the effectiveness of serving and resolving financial and real economy risks. Seriously implement the deferred payment and clawback system of performance compensation for executive directors, senior management, and key personnel, and prevent the weakening of risk prevention and control caused by improper incentives. Strictly implement the accountability system, strengthen the accountability for dereliction of duty and improper performance of duties, and at the same time adhere to the "three distinctions," and implement the system of due diligence and exemption from liability.

III. Base on Functional Positioning and Promote the Resolution of Financial and Real Economy Risks

(6) Focus on Leveraging Special Functions and Accelerate the Cultivation of Core Competitiveness. Support financial asset management companies to base themselves on leveraging the functions of financial rescue and counter-cyclical adjustment, explore business model innovation in accordance with laws and regulations, enrich risk resolution and rescue relief methods, deepen professional and differentiated development, and cultivate core competitiveness with comparative advantages. Improve the capabilities of non-performing asset due diligence, valuation and pricing, ongoing management, restructuring and value-added operations, and asset disposal. Strengthen the construction of the non-performing asset disposal ecosystem. Expand intermediary businesses such as consulting, entrusted asset disposal, and bankruptcy management, and explore the development of light asset business models. Strengthen investment research capabilities, enhance the ability to analyze and judge the macro economy, related industries, industries, and enterprises, and grasp investment opportunities. Explore the use of big data, artificial intelligence, etc., to improve the quality and efficiency of business management, and promote technological empowerment and digital transformation.

(7) Strengthen and Optimize Non-Performing Asset Acquisition and Disposal Business, and Serve the Resolution of Risks in Small and Medium Financial Institutions, Real Estate, and Other Fields. On the premise of controllable risks and commercial sustainability, actively increase the acquisition, management, and disposal of non-performing assets of commercial banks and non-bank financial institutions, and serve the reform and risk resolution of local small and medium financial institutions. Prudently and cautiously carry out the acquisition of non-performing assets through structured transactions, adhere to the real and clean transfer of assets, and do not provide support for financial institutions to use structured transactions to illegally cover up non-performing assets and beautify statements. Standardize the reverse entrusted disposal of non-performing assets, continuously do a good job in monitoring and management during the entrusted period, strengthen the construction of self-disposal capabilities, and avoid "entrusting and forgetting." Encourage financial asset management companies to leverage their professional advantages in knowledge, technology, and law, and explore various ways to participate in the risk resolution of small and medium financial institutions. Actively implement national real estate policies, support the relief and risk resolution of distressed real estate projects, and promote the stable and healthy development of the real estate market.

(8) Leverage Expertise in Risk Resolution and Asset Disposal to Promote the Healthy Development of the Real Economy. Carry out distressed enterprise relief business in accordance with laws and regulations, prudently and orderly, focus on the effective financial needs of distressed enterprises, implement relief through bridge financing, co-benefit debt investment, mezzanine investment, and temporary equity holding, promote the optimization of asset and liability structure, restore the production and operation capabilities and debt repayment capabilities of enterprises, and achieve the organic unity of economic and social benefits. Reasonably and prudently determine the objects of distressed enterprise relief, and do not implement relief for enterprises that violate national policy directions and are obviously not worth relieving. In combination with the positioning and resource endowment of financial asset management companies, do a good job in the "five major articles" of finance according to local conditions, promote the development and growth of technological innovation and new quality productive forces, and support the high-quality development of the capital market.

IV. Strengthen Risk Prevention and Control and Firmly Hold the Bottom Line of Risks

(9) Continuously Strengthen Risk Management and Internal Control Mechanism Construction. Focus on key areas and weak links of risk prevention and control, continuously improve the comprehensive risk management system, ensure coverage of all types of business, all institutions, positions, and risk types, and improve the effectiveness of risk management. Strengthen the construction of the "three lines of defense," and strengthen the control of risk sources. Strengthen the management and supervision of key positions, key personnel, and key business links such as non-performing asset acquisition and disposal, and asset valuation, implement the system of job avoidance and rotation, strictly prevent moral hazards, and deeply investigate and examine clues of corruption behind business violations and large risk projects. Strengthen internal authorization management, scientifically and prudently determine the business authority of branches and subsidiaries. Strengthen compliance management, establish the concept of full compliance and compliance creating value. Improve the construction of the internal audit system, explore the implementation of centralized or vertical management of audits. Improve information technology governance and data governance, strengthen network security, data security, business continuity, and information technology outsourcing management, and prevent the risks of new technology applications.

(10) Strengthen the Disposal of Existing Risk Assets and Strictly Control the Risks of Incremental Business. Continuously promote the disposal of endogenous non-performing assets, and continuously improve the quality and efficiency of disposal through collection, restructuring, and debt-for-asset swaps. Pay equal attention to optimizing increments and revitalizing stock, strengthen the due diligence and review of new business, and strengthen post-investment management. Strengthen concentration risk management, prevent excessive concentration of asset investment. Strengthen asset classification management, accurately classify financial assets that bear credit risks, truly reflect asset quality, fully provision in accordance with laws and regulations, and enhance risk resistance capabilities. Strengthen the valuation management of financial assets that bear market risks, and accurately reflect the changes in fair value in accordance with accounting standards and other regulations.

(11) Strengthen Asset and Liability and Liquidity Management. Reasonably determine business investment based on their own business management capabilities and liabilities, and do not blindly drive asset scale growth with liability expansion. Balance the relationship between safety, liquidity, and profitability, appropriately increase the proportion of medium and long-term liability funds, improve the degree of asset and liability term matching, and hold the bottom line of liquidity safety. Support financial asset management companies to supplement capital through the issuance of financial bonds, asset securitization products, preferred shares, secondary capital bonds, and perpetual capital bonds, and further broaden the sources of funds in accordance with laws and regulations.

(12) Continuously Promote Slimming and Strengthening. Adhere to returning to the origin and focusing on the main business, abandon the extensive development model, prudently and orderly promote the optimization and integration of subsidiaries, further highlight the main responsibilities and businesses, and continuously improve the efficiency of resource use.Strengthen the management of existing subsidiaries, effectively fulfill the group's control responsibilities, and implement consolidated and penetration management. Strengthen the management of overseas non-financial subsidiaries, prudently control the deployment of new businesses, and enhance the management of country and exchange rate risks. V. Adhere to strong and strict supervision, continuously improve the quality and efficiency of supervision. (13) Continuously improve the regulatory system. Strengthen the construction of regulatory systems, formulate or revise regulations that adapt to the business and risk characteristics of financial asset management companies, including institutional management, capital supervision, and asset classification, and gradually build a multi-level, wide-coverage, and differentiated regulatory system. Improve the risk early warning mechanism, implement early risk intervention, and prevent risk accumulation. Establish and improve a hierarchical and classified regulatory mechanism, reasonably match regulatory resources and measures according to the company's risk status, and strengthen differentiated supervision. (14) Strengthen supervision in key areas. Strengthen corporate governance supervision, enhance continuous supervision of key areas such as shareholder behavior, director and executive performance, risk management, and internal control. Strengthen supervision of key business segments such as non-performing asset valuation, acquisition and transfer, and asset disposal. Strengthen the monitoring and evaluation of distressed enterprise relief businesses, and take timely regulatory measures for emerging risk issues. Implement penetration supervision on businesses conducted through special purpose vehicles. Strictly implement relevant regulatory policies for local government financing platforms, and strictly prohibit financial asset management companies from adding any form of local government hidden debt. Strengthen the supervision of related-party transactions to prevent interest transfer and regulatory arbitrage. Strengthen the supervision of branches, and promote the improvement of risk prevention and internal control compliance management levels of branches. Closely monitor the business and risk status of subsidiaries, and strengthen consolidated supervision. Cooperate with relevant industry authorities to strengthen the supervision of intermediary institutions providing accounting, auditing, asset valuation, credit rating, and legal consulting services to financial asset management companies. (15) Strengthen the investigation and punishment of illegal and non-compliant behaviors. Adhere to the principles of "long teeth and thorns" and "edges and corners", seriously investigate and punish illegal and non-compliant behaviors according to law, and effectively increase the cost of illegal and non-compliant behaviors. At the same time, adhere to the principle of appropriate punishment, accurately distinguish between institutional and individual responsibilities for illegal and non-compliant behaviors, and improve the accuracy and effectiveness of administrative penalties. For clues of disciplinary violations, crimes, and other illegal activities discovered in regulatory work involving staff of financial asset management companies, promptly transfer them to disciplinary inspection and supervision authorities or judicial authorities according to law, and jointly promote the "three no's" (no corruption, no bribery, no misconduct), and severely crack down on financial crimes. Urge financial asset management companies to establish and improve long-term mechanisms for warning education, strengthen the reflection and reporting of typical cases of illegal and non-compliant behaviors, and use cases as a mirror, promote governance, and promote reform. (16) Strengthen the construction of the regulatory team, and enhance the integration and linkage of various types of supervision. Adhere to the principles of law-based supervision and supervision for the people, cultivate a regulatory spirit of dedication, courage, expertise, and strict accountability, and form a serious regulatory atmosphere. Strengthen the professional construction of the regulatory team, and continuously improve regulatory capabilities. Strengthen the connection and information sharing between off-site supervision and on-site inspections, investigations, and market access, and enhance regulatory linkage. Strengthen communication and linkage with the superior party committees, disciplinary inspection and supervision departments, and audit departments of financial asset management companies, and form a collaborative force.