China Tightens Oversight of $3.7 Trillion Mutual Fund Market

(Bloomberg) -- Chinese regulators moved to tighten oversight of the nation’s 23.9 trillion yuan ($3.7 trillion) mutual fund market, banning product recommendations by unlicensed firms and individuals.

Those without an advisory license will be prohibited from giving fund recommendations or publishing performance numbers, according to a notice from the China Securities Regulatory Commission’s Beijing bureau seen by Bloomberg. 

The move cracks down on widespread recommendations by unregulated bloggers and agencies seeking to tap growing demand for mutual funds even as authorities limit licenses to a handful of firms. Regulators have also banned brokerages from hiring social media influencers to attract new customers while the nation has tightened controls over broad swathes of its economy in other areas to limit financial risks.

The CSRC didn’t immediately respond to an emailed request for comment.

Distributors without an advisory license need to comply with the new rules by June 30, according to the document from the CSRC. The regulator’s Shanghai and Guangdong branches issued similar directives earlier this month, the official Shanghai Securities News reported on Monday. Last week, the Asset Management Association of China published draft guidelines regarding contracts between fund advisors and their clients.  

Over the years, regulators have cracked down on opaque shadow-banking products, brought more rigor to stock investing by introducing registration-based initial share sales and opened up to global fund houses from Vanguard Group to BlackRock Inc..

Dozens of securities firms and mutual funds have been granted licenses in a trial that began more than two years ago, as regulators encourage the nation’s retail investors to tap the capital markets through professional institutions. 

Cutthroat Competition

Competition has been intensifying as participants cut advisory fees to win clients, miring Vanguard, the only global asset manager that has been included in the trials through its partnership with Ant Group, in a price war. BlackRock and Fidelity are among international money managers that have won licenses to sell mutual funds through wholly-owned units.

“People would certainly be attaching more importance to having a license,” said Lu Haiyang, vice president of Xin Hu Wealth Investment Management Co., which distributes funds. Her company is revamping relevant services by partnering with a licensed firm, and is seeking a license itself, she added.

Influencers are also rushing to keep up to date. Zheng Zhiyong, who’s been showcasing his fund portfolio under the nickname “Wangjing Bogle” to his 1 million followers on online platforms and hosting livestreams with mutual funds, said he’s now considering only displaying his fund selections to paying members as he weighs how to comply with the new rules. 

Another option is to join a fund company with a license and return to an industry where he worked for 10 years before. “I haven’t made up my mind,” he said.

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With assistance from Bloomberg