The China Banking and Insurance Regulatory Commission issued the measures for the administration of internal control of wealth management companies

On August 22, 2022, the China Banking and Insurance Regulatory Commission (hereinafter referred to as “CBIRC”) issued by Order No. 4 of 2022 the Measures for the Administration of Internal Control of Management Companies of assets (hereinafter referred to as the “Measures”), which will enter into force on the date of issue.

The Measures consist of six chapters and 46 articles. This article will focus on the main compliance obligations of wealth management companies after the implementation of the Measures.

1. Organizational structure

The measures state that a wealth management company must establish an organizational structure of internal control with a reasonable division of labor, unequivocal responsibilities and checks and balances.

More specifically, the board of directors of a wealth management company designates a specific department as the internal control functional department responsible for directing the overall planning of the internal control system, organizing its implementation, carrying out inspections and assessments and prompting corrective action, and appoints a compliance officer at the senior management level.

2. Internal control activities

The measures provide that a wealth management company should establish and improve a system of internal control rules, formulate comprehensive, systematic and well-regulated business rules and management rules for various business activities and management activities, and carry out a comprehensive assessment at least once a year.

Specifically, a wealth management company implements wealth management product design management systems, product term management systems, wealth management account management systems, wealth management product sales management, investment decision power management systems, wealth management fund investment management systems, wealth management product investment account management systems, asset management cooperative investment institutions management systems, abnormal transaction detection systems, privileged information management systems, conflict of interest prevention and control systems, connected transaction management systems , information isolation systems, third-party custodian systems independent of property management products imony, risk reserve management systems and systems for the protection of the rights and interests of investors and other corporate management systems.

In addition, a wealth management company must take corresponding internal control measures in accordance with the Measures when carrying out investment and trading activities, and must also comply with the requirements of the Measures regarding position management. and security management, and must comply with anti-money laundering laws and regulations.

3. Guarantee of internal control

The Measures state that a wealth management company should strengthen the computerization, process and automation of the management of the various business areas, establish and improve business and management systems that are safe, compliant, efficient, reliable and consistent with internal control, and provide technical assurance and system support for the effectiveness of internal control.

Specifically, a wealth management company must effectively prevent risks such as network intrusion, information leakage, data tampering, system unavailability, etc., and ensure confidentiality, integrity, authenticity and resistance to repudiation of data across various industries; establish and improve management systems for processing investor information, process investor personal information in accordance with the law and protect the security of investor personal information; improve the data quality control system and process, designate dedicated departments responsible for data quality management to ensure that data information is true, complete, continuous, accurate and traceable, and not reported late, omitted, misreported or concealed; establish and improve the accounting and valuation system to accurately and faithfully reflect business transactions, and confirm and measure the net worth of wealth management products.

In addition, a wealth management company should reasonably set standards for assessing internal control, and its internal control functional departments should conduct an assessment of the internal control activities of each department and staff at least once a year, as well as integrating internal control into training plan and ensure that each person receives at least 20 hours of internal control training per year, in order to guarantee the implementation of the internal control system.

4. Oversight of internal control

In terms of monitoring, the Measures require the internal audit department of a wealth management company to carry out an audit and an assessment of internal control at least once a year and to submit the audit report and evaluation to the board of directors and the supervisory board, and to submit to the CBIRC and its local offices before April 30 of each year the internal control report for the previous year which has been reviewed and approved by the board of directors. administration. The report should include: implementation of internal control, assessment results, rectification and improvement, audit and assessment report and other documents to be submitted by CBIRC and its local offices .

From the perspective of regulators, the head of the CBIRC believes that the wording of the measures is a refinement and complement to the guidance opinions on the regulation of the asset management activity of financial institutions, supervisory measures and administration of the wealth management business of Commercial banks, measures for wealth management companies and other relevant regulatory regimes, and is conducive to promoting wealth management companies to establish and improve unified and standardized internal control standards. And from the perspective of wealth management companies, wealth management companies should assess their internal systems and business practices as soon as possible, and promptly rectify anything that is inconsistent with the provisions of the Measures in order to avoid subject to regulatory measures or administrative sanctions. In order to encourage companies to rectify as soon as possible, the Measures also provide for a transitional period of six months from the date of implementation, during which companies can rectify the non-compliance as soon as possible.

Aurora J. William