Five private equity firms exposed by China’s insurance watchdog for having weak compliance standards
Qianhai Ark Assets Management, Shanghai Dingying Investment Management, CRI, Cindafund Investment, and PICC Yuanwang criticised for having weak compliance awareness and problematic internal management
China’s top insurance watchdog has named five private equity (PE) firms for failing to file an annual report outlining the exact details of their investment activities involving insurance-generated capital.
The China Insurance Regulatory Commission (CIRC) said on its website on Tuesday Qianhai Ark Assets Management, Shanghai Dingying Investment Management, CRI, Cindafund Investment, and PICC Yuanwang had weak compliance awareness and problematic internal management, and were ordered to rectify their wrongdoings.
The naming and shaming is linked with the government’s year-long industry clampdown on investment activities by the nation’s insurers, the CIRC said.
China’s insurance sector has been the target of regulatory tightening, aimed at curtailing companies’ access particularly to risky investments, with the purpose of making the industry more healthy and sustainable.
The regulator has particularly targeted aggressive sales of universal life insurance products, which are essentially short-term wealth management products which had been increasingly used to fund corporate raids and acquisitions.
Chinese companies are allowed to invest in funds established by PE firms, but those firms in turn are also required to report the relevant investment activities to the CIRC for closer supervision, which the five failed to do.
“The statement reflects that the CIRC maintains its strong regulatory stance on all aspects [of the insurance sector], including compliance requirements such as information disclosure of private equity firms that manage insurance capital,” said Wan Li, an insurance analyst at Bank of Communications International.
The main problems disclosed so far are compliance issues, she added, included the failure to disclose investment activities to the regulator, not irregularities in the investment activities themselves.
“Looking forward, we expect the regulator to keep a firm hand on curbing risk,” she said. “There are definitely no signs of any loosening in financial regulations.”
The CIRC said on Tuesday it is also considering a plan to create a “blacklist” of investment institutions which might be stopped from cooperating with insurers if they are found to have problematic operations.
Several companies have already been blocked from selling such high-risk, high-return products.
The most recent action came in November, when the CIRC banned three life insurance firms – Bank of Communications Life Insurance, ABC Life Insurance and Greatwall Life Insurance – from issuing new products over the next six months for violated certain regulatory provisions.
All of China’s major non-life insurers and reinsurers are also now required to hire a chief actuary by the end of 2019 in a further step up in corporate fair play.
China’s life insurers already have a management mechanism that requires chief actuaries to be in place within their top ranks, introduced in January 2008.