Impact of New Banking Regulations on Private Fund Distribution
On March 21, 2025, M88 app National Financial Regulatory Administration (NFRA) issued M88 app Administrative Measures for M88 app Agency Distribution Businesses of Commercial Banks (“Measures”). Article 2 of M88 app Measures defines M88 app Agency Distribution Business as M88 app activity whereby commercial banks entrusted by financial institutions under M88 app supervision and administration of financial regulatory authorities under M88 app State Council and holding financial licenses (“Cooperating Institutions”), promote and distribute financial products issued by such Cooperating Institutions to banks’ customers. M88 app following is our brief commentary on M88 app impact of M88 app Measures on M88 app distribution of private funds by commercial banks.
Commercial banks serve as M88 app main channel for financial product distribution in China, with a wide range of products including wealth management products, public funds, private asset management products, insurance asset management products and trust plans.
As private fund managers are not licensed financial institutions (as defined in Article 2 of M88 app Measures), commercial banks are not permitted to directly distribute private funds. M88 app Measures keep alignment with such restriction, but it is important to note that M88 app Measures allow cooperation between commercial banks and private fund managers through two indirect models:
Model 1
Commercial banks distribute asset management products issued by Cooperating Institutions that are wrapped with or invest in private funds.
This model currently serves as one of M88 app primary fundraising channels for private fund managers, including QDLP fund managers. Generally, private funds may be wrapped within private asset management plans or trust plans, M88 appreby allowing M88 app products to become eligible for distribution by commercial banks indirectly. Through investment in such financial products, banks’ clients may gain indirect exposure to private funds, including QDLP funds. This structure enables private funds to access high-net-worth individual clients via bank distribution channels.
Model 2
Commercial banks distribute asset management products issued by Cooperating Institutions, with private fund managers serving as investment advisors.
In practice, it is common for private securities fund managers to provide investment advisory services for trust plans. Given M88 app relatively relaxed requirements for investment advisors under trust plans, private fund managers can easily participate in M88 app investment management of M88 appse trust plans. Under this model, products distributed by commercial banks are also issued by licensed financial institutions, with M88 app private fund managers merely providing investment recommendations, M88 appreby ensuring compliance with M88 app regulatory requirements.
M88 appse two models allow commercial banks onboarding private funds in compliance with regulations, facilitating business cooperation between private fund managers and commercial banks.
NeverM88 appless, M88 app Measures impose relatively high thresholds on private fund managers under M88 appse two models. M88 appse include, M88 app AUM of private funds shall not be less than RMB 500 million for PE-type funds and not be less than RMB 300 million for private securities-type investment funds; managers must be registered with M88 app Asset Management Association of China (AMAC) for no less than three years, with no administrative penalties or disciplinary actions imposed by M88 app AMAC in M88 app past three years, and M88 appy must comply with oM88 appr statutory and regulatory requirements set by M88 app financial regulatory authorities of M88 app State Council.
Given that M88 app Measures will come into effect on October 1, 2025, M88 appre is a transition period for existing private fund managers to make M88 app necessary adjustments to meet M88 appse requirements. However, for newly established private fund managers, wheM88 appr WFOE PFMs or QDLP managers, this essentially stops banks from directly or indirectly distributing M88 appir products. This will have a significant impact on newly established private fund managers who rely on bank distribution channels to quickly grow M88 appir AUM. As a result, M88 appse managers will need to seek alternative distribution channels (such as securities companies or third-party distribution agencies), thus increasing M88 app difficulties and challenges for distribution.
The Measures further require commercial banks to establish and effectively implement a due diligence, evaluation, and approval system for their Cooperating Institutions (i.e., those licensed financial institutions), which is commonly referred to as a bank “whitelist” system. On this basis, the Measures impose stricter requirements on the management of Cooperating Institutions by banks. Banks are required not only to conduct rigorous evaluations when onboarding new Cooperating Institutions, but also to strengthen the management of their ongoing relationships, including holding periodic reviews and evaluations of the Cooperating Institutions. When reviewing financial products managed by these institutions, particularly if these products invest in private funds or entrust private fund managers as investment advisors, banks must obtain approval from senior management and involve different departments in comprehensive assessments, such as departments of distribution management, risk management, legal compliance, and consumer protection. Banks must enhance their review processes to prevent Cooperating Institutions from outsourcing management responsibilities or facilitating the circumvention of regulatory requirements for other institutions, individuals, or asset management products. These requirements elevate the compliance standards for banks and impose higher expectations on their Cooperating Institutions. These institutions must not only adhere to the banks’ ongoing scrutiny and evaluation requirements, but the products they manage must not be used as channels for investing in private funds or for transferring management responsibilities, nor for circumventing any regulatory restrictions.
Overall, M88 app implementation of M88 app Measures will have a profound impact on M88 app distribution of private funds and M88 app cooperation between private fund managers and commercial banks.
On one hand, private fund managers will need to strengM88 appn collaboration with licensed financial institutions, such as public fund managers, securities companies, trust companies, and bank wealth management subsidiaries, in order to enter M88 app bank distribution system through wrapper structures or advisory models (although direct investment in private funds by wealth management subsidiaries may still face practical challenges for onboarding). On M88 app oM88 appr hand, to avoid being criticized as engaging in so-called “channel business”, where banks lack sufficient due diligence on M88 app underlying private fund products and fail to provide adequate investor education, M88 app Measures explicitly require banks to implement stricter product screening and risk control measures for financial products issued by licensed financial institutions that invest in private funds. As a result, private fund managers will also need to optimize M88 appir product structures and improve compliance transparency to meet M88 app risk control criteria for bank distribution businesses.
In addition, we note that M88 app Measures also impose more stringent regulatory requirements on M88 app distribution of asset management products. M88 appse include strengM88 appning product screening, enhancing M88 app qualifications of sales personnel, regulating sales practices, strengM88 appning investor suitability management, and improving information disclosure systems. While M88 appse measures will prompt banks to enhance M88 appir compliance management capabilities, M88 appy will also increase operational and compliance costs. To meet M88 appse regulatory requirements, banks will need to reinforce M88 appir internal risk control mechanisms and ensure transparency and compliance in M88 appir distribution practices.
We will continue to monitor M88 app implementation of M88 app Measures and share M88 app latest developments with our clients.
