Study On Unified Supervision Of Asset Management Business Of Financial Institutions

As an emerging financial services product, financial asset management businesshas developed rapidly in this century with the involvement of more and morefinancial institutions and professional asset managers. But in China, financial assetmanagement is not a legal concept and there is no unified definition of access to thebusiness or business operations. Therefore questions about the subject status of thepractitioner or transfer of the business are brought up once disputes occur.Contradictions between the needs of judicial practice and the absence of law areprominent.This thesis believes that the legal implications of the financial asset managementcontains three aspects: financial assets as the main subject matter of assetmanagement; asset managers as the subject, which refers to the professional assetmanagers including subjects legally engaging in asset management business, notnecessarily limited to the existing system of permitted financial institutions.Investment portfolio as management activities, which aims to maintain or increase thevalue of the assets mainly through the capital markets, not including consultations.Currently, asset managers in China include fund companies, banks, securitiescompanies, trust companies, insurance companies, financial asset management companies, pension fund companies and financial holding companies, as well asinvestment companies and investment advisory firms who are in practice engaged inasset management business. Some of them are under the supervision of law, but someof them are absolutely unregulated. Due to the characteristics of financial supervisionmodel in China, there are discrepancies among regulatory rules of different regulatorybodies, which lead to the unequal status of the asset managers in competition.Moreover, the lack of macroscopic sense and stability of the regulations results in theconfusion of the business.Though financial asset management activities are regulated by differentregulations because of their different subjects, they are homogeneous in law.The nature of the legal relationships established through the financial assetmanagement agreements, or between the asset managers and the investors (or clients)is but one in law. Scholars have different theories about the nature of financial assetmanagement. Some define it as entrusted agency or trust; some separate it into severalclassifications. This thesis holds the view that the nature of financial assetmanagement relates to trust. Different with commission and brokerage, in thedevelopment of systems in the common law, trust refers to a property managementsystem with three subjects of the settler, the trustee and the beneficiary. The settlerentrusts his property rights to the trustee and allows the trustee to, according to thewill of the settler and in the name of the trustee, administer or dispose of suchproperty in the interest of a beneficiary or for any intended purposes. The trustproperty is independent. In financial asset management activities, the settler also actsas the beneficiary. The financial asset is controlled by the manager as soon astransferred. With professional knowledge the manager manages for the interests of theinvestor to increase the value of the asset. However, there are both realistic andtheoretical barriers in defining the nature of financial asset management as trust inChina. The realistic obstacle mainly refers to the absence of trust in tradition andideology. The strict provisions for the trustee of our trust system discourage themanagers to recognize their business activities as trust for their own sake. Thetheoretical obstacle refers to the adoption of the subjective principle in China's business activities, which means that only trust companies are eligible to engage intrust activities. This paper argues that China should be in accordance with theobjective principle to give the trustees legal obligations as long as their activities havethe same nature with trust objectively, regardless of whether they are registered as atrust subject.Why financial asset management activities with the same nature apply differentregulations? Who is a qualified financial asset manager? Why can not the managerscompete with each other equally? Facing these problems we have to first answer twoquestions: do financial asset management activities (or financial asset managementindustry if it is a type of business) need to be supervised or supervised by uniformregulations? Financial asset management happens in the financial market withfinancial innovation that has a subtle relationship with financial supervision. Only besupervised can the innovation observes the order of the market and ensures theinterests of the investors. For this relationship the financial asset management industryshould be supervised. Also, it's reasonable to supervise it by uniform regulations forfour reasons. First, financial asset management industry covers a large scale. Second,unified supervision is the need for regulating asset management activities. Third,unified supervision contributes to the justice and specialization of financial assetmanagement as well as the construction of competition order. fourth, unifiedsupervision goes in line with international trends.Of course, there is a sensitive issue if unified supervision of financial assetmanagement industry is to be carried out in China-the supervision model of thefinancial sector. While horizontally unified supervision of the financial sector is aninternational trend, our financial supervision model is not likely to realize it shortly inthe existing background and within the current development of law. However, thepossibility exists since it's possible to supervise activities in horizontal uniformitywithin the financial sector due to their homogeneity. When our financial supervisionstructure is not to be reformed at the moment, we first call upon the unification of thesupervision system to set up the supervision principles and establish the access systemto the market and the supervision system for the operation of financial asset management.With the unified principles, the supervision authorities can regulate the subjectswithin their own responsibilities. Subjects beyond the responsibility of the threefinancial regulators should be supervised by the administration for industry andcommerce when the manager get registered and during operation. Self-regulation isalso advocated.It's a process of value selection to determine the supervision principles of thefinancial asset management industry. Economic law values fairness (reflecting thebalance among individuals in the market), fairness in development chances betweengenerations,(reflecting the balance between the people and the environment),efficiency (reflecting the maximal interests of the society in sustainable development),interests (reflecting the protection of public interests). Therefore, supervision of thefinancial asset management industry should contain the contents reflecting security,fairness, efficiency and so on. These values may in conflict with each other, thusinternal coordination is needed to ensure the legitimacy and validity of the principles.This paper argues that these principles may contain the following aspects: first,maintenance of financial stability and security; second, moderation based on themaximal interests of the society; third, protection of the interests of the clients(investors); fourth, combination of macro-prudence and micro-prudence.The first question to be solved is: who is to be supervised, the practitioners or theindustry? All the existing asset management services provided by financial institutionsare based on the trust system and its legal principles, thus the supervision system ofthe trust can not be turned away from. There is a tight connection between the accesssystem of the asset management industry and that of the trust industry. In China, trustsupervision is the supervision of trust companies and the permission to the entrance ofthe industry is quite strict. On this background this paper suggests the building ofsupervision system focus on the business. Managers engaging in trust are notnecessarily to be trust companies, as long as they are permitted to provide the sameservices. Being permitted to provide a certain service means to be a qualified managerof financial asset management. Qualifications to be considered are as follows: capital, operational capacity, credit and procedural requirements. Meanwhile, thequalifications of the investors are also to be considered. Investors mentioned heremainly refer to individuals because unlike institutions with professional knowledgeand capacity, they are easy to be influenced by financial risks. Qualified investors arejudges by their maturity, credit and wealth. For collective financial asset managementproducts, there should be restrictions on the numbers of investors involved, whichmainly refer to private equity.The supervision of operation refers to the regulation of the behavior of thequalified manager. The status of the manager decides the code of behavior within theindustry. Therefore, the manger has fiduciary obligation. Though it's improper todefine financial asset management as trust, it's reasonable to define asset manager astrustee according to Trust Law. Also, the status of the manager can be decided by therelationship built through the financial asset management agreement within particularfinancial area. The particularity of asset management gives higher obligation to themanager than the agent of entrusted agency. Therefore, the behavior of a manager canbe defined as fiduciary act with both contract obligation and statutory obligation, butmainly fiduciary obligation-duties of care and fidelity. So the management behaviorrequires prudence and fidelity. Though the transfer of fiduciary obligation is allowedin common law, in China, the manager should operate the business by himself insteadof transferring it to a third party if the practice of trust is considered. The developmentof financial products should also be supervised to avoid obscurity, ambiguity andconfusion. The manager is obliged for the disclosure of information frominterpretations before signing an agreement and genuine information during theoperation. The supervision of operation also includes supervision over accountmanaging and fees collecting and ensuring the nonoccurrence of prohibited behaviors.Once the manger violates above obligations, he should be liable.