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Recently, Shenzhen Stock Exchange (“SZSE”) officially issued Guidelines on Credit Risk Management over the Duration of Asset-Backed Securities (Trial) (hereinafter referred to as Risk Management Guidelines) and Guidelines on the Content and Format of Periodic Reports for Asset-backed Securities (hereinafter referred to as Guidelines on Periodic Reports). The two guidelines aim to improve the risk management system for asset securitization, strengthen the credit risk management over the duration of asset-backed securities (ABS), enhance the disclosure quality of periodic reports on asset-backed securities, deal with the market concerns pertaining to information effectiveness, thus effectively protecting the legitimate rights and interests of investors.
The Risk Management Guidelines mainly addresses three issues. Firstly, it specifies the credit risk management responsibilities of concerned market participants. To achieve this, a comprehensive credit risk management system with securities managers as core members must be established and the detailed responsibilities of the following participants must be specified: securities managers, original beneficiaries, asset service institutions, credit enhancement institutions, custodians, and credit rating agencies. Secondly, it establishes a credit risk-oriented classification system. Based on risk levels, asset-backed special plans are divided into the following categories: normal, attention required, risk, and violation. Securities managers shall implement classified management of the special plans, based on the provided guidelines and risk monitoring and investigation results. Thirdly, it establishes rules for periodic and non-periodic risk reporting. Specifically, securities managers shall submit reports on risk classification and risk management to SZSE every half a year, and submit interim reports on important issues in the process of handling special plans with risks or violation problems. The Guidelines on Periodic Reports illustrate requirements on the preparation and disclosure of annual asset management reports and annual custody reports.
As stated by an SZSE official, the Risk Management Guidelines and the Guidelines on Periodic Reports are issued to carry out the information disclosure-centered regulatory philosophy of the China Securities Regulatory Commission. These guidelines then further promote the smooth and healthy development of asset securitization and guide managers, market participants and information disclosure obligors in performing their due duties, therefore protecting the interests of investors. Also, each market participant shall strictly follow the guidelines and strengthen credit risk management over the ABS duration. To provide securities managers with sufficient credit risk assessment time, the deadline for submission of the first half-year credit risk management report has been extended to June 30, 2018.
As of the end of April 2018, SZSE has witnessed the listing of 242 asset-backed special plans, with a total amount tapping CNY217.4 billion. These special plans well cover all basic asset types on the market in a balanced way, including corporate accounts receivables, infrastructure charges, real estate, affordable housing, consumer finance and financial leases. Next, SZSE will fully carry out the spirit of the 19th CPC National Congress and the National Financial Work Conference and always adhere to the principle of laying equal emphasis on market development and risk prevention and control. While promoting asset securitization to serve the real economy, SZSE will strive to strengthen the management over ABS duration, therefore greatly intensifying the front-line market supervision and holding fast to the bottom line of no systemic financial risks.
