On November 22,2019,The China Banking and Insurance Regulatory Commission(CBRC)has publicly solicited opinions on the"Interim Measures for the Administration of Insurance Asset Management Products(Draft for Comments)"(hereinafter referred to as the"Draft for Comments").After the implementation of the new regulations on private placement asset management products by banking and securities and futures operating institutions,the release of the Draft for Comments marks the beginning of the full implementation of the new regulations on asset management in another category of asset management businesses.Coincidentally,on November 15,2019,the Supreme People's Court issued the"Draft for Comments""Minutes of the National Conference on Civil and Commercial Trials of Courts"(hereinafter referred to as the"Minutes").The author intends to interpret the corresponding provisions in the"Draft for Comments"in combination with the financial provisions in the"Minutes".

1、Definition of product nature

Article 3 of the Draft for Comments stipulates that"The insurance asset management product business referred to in these Measures refers to financial services in which an insurance asset management institution accepts the entrustment of investors,establishes insurance asset management products,and acts as a manager,and invests and manages the entrusted investor's property in accordance with laws,regulations,and relevant contract agreements."The author believes that according to this article,in the insurance asset management products,A trust legal relationship has been formed between investors and managers.According to the provisions of the"Notice of the General Office of the State Council on Issues Related to the Publication and Implementation of the Trust Law of the People's Republic of China"(Guo Ban Fa[2001]No.101),except for the establishment of trusts initiated by trust companies and the establishment of public funds initiated by securities investment fund management companies,no legal entity shall engage in any form of business trust activities without the approval of the People's Bank of China and the Securities Regulatory Commission.However,in October 2018,in response to reporters'questions on the"Management Measures for Private Equity Asset Management Business of Securities and Futures Operating Institutions"and its supporting rules,the heads of relevant departments of the CSRC proposed that various private equity asset management products should be established in accordance with the trust legal relationship.In December 2018,the head of relevant departments of the China Banking and Insurance Regulatory Commission(CIRC)replied to reporters'questions on the"Management Measures for Financial Management Subsidiaries of Commercial Banks",proposing that financial products issued by commercial banks and bank financial subsidiaries should be established in accordance with the legal relationship of trust.From this perspective,relevant regulatory agencies have demonstrated the attitude of defining the basic legal relationship of asset management business as a trust legal relationship.Meanwhile,Article 88 of the Minutes of the Meeting provides for the determination of business trust disputes:"The business behavior of a trust company that accepts the trust's entrustment for the purpose of obtaining trust remuneration and handles trust affairs as a trustee in accordance with laws and regulations and the regulatory provisions of the financial supervision and regulation department belongs to business trust.The resulting disputes between the parties to the trust are business trust disputes.""According to the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions,if the asset management business conducted by other financial institutions constitutes a trust relationship,disputes between the parties shall be handled in accordance with the Trust Law and other relevant regulations."

From this perspective,the Supreme People's Court has adopted an attitude of exploring the true legal relationship based on the true intentions of the parties in determining the legal relationship of a trust.The court not only recognizes the establishment of a trust by a trust company as a trust legal relationship,but also handles it in accordance with the trust legal relationship when the asset management business conducted by other financial institutions in accordance with the provisions of the new asset management regulations constitutes a trust relationship.Insurance asset management products also belong to the asset management business carried out in accordance with the provisions of the new asset management regulations.Therefore,according to the provisions of the Minutes of Meeting,in insurance asset management products,the legal relationship between investors and managers should be handled in accordance with the legal relationship of trust.

2、Further breaking of product floor guarantees and fresh confirmations

Article 6 of the"Draft for Comments"stipulates that"When conducting insurance asset management product business,insurance asset management institutions shall not promise to guarantee the principal and return.When there are difficulties in cashing,insurance asset management institutions shall not advance funds in any form to cash.Investors investing in insurance asset management products shall make prudent decisions based on their own capabilities and independently bear investment risks.".As stipulated in the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions,the minimum guarantee clauses and rigid cashing of insurance asset management products are also prohibited.As analyzed above,since the legal relationship between investors and managers in insurance asset management products is defined as a trust legal relationship,the author believes that according to Article 92 of the Minutes of the Meeting,financial institutions such as trust companies and commercial banks,as trustees of asset management products,enter into contracts with beneficiaries that contain minimum or immediate payment clauses such as ensuring a fixed return on principal and interest,and ensuring that the principal is not subject to loss,the people's court should determine that this clause is invalid."If the beneficiary requests the trustee to bear compensation liability for its losses commensurate with its fault,the people's court shall support it according to law.".In practice,minimum or just confirmed clauses are usually not explicitly agreed upon in asset management product contracts,but rather agreed upon through a"drawer agreement"or other means.Regardless of the form,they should be considered invalid.Therefore,if the insurance asset management product subscription agreement stipulates that the principal and interest shall be guaranteed or the insurance asset management institution shall advance funds to honor the principal and interest,it shall be prohibited.

3、Issuance and establishment of products

(1)Suitability Obligation Article 19 of the"Draft for Comments"concerns the qualification of qualified investors.Natural persons have been included in the scope of investors in insurance asset management products for the first time.Previously,insurance asset management products were only sold to institutional investors.Article 19 of the Draft stipulates that a qualified investor refers to a natural person,legal person,or other legally established organization that has the corresponding risk identification ability and risk bearing ability to invest in a single product that is not less than a certain amount and meets the following conditions.According to Article 72 of the Minutes of the Meeting regarding the appropriateness obligation,insurance asset management institutions must fulfill the appropriateness obligations of understanding customers,products,and selling(or providing)appropriate products(or services)to appropriate financial consumers in the process of recommending and selling insurance investment products to qualified investors.The purpose of an insurance asset management institution's obligation of appropriateness is to ensure that qualified investors can make independent decisions based on a full understanding of the nature and risks of relevant financial products and investment activities,and bear the benefits and risks arising therefrom.In the field of promoting and selling high-risk financial products and providing high-risk financial services,the performance of the appropriateness obligation is the main content of"seller's due diligence",and is also the premise and foundation of"buyer's self responsibility".(2)Obligation to inform and explain.According to Article 76 of the Minutes of the Meeting,the performance of the obligation of disclosure is the key for qualified investors in insurance asset management products to truly understand the investment risks and benefits of various high-risk financial products or high-risk investment activities.The people's court should,based on the actual situation of insurance asset management products,investment activities,and qualified investors,The objective criteria that a rational person can understand and the subjective criteria that a qualified investor can understand are used to determine whether the insurance asset management institution as a seller has fulfilled the obligation of disclosure."If the seller institution simply claims that it has fulfilled its obligation to inform and explain with the content such as"I clearly know that there may be a risk of principal loss"written by a qualified investor,and cannot provide other relevant evidence,the people's court will not support its defense reasons.".(3)Responsible subject.For sales specifications,Article 28 of the Draft for Comments"Insurance asset management institutions can sell insurance asset management products on their own,or entrust qualified banking,insurance,and financial institutions to sell insurance asset management products on their behalf.Insurance asset management institutions and agent sales institutions should be honest,trustworthy,diligent,and responsible,prevent conflicts of interest,fulfill obligations such as disclosure obligations,anti money laundering obligations,and bear relevant responsibilities such as investor suitability review,product promotion,and qualified investor confirmation。”For sales institutions of insurance asset management products,in accordance with Article 74 of the Minutes of Meeting,if the issuers and sellers of financial products fail to fulfill their due diligence obligations,resulting in financial consumers suffering losses during the purchase of financial products,financial consumers can either request the issuers of financial products to assume compensation liability,or request the sellers of financial products to assume compensation liability,or in accordance with Article 167 of the General Principles of the Civil Law,The issuer and seller of the requested financial product shall jointly bear joint and several liability for compensation."If an issuer or seller requests the people's court to clarify their respective share of liability,the people's court may,while adjudicating that the issuer or seller shall bear joint and several liability for compensation to financial consumers,clarify that the issuer or seller has the right to recover their share of compensation from the responsible party after actually assuming the liability.".Therefore,the author believes that under the premise that the insurance asset management institutions sell insurance asset management products on their own and entrust third-party institutions to sell insurance asset management products on a commission basis in order to fulfill the obligation of appropriateness,once the qualified investors of insurance asset management products suffer losses during the purchase of insurance asset management products,the above institutions should bear the liability for compensation.At the same time,in accordance with Article 78 of the Minutes of the Meeting regarding exemptions,if the compliance investor intentionally provides false information,refuses to listen to the suggestions of the insurance asset management institution or the sales agency,and other personal reasons lead to inappropriate purchase of products or acceptance of services,and the above institution requests exemption from corresponding responsibilities,the people's court shall support it in accordance with the law,unless the qualified investor can prove that the issuance of such false information is misleading as described above.If the above institution can provide evidence to prove that,based on the past investment experience,education level,and other facts of the qualified investor,the violation of the appropriateness obligation did not affect the qualified investor's independent decision,the people's court shall support its defense that the qualified investor should bear the investment risk on its own according to law.

4、Conclusion

In 2018,the"Guiding Opinions on Regulating the Asset Management Business of Financial Institutions"was officially implemented,and the asset management business of financial institutions was also gradually standardized.In November 2019,the"Draft for Comments"and the"Minutes of the Meeting"were simultaneously issued.The Minutes of the Meeting provide targeted guidelines for the resolution of disputes over insurance asset management products and other financial asset management products.As for the remaining small amount of non-standard situations in financial asset management products,they will gradually disappear over time.

Disclaimers

The content of this article is for the sole purpose of providing information to the author of the article.Readers should not rely on this information for any purpose before obtaining legal opinions from practicing lawyers in relevant jurisdictions regarding their own cases.Beijing Gaopeng(Nanjing)Law Firm expressly disclaims all liability,loss,or damage arising from any form of use(including acts or omissions)of this document.

(This article is translated by software translator for reference only.)