The General Office of the China Banking and Insurance Regulatory Commission ("CBIRC") has recently issued the Circular on the Participation of Insurance Funds in the Business of Credit Risk Mitigation Tools and Credit Protection Tools (the "Circular").
Major contents of the Circular deal with four aspects as below. The first is clarifying the goals of such participation. It is provided that the participation of insurance funds in the credit derivatives business is limited only to the purpose of risk hedging, instead of being aimed at assuming credit risks. The second is clearly specifying qualifications of participants. It is required that an insurance institution shall have the capacity to apply derivatives and to manage credit risks if it intends to engage in the credit derivatives business. The third is subjecting business activities to the principle of being in compliance with "both regulatory rules and business rules". Specifically, such business activities should comply with not only the CBIRC's regulatory rules regarding the trading of financial derivatives but also the business rules of the National Association of Financial Market Institutional Investors ("NAFMII"), the Shanghai Stock Exchange ("SSE") and the Shenzhen Stock Exchange ("SZSE"). And the fourth is stepping up risk management. Insurance institutions shall work out corresponding management rules and operating procedures, monitor and periodically evaluate risks, and submit monthly, quarterly and annual reports to the CBIRC.