SHANGHAI--China will allow a wider range of companies, including foreign banks, to distribute products from local mutual fund managers from June 1, a long-anticipated move that will give foreign lenders access to a lucrative and growing market.

Under amended rules on the distribution of securities investment funds released Friday, the China Securities Regulatory Commission said it will permit commercial banks, including foreign banks, that have no record of "significant administrative or criminal penalties" in the last three consecutive years to sell mutual funds to investors in China.

The new rules will give foreign lenders entry into a fast-growing niche in the world's second-largest economy. China's 72 fund-management companies managed 3.62 trillion yuan ($575.8 billion) as of the end of last year, 31% more than a year earlier.

China currently requires commercial banks to have a record clean of "administrative or criminal penalties" for three consecutive years, a requirement that none of the foreign banks in China would be able to meet.

Following the change, major foreign banks will be eligible to apply for licenses to conduct the business.

The release by the CSRC came after a person with direct knowledge of the matter told Dow Jones Newswires last month that China's securities regulator is expected to soon unveil amended rules to effectively make foreign banks eligible to tap the domestic fund distribution market.

The latest statement from the Shanghai Branch of the CSRC showed that it has received five foreign lenders' applications for the license as of March 11. The applicants are Standard Chartered PLC (STAN.LN), United Overseas Bank Ltd. (U11.SG), Citigroup Inc.'s (C) Citibank, Bank of East Asia (0023.HK), and Hang Seng Bank (0011.HK).

The new rules also pave the way for local futures companies and insurance companies to distribute mutual funds for fund management companies, a market currently is dominated by local banks.

In a bid to introduce more competition into the market, the securities regulator has in recent years brought in more players, including independent fund sale institutions.

The release by the CSRC came two days prior to an appointment of Bank of China Ltd. Chairman Xiao Gang as the new head of the CSRC, succeeding Guo Shuqing.

Write to Amy Li at amy.li@dowjones.com

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