High-quality development of the trust industry needs to focus on five key points Positioning Main business Capability Risk control and culture.
Recently, the General Office of the State Council forwarded a number of opinions from the General Administration of Financial Supervision on strengthening supervision and preventing risks to promote the high-quality development of the trust industry, which clearly states that the trust industry should be based on the positioning of the trustee, and shift from being driven by financing needs to being driven by the requirements of the trustee. This shift is particularly important for the trust industry, whose positioning has long been unclear. The trust industry must first clarify its positioning as a trustee and determine its main business based on it, which is a key task for trust companies to realize long-term high-quality development.
Trust and investment companies have a wide range of business, but it is difficult to focus on the main business and unable to form core competitiveness. The trust industry needs to gradually develop and eventually form specialized capabilities, which requires patient accumulation but must be done. The key to avoiding systemic risks for trust investment companies also lies in clear positioning and main business, and forming core professional capabilities on this basis.
The 2023 Central Financial Work Conference has brought financial culture to a new level. The trust industry is one of the most important areas that reflect financial culture. The principles of honesty and trustworthiness, taking advantage of justice, prudence and prudence upheld by the trust system have been most fully reflected in the trust industry. However, the credibility of trust companies still needs to be improved, and great efforts need to be made in culture building.
Chen Wenhui, Academic Advisor, CF40, China Financial Forty, President, Northern New Finance Institute (NFI)
This article is the author’s keynote speech at an internal seminar co-hosted by CF40 and NFA on February 22 on the transformation and development of the trust industry and risk prevention and control. The article represents the author’s personal views only, and does not represent the position of CF40 or the author’s organization.
Five Key Points to Focus on in the Development of Trust Industry
Wenhui Chen
On January 27, the General Administration of Financial Supervision issued several opinions on strengthening supervision and preventing risks to promote the high-quality development of the trust industry. I think the trust industry issues are really worthy of in-depth discussion, here I want to talk about two points.
First , it is not uncommon for subsectors of the financial industry to have industry-wide consolidation, such as the futures industry. Back then, futures and trust were the two most problematic areas. After consolidation, the futures industry gradually got on the right track and its subsequent development was relatively smooth. However, the trust industry has repeatedly run into problems, and each time after consolidation, it will face challenges again. As practitioners in the trust industry, there is no need for us to avoid this. In my opinion, the trust industry has not yet escaped from this predicament.
Second , against this background, the State Office 2025 No. 14 forwarded the document of the General Administration of Financial Supervision, which is crucial to the high-quality development of the trust industry and a key opportunity for the industry’s next development. Therefore, I think it is very necessary to spend some time and energy to discuss this issue.
According to my understanding, I would like to talk about the direction of high-quality development of the trust industry. As I have left the trust industry for a long time, what I have said only represents my personal views and understanding.
The trust industry should be based on trustees
Positioning and clarifying the main business
In my opinion, the development of the trust industry needs to focus on five key points Positioning Main business Capacity Wind control and culture. First of all, it is extremely important for the trust industry to return to its origin as a trustee. The opinion of the General Administration of Financial Supervision clearly points out that the trust industry should be based on the positioning of trustees, and shift from being driven by financing needs to being driven by trustee requirements. This shift is particularly important for the trust industry, because since the 1980s, the positioning of trust companies has not been clear enough.
When I entered the trust industry in 1994, trust companies were known as financial department stores because of their extremely broad scope of business. A trust company could have a banking department, a securities department, a futures department, which was later changed to a futures company, a real estate investment department and an industrial investment department. Thus, a trust company is not only involved in financial business, but also in many other fields, so it is more like a department store than a simple financial department store. 2007 CBRC’s regulatory measures also further gave trust companies a wide range of business scope.
However, looking back at the development over the years, the trust industry has often acted as a financing tool for shadow banks, real estate and local government platforms, and as a means of circumventing regulation. Why is it that after such a long time has passed, the industry still has not undergone significant changes? In the past, trust companies underwent six consolidations and were once considered to be disrupting the financial order, interfering with the implementation of credit policies, and so on.
It was difficult for trust companies to compete with banks in the credit business. However, because of the wide range of trust business, the channel business was later derived. The business scope of trust investment companies is very broad, but their positioning is not clear enough. Because of its wide business coverage, it is difficult for its expertise to reach a level of proficiency in all areas. For example, it cannot outperform banks in banking business, nor can it outperform securities companies in securities business.
Therefore, I personally believe that if the trust industry is to develop well in the future, there must first be a clear positioning of trustees. On the basis of this positioning, the main business should then be determined. Of course, this does not mean that we cannot get involved in other businesses, but these should not become the main business.
The opinion also mentions the need to strengthen the independence of property and the safety of risk isolation, and points out three major business directions: asset service trusts, asset management trusts, and charitable trusts for the public good. Although the trust industry is facing many challenges, such as risk problems, shrinking business volume and declining profits, all these need to be resolved. However, no matter what solutions are taken, clear positioning and establishing the main business on this basis may be the key task for trust companies to realize long-term stability. Otherwise, even if they get through the current difficult times and usher in the good times, they will still encounter problems in the long run As the economic cycle changes, trust companies will appear vulnerable to the risks involved.
Enhancing professional competence
Do a good job of risk management and control
Let’s move on to the two key issues of competence and risk control. Why emphasize the ability? Because it is crucial to enhance professional competence. Trust and investment companies have a wide range of business and can do a lot of business, but this, on the contrary, makes it difficult for them to focus on their main business, which in turn prevents them from forming core competitiveness. In particular, in the area of asset servicing trusts, a lot of energy needs to be invested in their development. Although some people have mentioned the challenges posed by issues such as fees and charges, I think this is a mutually reinforcing process. Just as the intermediary business of banks, such as custodianship, has gradually become one of their most attractive businesses, it has also been built up gradually.
In the area of asset management and trust, there is the same problem of professional competence. After finding one’s strengths, one needs to further focus on those strengths. For example, banks have an advantage in credit, insurance companies have a unique advantage in long-term business and, thanks to the large amount of capital they have accumulated, they are competitive in long-term asset management, especially in sound investment areas such as fixed-income or fixed-income-like products. While public equity funds excel in the secondary market, private equity funds have developed strengths in the primary market, especially in the long-term development of the industry, where they have demonstrated stronger strengths.
In my long experience in the industry, I have found that when it comes to discussing long-term trends in industries, investors in the primary market usually have more insights than those in the secondary market. This is because primary market investments often need to be held for ten years or more, and it is difficult to get out of the market quickly once capital is invested. On the other hand, the secondary market is much more liquid and allows investors to exit quickly if they make a bad investment decision.
From this perspective, how should trust companies play to their strengths in asset servicing trusts, so that clients are willing to leave their assets to be managed by trusts and feel assured, just as they now leave their custodianship business to banks. For asset management trusts, as trustees, what are the advantages of trust companies’ asset management capabilities? This requires gradual development and eventual professional competence, a process that takes time and patience to build up, but it must be done.
Let’s move on to risks. Financial institutions face a wide variety of risks, and the core mission of financial institutions is to control risks. In my opinion, the key for trust and investment companies to avoid risks or systemic risks lies in defining their own positioning and main business, and forming core professional capabilities on this basis. In this way, they can avoid big risks, although there will be other types of market risks. Since 1979, the trust industry has gone through a number of consolidations, which I believe is closely related to the lack of clarity on the above issues. Therefore, in terms of risk management, I would suggest that a great deal of effort be put into laying the foundations in this area.
Strengthening the fiduciary culture
Enhance the credibility of the industry
Finally, when it comes to culture, the Central Financial Work Conference in the year before 2023 brought financial culture to a new height. Currently, everyone is discussing various forms of financial culture, and in my opinion, the trust industry is indeed one of the most important areas that reflect financial culture. The principles of honesty and trustworthiness, taking advantage of righteousness, prudence and prudence upheld by the trust system have been most fully realized in the trust industry. However, as you have mentioned, the credibility of trust companies in society still needs to be improved, and they really need to make great efforts in culture building.
Compared with other industries, trusts seem to have a natural advantage in this regard. In fact, the current forms of adopting the trust mechanism are already very extensive, including public funds which are essentially a form of trust. Private equity funds, as well as securities investment funds in the capital and securities markets, are also guided by the principle of trustees managing money on behalf of others. From this perspective, this market is very broad. Since other forms of funds have been gradually developing and growing, there is no reason why trust companies, which are the most primitive form of the trust industry, should not do well. Therefore, I think it is really necessary to put in a lot of efforts in this area and give full play to the potentials of trust companies.
At present, there are more discussions on amending the trust law as soon as possible, and the number of financial businesses based on the trust concept is also increasing. As the most fundamental and essential institution of the trust industry, it is indeed unreasonable if trust organizations do not have a place in this area. I believe that as long as we all work together, under the guidance of regulation, we can fully enable trust companies and the trust industry as a whole to embark on a path of high-quality development. This requires the common struggle and efforts of all of us.
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