By: Rhona O'Connell, Head of Market Analysis
Rhona O'Connell, Head of Market Analysis, EMEA & Asia
Tel: +44 203 580 6115 / mobile +44 7384 833897
Comment: - this will certainly be positive in terms of fresh demand. What we don’t know is how much the funds would want, of course. Most professional investors would allocate anything between 3 and 20% of AUM into gold. I would imagine that purchases would be spread over time for the sake of prudence. I note in the notice (below) that they will be expected to take a responsible approach to formulating programmes and allocation, as well as having staff with all the necessary qualifications, so it won’t be happening immediately. I wonder also if ETFs will be acceptable. Herewith the notice from the Website of the State Financial Supervision and Administration Bureau
All pilot insurance companies :
In order to expand the channels for insurance funds to be used, optimize the insurance asset allocation structure, and promote insurance companies to improve their asset-liability management level, the Financial Supervision Administration has decided to launch a pilot program for insurance funds to invest in gold. The relevant matters are hereby notified as follows:
I. Main contents of the pilot program
From the date of issuance of this notice , pilot insurance companies may carry out pilot investment in gold business for the purpose of medium- and long-term asset allocation .
(I) Scope of pilot gold investment: Gold spot contracts, gold spot deferred delivery contracts, Shanghai gold centralized pricing contracts, gold price inquiry spot contracts, gold price inquiry swap contracts and gold leasing business listed or traded on the main board of the Shanghai Gold Exchange.
(II) Pilot participants: PICC Property and Casualty Company Limited, China Life Insurance Company Limited, China Taiping Life Insurance Company Limited, China Export & Credit Insurance Corporation, Ping An Property & Casualty Insurance Company of China, Ping An Life Insurance Company of China, China Pacific Property Insurance Company Limited, China Pacific Life Insurance Company Limited, Taikang Life Insurance Company Limited, and New China Life Insurance Company Limited.
II. Pilot investment requirements
(I) Strict decision-making and approval procedures. Pilot insurance companies’ investment in gold must be reviewed and approved by the board of directors, and a decision-making authorization mechanism with clear responsibilities and authorization must be established . According to asset allocation and risk management requirements, reasonable gold allocation and investment strategies must be formulated.
(II) Staffing with qualified personnel. Pilot insurance companies investing in gold shall set up positions such as investment research, transaction delivery, risk control compliance, and liquidation and accounting, and strictly separate front-end, middle-end, and back-end personnel and responsibilities . Pilot insurance companies shall staff personnel commensurate with the scale of gold investment business . Among them, investment research and transaction delivery positions shall be staffed with at least two personnel who have passed the national gold trading professional level examination, and risk control compliance, liquidation and accounting positions shall be staffed with at least one person who has passed the national gold trading professional level examination.
(III) Establish an investment management system. Pilot insurance companies shall establish a gold investment management system, including but not limited to authorization management, investment decision-making, research and analysis, transaction delivery, liquidation and accounting, information systems, internal control, risk management, and related transactions .
(IV) Improve the information management system. Pilot insurance companies that conduct gold investment by becoming members of the Shanghai Gold Exchange shall establish an information technology system that meets the technical operation specifications of the Shanghai Gold Exchange. If they conduct gold investment through commercial bank agent seats , they shall do a good job of connecting with the commercial bank's system and account to meet the needs of investment transactions, accounting and risk management.
(V) Adhere to the concept of prudent investment. Pilot insurance companies investing in gold should flexibly use bulk transactions, inquiry transactions, competitive bidding transactions and other methods to build positions in stages and batches to avoid impacts on the market due to abnormal trading behaviors. Pilot insurance companies investing in gold should use monetary funds and shall not handle the physical gold outbound and inbound business.
(VI) Pilot insurance companies investing in gold spot deferred delivery contracts should do so for the purpose of risk management or asset allocation, reasonably control the scale of business, and are prohibited from using the contracts for speculation and arbitrage .
(VII) Pilot insurance companies investing in gold spot and swap contracts shall limit their counterparties to financial institutions, and manage credit lines properly to prevent credit risks. Pilot insurance companies shall strictly control the scale of swap financing, prohibit the use of financing funds in high-risk and illiquid assets, and the net short position of the swap business at the far end shall be lower than the gold spot assets held by the insurance company at any point in time.
(VIII) When pilot insurance companies engage in gold leasing business, their counterparties shall be limited to financial institutions, and the concentration of counterparties shall be reasonably controlled. The leasing scale of a single counterparty shall not exceed 20% of the gold spot contracts held by the pilot insurance company.
(IX) Pilot insurance companies shall strictly implement the investment ratio requirements, and the total book balance of investment in gold shall not exceed 1% of the company's total assets at the end of the previous quarter. The investment ratio calculation of pilot insurance companies shall fully and truly reflect the investment situation. The market value of the gold spot contract of the business shall be used as the statistical basis for the gold spot deferred delivery contract, and the net exposure of the gold position of the business shall be used as the statistical basis for the gold inquiry swap contract, and the outstanding scale of the unilateral side shall not exceed 1% of the company's total assets at the end of the previous quarter. The scale of gold loaned by pilot insurance companies shall be included in the investment ratio management.
(10) Pilot insurance companies investing in gold should strengthen operational risk management, improve operational risk management systems, improve risk management processes, and establish a mechanism for tiered approval before transactions, two-person review of transaction execution , and emergency response to unexpected events .
III. Supervision and Management
(I) Establish a regular reporting mechanism. Pilot insurance companies shall submit a report on the progress of pilot business to the Financial Regulatory Administration within 5 working days after the end of each quarter .
(II) Establish a temporary reporting mechanism. If any situation that does not meet the requirements of this notice or a related major risk event occurs during the pilot period, the pilot insurance company shall report to the Financial Regulatory Administration within 10 working days and shall not make new gold investments before meeting the pilot requirements.
(III) The Financial Regulatory Authority shall supervise and manage the pilot insurance companies’ gold investment business in accordance with the law. Any violation of the pilot requirements or other relevant regulatory provisions shall be ordered to make corrections within a time limit. If the violation is serious, its pilot qualification shall be revoked.
General Office of the State Financial Supervision and Administration Bureau"
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