On Friday, February 7, the National Financial Regulatory Administration of China announced that to broaden the application channels of insurance funds, optimize the asset allocation structure of insurance assets, and promote insurance companies to enhance their asset-liability management level, a pilot program for investing insurance funds in Gold business will be initiated.

The notice published by the Financial Regulatory Administration that day specified that from the date of the notice, pilot insurance companies can carry out the investment in Gold business pilot program for the purpose of medium and long-term asset allocation.

(Screenshot source: National Financial Regulatory Administration of China website)

The "Notice" mainly puts forward clear requirements from three aspects: pilot content, pilot requirements, and supervision and management. In terms of pilot content, the "Notice" defines the business scope and investment methods for pilot investment in Gold, and identifies 10 pilot insurance companies. In terms of pilot requirements, the "Notice" standardizes the pre-management and mid-management of gold investment by pilot insurance companies. In terms of supervision and management, the "Notice" clarifies the periodic report, interim report mechanisms and related supervision and management requirements for pilot businesses.

It is understood that there are a total of 10 pilot insurance companies, and the scope of pilot investment in Gold includes spot live trading contracts for Gold listed or traded on the Shanghai Gold Exchange Main Board, Gold spot deferred delivery contracts, Shanghai Gold centralized pricing contracts, Gold inquiry spot contracts, Gold inquiry swap contracts, and Gold lending business.

In addition, regarding the pilot requirements, the notice standardized the pre-management and in-process management of pilot insurance companies' investment in Gold. In terms of supervision and management, the notice clarified the regular reporting, temporary reporting mechanisms of pilot business, and related supervision and management requirements.

The Financial Regulatory Administration stated that conducting a pilot program for insurance fund investment in Gold is a beneficial measure to deepen the reform of insurance fund application and promote the high-quality development of the insurance industry. In the next step, the Financial Regulatory Administration will closely monitor the progress of the pilot, strengthen supervision and management, ensure the implementation of the notice, and promote the healthy development of insurance fund investment in Gold business.

Notice from the Office of the National Financial Supervision and Administration on Carrying Out Pilot Projects for Insurance Funds to Invest in Gold Business.

To all pilot insurance companies:

In order to broaden the channels for the use of Insurance funds, optimize the asset allocation structure of Insurance, and promote Insurance companies to enhance their asset-liability management level, the Financial Regulatory Administration decided to carry out pilot projects for insurance funds to invest in gold business. The following notice is hereby made regarding related matters:

1. Main content of the pilot.

From the date of this notice, pilot insurance companies can conduct investment in Gold as a medium to long-term asset allocation pilot project.

(1) Scope of pilot investment in Gold. Spot live trading contracts of Gold, deferred settlement contracts of Gold listed or traded on the Shanghai Gold Exchange Main Board, Shanghai Gold centralized pricing contracts, Gold inquiry spot contracts, Gold inquiry swap contracts, and Gold lending business.

(2) Pilot participating entities. People's Insurance Company of China, China Life Insurance Co., Ltd., Ping An Life Insurance Co., Ltd., China Export & Credit Insurance Corporation, Ping An Property & Casualty Insurance Co., Ltd., Ping An Life Insurance Co., Ltd., China Pacific Property Insurance Co., Ltd., China Pacific Life Insurance Co., Ltd., Taikang Life Insurance Co., Ltd., Xinhua Life Insurance Co., Ltd.

II. Pilot Investment Requirements

(1) Strict decision-making and approval procedures. Pilot Insurance Companies investing in Gold must have their decisions reviewed and approved by the Board of Directors, establishing a clear decision-making authorization mechanism with defined responsibilities. Reasonable gold allocation and investment strategies should be formulated based on asset allocation and risk management requirements.

(2) Equip qualified personnel. Pilot Insurance Companies investing in Gold must set up positions such as investment research, trade settlement, risk control compliance, and accounting to ensure strict separation of front, middle, and back office personnel and responsibilities. Pilot Insurance Companies should employ personnel in line with the scale of their gold investment business, with at least 2 individuals who have passed the national gold trading competency exam in investment research and trade settlement positions, and at least 1 individual who has passed in risk control compliance, accounting, etc.

(3) Establish investment management systems. Pilot Insurance Companies should establish gold investment management systems that include but are not limited to authorization management, investment decisions, research and analysis, trade settlement, accounting, information systems, internal controls, risk management, and related party transactions.

(4) Improve information management systems. Pilot Insurance Companies conducting gold investment through membership in the Shanghai Gold Exchange must establish an information technology system that meets the operational standards of the Shanghai Gold Exchange. Those conducting gold investment through commercial banks should ensure good system and account integration with the banks to meet the needs of trading, accounting, and risk management.

(5) Adhere to a prudent investment philosophy. Pilot Insurance Companies investing in Gold should flexibly use block trades, inquiry trades, and competitive bidding to gradually build positions in phases, avoiding market disruption due to abnormal trading behavior. Investments in gold must be made using monetary funds, and physical gold warehousing and depository services are not permitted.

(6) Investments by pilot insurance companies in gold spot deferred delivery contracts should aim at risk management or asset allocation, with reasonable control over the business scale and prohibition of speculative profits.

(7) Pilot insurance companies investing in Gold should inquire for immediate and swap contracts, with trading partners limited to Financial Institutions. Proper credit limit management must be in place to effectively prevent credit risks. Pilot insurance companies should strictly control the financing scale of swap business, prohibiting the investment of funds in high-risk and illiquid Assets. The net short position of long-dated swaps should be less than the Gold spot Assets held by the insurance company at any given time.

(8) Pilot insurance companies should engage in Gold leasing business, with trading partners limited to Financial Institutions, and reasonably control counterparty concentration. The leasing scale for a single trading partner must not exceed 20% of the Gold spot contracts held by the pilot insurance company.

(9) Pilot insurance companies should strictly adhere to the investment proportion requirements, with the total book balance of Gold investments not exceeding 1% of the company's total Assets at the end of the last quarter. The calculation of the investment proportion should comprehensively and accurately reflect the investment situation, with Gold spot deferred delivery contracts based on the market value of Gold spot contracts, and Gold inquiry swap contracts based on the net positions in Gold. The outstanding single-sided scale should not exceed 1% of the company's total Assets at the end of the last quarter. The scale of borrowed Gold should also fall under investment proportion management.

(10) Pilot insurance companies investing in Gold should strengthen operational risk management, establish comprehensive operational risk management systems, improve risk management processes, and establish a pre-trade approval hierarchy, dual review during trade execution, and emergency handling mechanisms for unexpected events.

3. Supervision and Management

(1) Establish a regular reporting mechanism. Pilot insurance companies should report the status of pilot business development to the Financial Regulatory Bureau within 5 working days after the end of each quarter.

(2) Establish a temporary reporting mechanism. If situations arise during the pilot period that do not meet the requirements of this notice or significant risk events occur, pilot insurance companies should report to the Financial Regulatory Bureau within 10 working days and must not initiate new Gold investments until compliance with pilot requirements.

(3) The Financial Regulatory Bureau shall enforce supervision and management of the pilot insurance companies' Gold investment operations; for violations of pilot requirements or other relevant regulations, corrections must be made within a specified time period, and severe cases may result in the cancellation of pilot eligibility.