CSRC to issue AI rules for 30 trillion yuan fund market

China's securities regulator will issue formal rules governing artificial intelligence in capital markets, extending a crackdown that has already slowed IPO approvals by nearly 50%.

Wu Qing, chairman of the China Securities Regulatory Commission, said the regulator will "timely issue" guiding opinions to govern AI's use in capital markets, extending a campaign to tighten oversight of the 30 trillion yuan fund industry.

"The rapid adoption of AI in trading, advisory services and risk management demands a clear regulatory framework to protect investors and maintain market order," said Yang Delong, chief economist at Shenzhen-based First Seafront Fund.

The announcement follows a broader regulatory push under Wu, who took over the CSRC in early 2024 and has tightened IPO approvals — only 26 companies went public as of March 22, down nearly 50% from a year earlier — while strengthening delisting standards. At least 75 companies have withdrawn IPO applications this year, an unprecedented pace, as the regulator reviews applications from more than 670 firms. Six companies had delisted by March 29, matching the quarterly high from early 2021. The CSRC's March 15 guideline also called for stronger daily supervision and on-site inspections of mutual funds, with regulators in Beijing and Shanghai conducting checks on fund managers in late March.

With 600 million Chinese accessing capital markets through fund products and 200 million trading stocks directly, AI-driven tools from algorithmic trading bots to robo-advisors have become deeply embedded in the financial system. The new rules could increase compliance costs for brokerages, asset managers and fintech firms while providing regulatory clarity that benefits compliant players.

AI's Growing Footprint in Chinese Finance

Chinese brokerages and asset managers have increasingly deployed AI for quantitative trading, risk modeling and client advisory services, mirroring a global trend that has drawn scrutiny from regulators worldwide. The CSRC's move aligns with China's broader push to regulate AI across industries, including the Cyberspace Administration's 2023 rules requiring safety assessments for generative AI services.

Foreign investors, who held more than 4 trillion yuan in A-share free-float market capitalization as of May and increased QFII holdings 27% quarter-on-quarter to 13.86 billion shares in the first quarter, will be watching the rules closely. Any restrictions on AI-driven trading strategies could affect how global funds allocate to Chinese equities. Active global funds' allocations to Chinese equities have rebounded from about 5% of portfolios in late 2024 to approximately 7% recently, according to UBS Securities research.

The global context adds urgency to China's regulatory push. The European Union's AI Act, which took effect in 2024, classifies AI systems used in financial services as high-risk, requiring conformity assessments. The U.S. Securities and Exchange Commission has also proposed rules governing AI use by broker-dealers and investment advisers, citing risks of conflicts of interest and market manipulation.

Regulatory Certainty vs. Compliance Costs

The guiding opinions will provide the first dedicated framework for AI in China's capital markets, replacing the current patchwork of general technology regulations. For fintech companies and brokerages that have invested heavily in AI capabilities, the rules could create a level playing field while raising the bar for smaller players unable to afford compliance infrastructure.

"The last time the CSRC issued sector-specific technology guidance was for online securities trading in 2015, which accelerated consolidation among brokerages," said Xue Hongyan, deputy director of the Star Atlas Institute of Finance. "AI regulation could have a similar effect."

The timing of the AI guidance coincides with a surge in technology listings on the STAR Market, including Unitree Robotics, the humanoid robot maker that recently won approval for its Shanghai IPO. The number of A-share companies with a market capitalization above 100 billion yuan has reached 204, up 48.9% from 137 at the end of 2024, with new mega-cap firms concentrated in high-tech sectors such as semiconductors and the new energy supply chain, according to Wind Information.

As hard-tech companies accelerate their filings, the quality of listed assets is improving, which could attract long-term international capital reassessing China's innovation value, Yang said. ICBC International analysts led by chief economist Cheng Shi said Chinese equities offer "a distinct source of certainty" amid global geo-economic turbulence, citing policy continuity and industrial depth as key advantages.

This article is for informational purposes only and does not constitute investment advice.