Banking Regulator Flags “Planned, Step-by-Step, In-depth” Crackdown on Market Malfeasance

China’s banking regulator has signalled that it will heighten scrutiny and punishment of wrongdoing on the part of the country’s lending institutions in future.

Wang Zhaoxing (王兆星), vice-head of the China Banking Regulatory Commission, said to Xinhua that the authority will launch a “planned, step-by-step, in-depth correction of market malfeasance,” as well as “strike hard against the slovenly handling of finance, illegal fund-raising and other forms of illegal financial activity, and strictly standardise transaction conduct on financial markets.”

Speaking at the 2017 Municipal Commercial Bank Annual Meeting, Wang said that while regulators had achieved some success in combating banking sector malfeasance in recent years, “further consolidation” was still needed.

“Financial risk remains at the stage where it readily and frequently arises,” said Wang.

Wang said that in future, “regulatory standards will become higher and higher, regulation will become more and more strict, and the punishments for regulatory and legal breaches as well as imprudent operating conduct will increase.”

The stern warning from China’s banking regulator comes soon after reports that municipal lenders around the country have been flouting home loan restrictions by instead providing consumer and business loans to prospective real estate investors.

In September these reports prompted local regulators in several parts of China to target the surging use of consumer loans to fund down payments for real estate purchases, including Beijing, Shenzhen and Jiangsu province.

Wang said that municipal lenders must “effectively prevent and handle key areas of risk,” while warning that “liquidity risk is always the most threatening risk for small and medium-sized commercial banks, and the one most liable to trigger systemic risk and regional risk.

He called for banks to “continually optimise operations structures, balance street structures, revenue and profit structures, and accelerate the restoration of interbank lending to its original role of liquidity management.”

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