China’s banking authority has announced the launch of an official investigation into one of the country’s big state-owned lenders over heavy losses sustained by retail investors who made bets on crude oil prices.
An official from the China Banking and Insurance Regulatory Commission (CBIRC) said to Financial News that the authority had launched investigation procedures into the Bank of China (BOC) in relation to losses sustained by clients via its Crude Oil Treasure product.
Hundreds of BOC’s retail investors lost around 600 million yuan (approx. USD$85 million) in total after placing bets on West Texas Intermediate via the Crude Oil Treasure product, just prior to the commodity’s plunge into negative territory on 20 April.
The losses reportedly prompted up to 1000 burnt BOC customers to seek legal advice in relation to pursuing a class action against the big state-owned bank, for full recovery of principal due to invalidity of contract.
The CBIRC official said that the authority had “continually maintained close attention” to the Crude Oil Treasure incident, and required that BOC engage in negotiations with clients.
BOC has since announced that it has reached settlements with over 80% of customers, and is currently in the process of “comprehensively reviewing product design, business strategy and risk control procedures.”
BOC’s “Crude Oil Treasure” product enabled China’s domestic investors to tap West Texas Intermediate oil futures without the need to open an offshore account. The product did not permit leverage and required 100% margin.
The Crude Oil Treasure was rated an “R3” on a five-step scale from R1 to R5 for wealth management products in China, meaning that it did not provide principal guarantees.
R3 products can be used for investment in low-volatility financial products such as bonds and interbank deposits, as well as allocate up to 30% of funds to stocks, forex and other high-volatility products.
Bank of China said in a media report dating from 2018 that the Crude Oil Treasure was “highly suitable to investors who have just come into contact with the crude oil market,” triggering scrutiny in China over whether or not the product was appropriate for clients.