Bank of China under Investigation by CBIRC over $85 Million in Crude Oil Futures Losses

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. 

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