CBRC Flags Crackdown on Wealth Management Products


China’s banking regulator has flagged increased scrutiny of the country’s wealth management products in the wake of a 3 billion yuan fraud scandal, as part of its ongoing campaign to stymie risk in the financial sector.

Speaking at the China Banking Regulatory Commission’s (CBRC) Q1 economic and finance condition analysis meeting on 21 April, CBRC chair Guo Shuqing called for the standardisation of wealth management product sales, full disclosure of product information and risk, as well as strict implementation of the “two recordings,” in reference to both audio and visual recordings of transaction participants.

China’s wealth management products are a form of uninsured financial product that provide comparatively high rates of return to investors.

The latest data from CBRC indicates that wealth management product balance for China’s banking sector has already risen 95.8 billion yuan since the start of the year to hit 29.1 trillion yuan, for year-on-year growth of 18.6%.

Domestic financial experts such as David Daokui Li, a professor at Tsinghua University and a member of PBOC’s monetary policy committee, have expressed concern about the potential impact of growth in these wealth management products upon the stability of China’s financial system.

These concerns were also recently exacerbated by the use of fraudulent wealth management products by Zhang Ying, the head of a China Minsheng branch in Beijing, to fleece high net-worth investors of as much as 3 billion yuan.

Despite these concerns, CBRC considers wealth management products to be an important part of China’s financial system, with an official stating to Caixin that the regulator is not opposed to them and has no plans to rescind them.

Guo pointed out that as a high-savings nation many Chinese citizens areusing wealth management products to replace deposit accounts, as opposed to employing them for financial management purposes.a

The emphasis for CBRC will instead be on preventing banks from “muddying” liability or misleading consumers.

CBRC’s “Notice Concerning Specialist Assessment and Inspection of the Implementation of the ‘Two Recordings’ When Undertaking Sales in Specialist Regions” (document no. 47), in order to expedite standardisation of the sale by banks of their own wealth management products as well as commission sales, and effectively address the problem of misleading sales pitches.

Concern over interbank transactions and cross-financial business

At the recent CBRC meeting Guo pointed out that many financial institutions are using wealth management products and trust operations to engage in cross-market operations, creating the problem of excessive reliance on leverage and maturity mismatching.

Guo expressed concern in particular about the danger associated over the “nested” use of interbank transactions by lenders to purchase wealth management product via other wealth management products, and called for strengthening of information disclosures.

According to Guo the majority of clients of third party wealth management product institutions are banks, which can exacerbate the spread of illegal funds raising.

He called for the standardisation of cross-financial business, as well as the inclusion of cross-financial business within the scope of liquidity risk monitoring as part of overall improvements to liquidity risk management.