Financial Regulators Step Up Scrutiny Of Wealth Management Products


Chinese financial authorities have stepped up their scrutiny of wealth management products via the introduction of new provisions that require the registration and disclosure of asset information on a weekly basis.

China’s Banking Wealth Management Product Registration & Depository Centre has just issued its “Notice Concerning Further Standardisation of Banking Wealth Management Product Uniform Registration Work,” requiring that banks “truthfully, accurately, fully and promptly register grass-roots basic products and debt information” in China’s national banking WMP information registration system.

In order to increase the transparency of the shadow banking instruments, the Notice requires that banks register the various asset management plans that will be purchased using funds raised via WMP’s, as well as information on investment via other financial institutions with whom banks have executed entrusted investment agreements.

The notice also requires that lending institutions improve their WMP investment business and registration work systems, as part of efforts to implement more standardised regulation of the sector, acquire a better understanding of the investment destinations of WMP funds and prevent risk in relation the sector.

Wealth management products have recent emerged as a mainstay component of China’s burgeoning shadow banking sector, due to the higher returns they provide compared to conventional bank deposits.

Chinese regulators are highly concerned about surging growth in the WMP balance and the potential risk they could bring to the financial sector via regulatory arbitrage.

The latest Notice follows the issuance of a number of directives by the Registration & Depository Centre that aim to standardise the regulation of wealth management products via the introduction of more detailed registration requirements.

Those include the 2016 “Notice on Further Clarifying Wealth Management Product Investment Information Registration Requirements” which was issued last year, and requires the weekly or monthly registration of underlying assets and debt situation of WPM’s, as well as prohibits the omission of asset management plans in registration.

Analysts expect the new policy to heavily curb the leveraging of balance sheets in breach of regulations, as well as the use of “integrated” asset management products that many banks have tended to favour when it comes to WMP’s.

Integrated products are expected to suffer because they usually rely on capital pooling models that are not subject to strict disclosure requirements with respect to underlying assets. It will be difficult for these products to satisfy the weekly registration requirements for full disclosure of assets,