What’s new: China’s banking regulator issued final rules Thursday governing sales of wealth management products (WMPs), expanding them to cover commercial banks and foreign-owned companies and adding restrictions on marketing of the investments.
Otherwise the China Banking and Insurance Regulatory Commission’s final regulations differ little from the draft released five months ago that blocked WMP sales on internet platforms. The rules take effect June 27.
Changes to the final rules include a prohibition on using or highlighting absolute values or interval values to compare performance among WMPs, on promoting expected returns in disguised ways and on marketing the products as investments that can guarantee certain returns.
The final rules also expand their application to WMP units of commercial banks and to wealth management businesses majority owned by foreign companies. There is also a new six-month transition period through the end of 2021 for institutions to correct practices not in compliance with the rules.
The background: WMPs are part of China’s $15 trillion asset-management industry, which has been the target of a regulatory crackdown on risky shadow lending and excessive financial leverage.
The rules are part sweeping regulations governing the industry that were first released in November 2017 but were delayed for implementation.
One of the chief goals of the new rules is to ban banks from guaranteeing returns on WMPs, a long-standing practice that encourages investors to dump money into risky, high-yielding assets while expecting state protection if the underlying investments fail, thus posing significant risk to the financial system.
Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full story in Chinese, click here.
Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)
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