China Banking and Insurance Regulatory Commission (CBIRC) announced late last Friday that it penalised the two banks and their wealth management unist in late May, the first time since onshore banks were allowed to set up subsidiaries to run their wealth management products business in 2019.
The banking regulator imposed RMB14.9m ($2.2m) in total fines on Bank of China and China Everbright Bank and their wealth management subsidiaries, both of which were set up in 2019.
Bank of China Wealth Management was charged RMB4.6m for six violations, including exceeding the asset allocation cap to security, exceeding leverage level for an open public fund, conducting unfair transactions under the same contract, and using the amortised cost method for valuation of investment assets.
The watchdog also fined Bank of China RMB2m for “increasing the scale of some of its old products”.
Everbright Wealth Management was fined RMB4.3m for five violations, including the market value of a single security held by a public offering financial product exceeds 10% of the net assets of the product, the market value of a single security held by all public offering financial products exceeds 30% of the market value of the security, the proportion of high liquidity assets held by open public offering financial products does not meet the standard.
Its parent company, China Everbright Bank, was also charged with RMB4m for failing to discover the infringements of its subsidiary as the trustee of the wealth management unit.
In an attempt to fend off systemic financial risks, the authorities stipulated the “guiding opinions on regulating the asset management business of financial institutions” in 2018.
The rules impose stringent requirements on leverage limits, regulating the fund pool, and banning malpractices such as providing investors with an implicit guarantee against losses.
Since 2019, 29 wealth management companies have been approved for establishment in China, of which 25 have been approved to open for business, according to CBIRC.
The total balance of wealth management products of banks and wealth management companies amounted to RMB28.4trn by the end of March, and the balance of products of wealth management companies reached RMB17.3trn.
In order to ensure compliance with laws and regulations, the authorities are now soliciting public opinions on the “rules on internal control of wealth management companies”.