China wealth management products mar insurers as Fanxin boss flees
Boss of Shanghai brokerage selling wealth management products flees abroad
Wealth management products have started to take their toll on the mainland's insurance sector, with the boss of a Shanghai insurance brokerage fleeing abroad as his business failed.
The Shanghai branch of the China Insurance Regulatory Commission said police were probing Shanghai Fanxin Insurance Agency after it was found to have sold unauthorised wealth management products (WMPs).
The investigation began after Chen Yi, Fanxin's chief executive, fled with an unspecified amount of money. Local media reported that Chen took 500 million yuan (HK$634 million) from the company before leaving the mainland. Shanghai police said they would not disclose details of the case.
Fanxin was still operating but industry officials with knowledge of its situation said the company had had financial problems since its illegal sales of WMPs.
"The aggressive and bold business tactics caused its trouble and forced the boss to flee," said one source. "Its fate was predestined."
The regulator said the wealth management products were created by Fanxin itself and that the firm was actively assisting police in its investigation. Founded in 2007, Fanxin is one of the largest insurance brokers in Shanghai. The company was known for its aggressive sales strategy of offering products with high investment returns.
It also sold insurance policies as an agent for firms including Sunshine Insurance Group and Taikang Life Insurance. Analysts had likened its sales of "self made" wealth management products to illegal fundraising schemes and had urged the regulator to probe the practice.
Wealth products have become popular on the mainland in recent years, with people buying the often-spurious financial products in an attempt to generate returns higher than those available through time deposits.
Late last year, a wealth management product sold by a Shanghai branch of Huaxia Bank caused a stir when dozens of investors were informed that Zhongding Wealth Investment Centre, the borrower, would default on repayment.
The scandal prompted the banking regulator to increase its scrutiny of WMPs and order banks to refrain from issuing similar products.
Some WMPs sold by banks have been found to have been illegal fundraisings. The banks are typically acting as middlemen, connecting borrowers with investors who have funds to lend.
The Fanxin scandal, it is feared, will result in a crackdown by the insurance regulator on WMPs in the insurance industry.