Mainland watchdog also punishes two other foreign lenders over rule violations China's banking regulator has fined Wachovia Bank, the fifth-largest bank in the United States, US$440,000 for conducting illegal operations at its Shanghai office. This was the regulator's first sanction against a foreign bank since being established earlier this year, bankers said yesterday. The China Banking Regulatory Commission (CBRC) - set up in March and headed by Liu Mingkang - also suspended the accreditation of Wachovia's representative in the mainland for one year and refused an application to upgrade its office to a branch. The CBRC also punished two other foreign banks, one with a fine of US$100,000 and the other with a verbal warning, the bankers said. A spokesman for the CBRC in Beijing said it had punished Wachovia but declined to give details of the case. 'We have sent a copy of the document to foreign banks and financial institutions in China and will later release news to the media,' he said. Wachovia's office in Shanghai declined to comment. In mid-August, the CBRC confiscated US$220,000 in illegal income that the bank's Shanghai office had earned, as well as ordering the bank to pay a fine of the same amount, one banker said. It also suspended for one-year the accreditation of the bank's representative, who has since returned to the United States. Under China's regulations, a branch office is not allowed to conduct business. However, a CBRC inspection found that the Wachovia office had income other than that from its head office, which is the only legal income for a representative office. The income was from the verification of cheques and handling remittances. The bank had the option of appealing or accepting the decision. It decided to accept the penalty, saying it would co-operate with the CBRC and hoped to continue to develop its business in China, the bankers said. Wachovia set up its office in Shanghai in 1995, added one in Beijing in 1997 and another in Guangzhou. In May this year, it applied to upgrade Shanghai to a branch but this was refused, probably because of the discovery of the illegal operations, the bankers said. The penalty is a serious obstacle to the bank's plan to start operations in the mainland. Formed in September 2001 after a merger between Wachovia and First Union, Wachovia Corp, the parent company, is based in North Carolina and had assets of US$389 billion at the end of September this year, making it the fifth-largest bank holding company in the US. It also had nine million customers. The CBRC also fined the Shanghai office of a second foreign bank US$100,000 - confiscating $50,000 in illegal income and imposing a fine of the same amount - because it is also banned from conducting business. It gave a verbal warning to a third foreign bank because its branches do not have the required 25 per cent in operating capital. The bankers did not know the names of the two banks. 'The CBRC wants to show foreign banks that it means business, especially as an increasing number will enter the market under the WTO changes,' one US banker in Shanghai said. 'It wants to show that it is watching them. But its more important role is to monitor local banks and satisfy the public that their money is safe with them.'