Bank of China, Everbright Bank fined US$2.2 million for flouting asset management rules
- China’s banking watchdog penalises the two banks and their wealth management subsidiaries for violating asset management rules that came into effect in January
- Banks still face challenges in managing risks from the nation’s US$4.4 trillion wealth management sector, says EY
China’s banking regulator imposed multimillion-yuan fines on two banks for violating rules on wealth management products, the first such penalty since they came into effect in January.
The fines were imposed on Bank of China and China Everbright Bank and their wealth management units, both of which were established by their parent companies in 2019.
The rules seek to stamp out shadow banking risks by imposing stringent requirements such as leverage limits and banning malpractices like providing investors with an implicit guarantee against losses.
Since details of the new rules was announced in August 2018, banks had until the end of 2021 to align themselves with the new requirements. To adhere to the changes, Chinese banks have set up dedicated wealth management subsidiaries.
The CBIRC said on Friday that the two banks and their subsidiaries had products that flouted regulatory requirements. This included exceeding a 30 per cent market cap on a single security held by all wealth products marketed by a bank and crossing a leverage limit that caps total assets to net assets at 140 per cent for open-end mutual funds.
Banks still have room to grow their fee and commission income from wealth management services, analysts said.
The country’s wealth management segment grew 12.1 per cent to 29 trillion yuan, servicing 81 million investors in 2021, according to a report issued by China Central Depository & Clearing.
The banks’ wealth subsidiaries, meanwhile, reported a combined net profit of 24.4 billion yuan in 2021, more than double from 2020, an EY report on China’s banking sector from May showed.
“With the new regulations, the new wealth management business model will also face challenges in customer onboarding, investment research capability, risk management capability and system optimisation,” Kelvin Leung, EY’s Greater China financial services banking and capital markets leader, said in the report.