In order to avoid any contagion from higher-risk products spreading to normal bank loans, the China Banking Regulatory Commission (CBRC) has asked bank’s to create a firewall around increasingly popular wealth management services.
Under the new rules, banks are mandated to separate their wealth-management product business from retail lending business by establishing separate accounting, statistical analysis, risk management and performance appraisal systems.
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In addition, the banks have to been asked to form independent departments to oversee wealth-management products.
According to the regulator, banks must explain in the sales documents that the wealth management product sold to investors aren’t deposits and carry risk.
The regulator said that the banks have to comply with the new requirements by the end of July and have to complete the setup of the independent wealth management units by the end of September this year.
The CBRC’s new regulation came after it demanded in May that investment by wealth management products be in line with the state’s macro and industrial policies and support the real economy.
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By GlobalData
