Name: Circular on Issues Relevant to Further Regulation of Individual Wealth Management Business of Commercial Banks (《中国银监会办公厅关于进一步规范商业银行个人理财业务有关问题的通知》, the “Circular”)
Issuing authority: China Banking Regulatory Commission (“CBRC”)
Effective date: 03 April 2008
Subject: Individual wealth management business
The CBRC has issued the Circular to strengthen the regulation of individual wealth management business conducted by commercial banks in light of irregularities currently observed in the market as a result of non-compliance with the Provisional Administrative Measures on Individual Wealth Management Business of Commercial Banks and the Guidelines on Risk Management for Individual Wealth Management Business of Commercial Banks, both of which came into effect on 1 November 2005.
Highlights
- Commercial banks are expressly prohibited by the Circular from (i) engaging in the sale of offshore funds or any other offshore investment or wealth management products not permitted by PRC law and (ii) selling wealth management products which lack market analysis or basis for their pricing.
- Wealth management products offered by commercial banks cannot be sold for less than RMB 50,000 (or its equivalent in any foreign currency).
- Commercial banks are required to establish a client assessment mechanism and conduct “know-your-client” procedures prior to the sale of wealth management products to fully understand the client’s position. This will include establishing the client’s financial condition, purpose of the investment, experience in making investments, risk preference and expectations from the investment. The client assessment must be conducted onsite. Online assessment or assessment by phone is prohibited.
- The risk disclosure statement (together with an explanation of the most adverse scenario and result for the investment) must be made at the most prominent place on the front page of the promotional or introductory materials for the wealth management products. The inclusion of words such as “anticipated yield” or “highest yield” are prohibited for certain products specified in the Circular.
- Banks are required to conduct self-inspection of their wealth management businesses and file inspection and rectification reports with the CBRC by 30 May 2008. Local CBRC branches will conduct anonymous inspections of banks in their own jurisdictions and submit inspection reports to the CBRC by 30 April 2008.
Please contact Zili Shao ( zili.shao@linklaters.com tel: +86 21 2891 1868) or Fang Jian ( jian.fang@linklaters.com tel: +86 21 2891 1858) if you would like further details.
