China's stock market gains have masked conflicting and inadequate regulation in the financial sector, central bank vice governor Wu Xiaoling said, but this could quickly change with a market downturn, Xinhua Net reported on its Web site.

Speaking on Saturday at an economic forum in Shanghai, Wu said banks' practice of covering customer losses in investment products carried risks.

"In the event some ups and downs in the stock market result in economic loses for financial clients, all these contradictions will surface immediately," Xinhua Net quoted Wu as saying. Xinhua Net is an online unit of the Xinhua state news agency.

China's main stock index has risen 46 percent so far this year after a more than 130 percent jump last year. But a sharp drop after last week's trading tax hike left the index down 10 percent from a record intra-day high hit on May 29.

Wu said China needs to unify its regulation of financial products to clearly separate bank transactions from those of their customers.

"In case the entrusted bank institutions become bankrupt, should the principal of the clients be separated from other assets of the same banking institution? The state law should have a clear stipulation on this issue," Wu said.

She said several regulatory bodies, including the China Bank Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission all exercise oversight of the same financial products but apply different standards.

"All these differences would impede financial innovation or slacken the supervision over the financial products," she said. "A unified standard among the varied institutions should be adopted."