Industry hails rules on wealth management
By Hu Yuanyuan (China Daily)
Updated: 2005-10-11 08:37

Industry leaders say they are excited about pilot rules regulating wealth management products in China.

According to the China Banking Regulatory Commission (CBRC), the pilot regulations and guidelines aim to improve commercial banks' risks management when they provide wealth management services, which involves investing money on behalf of clients.

These new rules should help the country's commercial lenders win rich customers and help them improve returns.

"In the long run, the sound development of wealth management products will help commercial banks improve their oversimplified business and sharpen their competitiveness in the international market," said a CBRC statement.

Zhang Yifeng, a business officer at the Bank of East Asia (BEA), is excited about the guidelines, which were published on the CBRC website late last month.

"The pilot regulations will help standardize wealth management services launched by different lenders," Zhang told China Daily.

He said some rules will worry Chinese lenders, but not most foreign banks, thanks to their competitive edge and rigid risks management systems.

Chinese lenders have also welcomed the move. "It is the first time that we have had authoritative regulations to follow since wealth management services were set up," said Zhang Li, chief manager of the financial institution department at China Minsheng Banking Corp.

Zhang Li believes that the regulations are fair for all lenders as "we are at the same starting point."

"However, some risk management rules will be quite difficult to abide by for Chinese lenders," Zhang Li told China Daily. "For instance, the assets from wealth management products should be run separately to other bank operations."

Zhang Li admitted that foreign lenders do have some advantages in terms of technology and talent, "but they are not as competitive as Chinese lenders with their client base."

The industry watchdog has also strengthened its requirements for lenders over reminding their customers of the potential risks with wealth management products.

"The bank should know clients' risk preference and their ability to bear risks. That risk information should be expressed in a clear and easy-to-understand way," said the statement.

The CBRC also said a definite "yes" to wealth management products with a guaranteed return. "The basic criteria to ascertain a commercial lender's competitiveness is to see if it can provide customer and market oriented products," said the CBRC statement.

"As a fundamental wealth management product, the CBRC has no reason to prohibit it, but there should be some additional requirements."

The CBRC has also raised the minimum investment level for wealth management products. Those with a guaranteed return should accept no less than 50,000 yuan (US$6,173) for RMB products and US$5,000 for foreign currency products.

"This requirement is understandable as wealth management products mainly target high-end clients that can shoulder comparatively high risks," explained Zhang Li.

Cao Tong, assistant president of CITIC Industrial Bank, said, "The cost of running wealth management products is quite high. If the investment threshold is too low, banks find it hard to maintain their profit margin."

Cao believes that higher standards will have little impact on Chinese lenders "as most wealth management products are up to the requirements."

(China Daily 10/11/2005 page10)