China to tighten rules on banks’ wealth management business – sources

BEIJING/SHANGHAI (Reuters) – China’s banking and insurance regulator will soon publish detailed rules on banks’ wealth management products (WMPs) as part of Beijing’s effort to curb risks in the financial sector, three sources familiar with the matter told Reuters.

The rules, which would tighten banks’ risk control of the country’s $4.63 trillion WMPs, follow the long-awaited publication by the central bank in April of broad new regulations on the $15 trillion asset management industry that are scheduled to kick-in after 2020.

China is in the third year of an ambitious campaign to reduce risks in its financial system stemming from a rapid build-up in debt, which the Bank for International Settlements has warned could lead to a banking crisis.

The country’s financial regulators are scrambling to keep up with fast-growing financial innovation as lenders and investors scrounge for higher returns while borrowers, unable to secure bank credit, turn to other means for funding, creating potential systemic risk.

In the forthcoming rules, the China Banking and Insurance Regulatory Commission (CBIRC) is likely to adjust the limit for exposure of bank wealth management products to so-called non-standard investments, known widely as “shadow banking” products, said one of the sources.

Currently, such investments by banks cannot exceed 35 percent of the outstanding amount of their wealth management products or 4 percent of their total assets.

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