As China’s economy continues to decline, the real estate market has fallen into a difficult situation, severely impacting the country’s financial system and posing significant challenges for the banking industry. To curb financial risks, recent reports suggest that Chinese banking regulatory authorities have issued a new measure.
According to sources cited by Reuters on Thursday, the Chinese banking regulatory authorities have recently issued a new directive, requiring small banks to cease the sale of wealth management products by the end of 2026, unless these banks have independent wealth management subsidiaries.
In addition to setting the aforementioned deadline, the new directive also mandates that certain small banks reduce their wealth management business by the end of this year. Small regional banks in provinces such as Shandong, Guangdong, and Zhejiang have been instructed by the National Financial Regulatory Administration (NFRA) to scale back their wealth management operations.
The sources declined to reveal their identities as the new directive has not been officially announced.
In 2018, the China Banking and Insurance Regulatory Commission introduced the “Regulations on the Supervision and Management of Commercial Bank Wealth Management Business” and the “Regulations on the Management of Commercial Bank Wealth Management Subsidiaries,” requiring banks to establish dedicated subsidiaries for wealth management operations without providing a specific compliance deadline.
This new directive represents the latest effort by the Chinese government to control risks in the vast banking wealth management industry. In recent years, regulatory authorities have targeted the sector as part of their crackdown on “shadow banking” activities. The directive calls for the banking sector to regulate wealth management operations and invest funds in the capital market in a compliant manner.
Furthermore, the new directive aims to separate a bank’s wealth management business from its other operations to eliminate any implicit guarantees that may arise if these investment products underperform and require the bank’s intervention.
Since the introduction of the commercial bank wealth management regulations by the China Banking and Insurance Regulatory Commission in 2018, major state-owned banks and large nationwide commercial banks have established independent wealth management subsidiaries. However, most smaller regional banks have yet to take action on this matter.