(From Caixin Online)
Against a backdrop of loose supervision, banks and financial firms are taking big risks with investors’ funds
By staff reporters Wu Hongyuran, Liu Caiping, Ding Feng and Yang Qiaoling
Financial market supervisors admit that gaping holes pockmark the regulatory fences they’ve built in recent years to control the wealth management industry and protect its investors.
By occasionally introducing new rules and regulations, supervisors such as the China Securities Regulatory Commission (CSRC) and the China Bank Regulatory Commission (CBRC) have tried to mend these fences and even erect new ones.
But plenty of holes remain, reflecting what some call a regulatory failure to keep pace with the rapid growth and diversification of the wealth management sector. By some estimates, the value of wealth management products overseen by banks, trust funds, insurance firms and other types of asset managers last year reached nearly 90 trillion yuan.
Now, as wealth management investment deepens and related assets under management continue to grow, risk warnings are surfacing in the financial sector. Some industry players are calling the loosely regulated business a bubble ready to pop. And some in the field – including government supervisors themselves – have raised doubts about the entire regulatory environment.
In certain cases, obvious holes in the regulatory fence have been allowed to remain unplugged even after being identified as risk factors and targeted for action by government officials. In late 2014, for example, the CBRC decided to cut risk by ordering banks to separate their wealth management and lending businesses. A regulation was drafted and pushed forward. But it was never implemented, apparently due to disagreements inside the agency over the regulation’s details.
“There are great internal debates” over the plan to prevent banks from using money raised from wealth management clients to finance borrowing, said a source close to the CBRC who declined to be named. As a result, he said, “no agreement has been reached on the wealth management business.” Read more