Self-issued management products on CBRC radar
(15 March 2013 – China) Chinese banks have until the end of April to rectify their self-issued wealth management products and comply with China Banking Regulatory Commission (CBRC) requirements.
According to a source, China Securities reported on 12 March 2013 that the CBRC has asked banks to conduct self checks and rectify their self-issued wealth management products (WMPs) that are managed by asset pools.
The source said banks that are unable to meet the regulators’ requirements by the end of April will be punished and may be stopped from conducting wealth management business.
It was also reported in local news that CBRC required banks to scrutinise and undertake internal risk checks on the sales of third-party financial products within 15 days.
WMPs issued by banks are mainly managed in the following ways:
1. Single asset basis where issued WMPs are separately managed and directly linked to an underlying asset;
2. Asset pools for fixed-term WMPs, where different WMPs with fixed maturity terms are not linked to any specific asset, but to a pool of assets. In this case, it should not be too hard for banks to re-match the assets to the liability side; and
3. Asset pools for open-ended WMPs, where WMPs are linked to a pool of assets, that cash flows do not always match the timing of repayments. In this case a certain cash line is normally provided by the issuing bank to bridge the gaps between redemptions and new fund subscription, ranging from 1-5 percent of total WMP outstanding balance.
On the investment side, the source understands that 70-80 percent of the WMP balance are allocated in liquid bond and money markets, 20-30 percent in other illiquid assets (e.g. project financing).
The source said banks that are unable to meet the regulators’ requirements by the end of April will be punished and may be stopped from conducting wealth management business.
It was also reported in local news that CBRC required banks to scrutinise and undertake internal risk checks on the sales of third-party financial products within 15 days.
WMPs issued by banks are mainly managed in the following ways:
1. Single asset basis where issued WMPs are separately managed and directly linked to an underlying asset;
2. Asset pools for fixed-term WMPs, where different WMPs with fixed maturity terms are not linked to any specific asset, but to a pool of assets. In this case, it should not be too hard for banks to re-match the assets to the liability side; and
3. Asset pools for open-ended WMPs, where WMPs are linked to a pool of assets, that cash flows do not always match the timing of repayments. In this case a certain cash line is normally provided by the issuing bank to bridge the gaps between redemptions and new fund subscription, ranging from 1-5 percent of total WMP outstanding balance.
On the investment side, the source understands that 70-80 percent of the WMP balance are allocated in liquid bond and money markets, 20-30 percent in other illiquid assets (e.g. project financing).
Subscribe