China gets tougher on sales of WMPs

Orders checks on underlying assets of volatile WMPs.

The order by the China Banking Regulatory Commission intends to head-off potential risks to the financial system stemming from wealth management products or WMPs. The rising popularity of WMPs is fueling concerns about default risks due to poor information disclosure and opaque investment structures.

CBRC said commercial banks must set-up an accounting book for each finance product to guarantee its investment channel can be clearly tracked and monitored.

Banks are also being ordered to fully disclose all information related to WMPs, including the borrower, return ratio, maturity and transaction structure. They must inform investors of any change in underlying assets within five days.

CBRC further requires banks to keep investments in WMPs at no higher than 35% of total outstanding wealth management products, or no more than 4% of their total assets, whichever is the lower amount.

The CBRC singled out risks of investing in informal debt assets such as trust loans, letters of credit, accounts receivable and bank acceptance bills, which are the most popular form of WMPs.