CBRC to close financial loopholes

The China Banking Regulatory Commission will coordinate with the People’s Bank of China, the nation’s central bank, to form new regulations on financial institutions’ asset management businesses this year, according to an official from the commission.

Li Wenhong, director of the CBRC’s banking innovation supervision department, said, “After the regulations are formally launched, we will release detailed rules governing commercial banks’ wealth management business.”

During the last few years, a large amount of emerging business at commercial banks has capitalized on legal loopholes to circumvent regulation, with such regulatory arbitrage causing huge potential risks, said Zeng Gang, director of banking research at the Institute of Finance and Banking of the Chinese Academy of Social Sciences.

“In 2018, the CBRC will continue focusing on the crackdown on market disorder, mainly in the areas of interbank business, shadow banking and asset management. But the regulator will switch from short-term solutions, such as rectification and penalties, to long-term institutional improvement, to consolidate control of financial risk and fight against illegal activities, so that regulatory arbitrage and violations will not re-emerge,” Zeng said.

China has stepped up a crackdown on disorder in financial markets. During the first 10 months of 2017, the CBRC, China’s top banking regulator, punished 1,486 banking institutions and 1,096 individuals. The regulator confiscated illegal income of 75 million yuan ($11.5 million) from the institutions, in addition to imposing fines of 592 million yuan on the institutions and 24.4 million yuan on the individuals.

Zeng said he expected the improvements in regulation, such as the introduction of new asset management regulation and new rules on commercial banks’ wealth management business, will become priorities for China’s financial regulatory authorities this year.

Market players must be aware of the credit risks associated with non-performing exposures, the market risks during the process of financial deleveraging, and the compliance risks amid regulatory tightening, he noted.