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CBRC to Regulate Proxy Sales of Commercial Banks

Proxy sales in commercial banking has witnessed rapid growth in recent years, but problems of misleading sales practices, unauthorised proxy sales, selling products without permission, and lack of clearly-defined responsibility for risk management between the banks and their cooperating agencies have also cropped up. The Circular on Regulating the Proxy Sales of Commercial Banks (for details in Chinese, please see: http://www.cbrc.gov.cn/chinese/home/docView/68325633F95349F7A0EFEC739BA9EFAE.html) recently issued by the China Banking Regulatory Commission (CBRC) to further regulate such activities in commercial banking and protect the legitimate rights and interests of investors includes provisions on the scope of financial products to be sold and how to prevent salespersons from selling these products without permission.  

The Notice specifies that other than government bonds and precious metals, commercial banks can only sell financial products issued by licensed financial institutions that are subject to the supervision and administration of the CBRC and the China Insurance Regulatory Commission (CIRC). The CBRC and CIRC have already carried out sufficient communication on the scope of products sold by commercial banks.

At present, the financial licences specifically refer to the Financial Permit issued by the CBRC, the Futures Business Operation Permit issued by the China Securities Regulatory Commission (CSRC) and the Legal Person Licence for Insurance Companies and Legal Person Licence for Insurance Asset Management Companies issued by the CIRC. The additional provision, "unless otherwise provided for by the CBRC", is included to make room for future market development.

On how to regulate commercial banks' management of cooperating agencies and products for proxy sale, the Notice stipulates that commercial banks shall implement a name list system for the management of cooperating agencies by their head office and establish and effectively implement a system of due diligence investigation, assessment, examination and approval and exit in this connection.

In the management of market access for proxy sale products, commercial banks shall prudently conduct due diligence investigation on the proxy sale products. In principle, the head office of commercial banks shall conduct examination and approval on the proxy sale products and give explicit written authorisation to their branches on the scope of these products. Commercial banks shall assess the risk levels of proxy sale products, but are prohibited to sell by proxy financial products without confirmation of compliance by the cooperating agencies, or products issued by institutions not on the examination and approval name list of the cooperating agencies.

Products already sold by commercial banks before the issue of the Notice that do not satisfy the requirements set out in the Notice may not be sold after settlement upon maturity or payment.

On complaints about the proxy sales of commercial banks, the Notice sets stricter requirements for the supervision and management of selling of proxy sale products. First, strengthening the suitability management of investors. Commercial banks are required to assess the risk tolerance of their clients and can only sell to clients products that match their risk tolerance. Second, strengthening information disclosure and risk disclosure. Commercial banks are required to inform their clients information about the products being sold to them, such as the issuing body and the nature of the products, and fully disclose the risks of the products being sold. They may not mislead clients into buying products by means of exaggerated or fraudulent propaganda. Third, stipulating that commercial banks may not confound proxy sale products with deposits or their own wealth management products, sell to clients proxy sale products bundled with deposits, provide guarantee, direct or indirect, explicit or implicit, for proxy sale products, or allow personnel of other banks to conduct propaganda, promotion or sales in their branches.

Content provided by Picture: HKTDC Research
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