BEIJING China has ordered banks to tighten checks on the sale of third-party financial products made through their branches to ward off potential risks, the banking regulator confirmed on Wednesday.
The China Banking Regulatory Commission (CBRC) issued an "urgent" internal circular last Friday requiring banks to check their sales of third-party products, mainly insurance, trust products and investment funds, said the Southern Metropolis Daily, which is based in the southern Chinese city of Guangzhou.
"The move targets banks... we did issue such a circular," a CBRC official told Reuters.
"Banks may have already received the circular and begun to check (their products)," said the official.
Banking sources contacted by Reuters said that they had received a CBRC circular, but would not discuss the contents.
"We have begun self-checking. What happened to Hua Xia Bank has a very big effect on the industry and we are running our business more carefully," said an official of the private bank department at a Beijing-based commercial bank.
Banking regulators are worried about the risk of a crisis of confidence in wealth management products, following investor protests at Hua Xia Bank (600015.SS) after a product sold through its Jiading branch in a suburb of Shanghai failed to pay out upon maturity late last month. The bank says a branch employee sold the product without authorization.
Banks must complete investigations within 15 days and the CBRC will also conduct random checks on bank branches after they hand in self-assessment reports, the newspaper said.
"If bank branches find rule-breaking behavior and major risks, they must report to their headquarters immediately and work with cooperative institutions to take effective measures to resolve risks and report to bank regulators in time," it said.
The sale of banks' own wealth management funds will not be affected by the move, the paper said.
Chinese banking regulators are concerned the failure of an investment product sold by a Hua Xia Bank employee could shatter depositor confidence in hundreds of similar products that have proliferated in recent years, three sources told Reuters earlier this month.
(Reporting by Shengnan Zhang, Xiaoyi Shao and Kevin Yao; Editing by Nick Edwards and Jacqueline Wong)