Apply unified standards to wealth management products, regulator says (2)

He said the commission has asked banks to investigate their selling of such products for other institutions, such as trust companies, before submitting reports, and is trying to set up a unified system for the issuance of the products.

A Shanghai branch of Hua Xia Bank failed to pay promised returns to buyers of a $22.47 million wealth management product when the product matured in late November.

Fitch Ratings said earlier that the issuance of such products poses growing risks to the banking sector, as many of the assets and liabilities spend much of their life off balance sheets.

Unlike in previous years, recent issuance has been driven mainly by non-State banks, and turnover is high with about three-fourths of products maturing within six months, which adds to uncertainty of repayment, Fitch said.

Due to rising risks that most of the capital of such products was put into long-term projects and could not be repaid in the short term, in 2011 the regulatory commission ordered banks to halt sales of wealth management products with a maturity of less than a month.

The recent controversy over Hua Xia Bank's product highlighted the rising operational risks incurred in selling some of these investment products to investors, the regulators said.

"Banks should be responsible for the sales conducted by their staff but not authorized by the headquarters," Wang said.

The product in question was originated by a third-party investment company and was not a wealth management product issued under Hua Xia's name, yet the bank is still being held implicitly liable.

"Authorities must be alert and prevent off-balance sheet risks from spilling over. Wealth management products are becoming invisible debt on banks' balance sheets," said Ba Shusong, deputy director of the Finance Research Institute at the Development Research Center of the State Council.