Financial institutions in China offering wealth management products.
What do you need to do?Understand the impact of Notice 47 and put appropriate compliance measures in place.
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David Olsson
Authors
Minny Siu
Kennies Fung
QDII banks are required to take full responsibility to their customers for any offshore investment products sold through local wealth management accounts/QDII schemes. This alert clarifies the CBRC’s (China Banking Regulatory Commission) policy underlying its Notice on the Issues Relevant to Further Regulating Commercial Banks’ Wealth Management Business (YJBF [2008] 47) (Notice 47).
Following our China Alert titled “China strengthens its regulation on wealth management products”, we have consulted with the CBRC further on the implication of Notice 47.
Below are a few clarification notes on Notice 47:
Prohibition on selling as agents
Under Article 1 of Notice 47, local commercial banks are restricted from purchasing offshore funds and other offshore investment products and selling the same to their local customers as mere agents (代销) of offshore product issuers under the name of “wealth management schemes” (以发售理财产品名义). Notice 47 requires local commercial banks:
- to design and develop their own wealth management products pursuant to Provisional Rules on Commercial Banks’ Wealth Management Business (Provisional Rules) and the Guidance on Risk Management of Commercial Banks’ Wealth Management Business (Guidance), both of which were issued in September 2005, and
- to assess suitability of such products to their customers, with a proper disclosure of the risks associated with such products to their customers.
The rationale underlying Notice 47 is to require all local commercial banks offering wealth management plans/products to take responsibility for offshore wealth management products sold through such banks to local investors.
QDII Notice 147
Notice 47 is not intended to modify or override the Notice of the Adjustments to the Offshore Investment Scope of Overseas Wealth Management Business of Commercial Banks on behalf of Their Clients issued by the CBRC in May 2007 (YJBF [2007] 114) (QDII Notice 114). CBRC accepts that local banks and branches of foreign banks with QDII licenses (QDII Banks) can continue to invest in offshore funds or other offshore investment products (including structured products) within the parameters of QDII Notice 114.
Selling as principal permitted
In the context of QDII schemes, purchase of offshore investment products by a QDII Bank from an offshore issuer on principal to principal basis is in line with the policy underlying Notice 47. Provided a QDII Bank offers QDII schemes/products to local investors in its own name and bears all legal responsibilities as contemplated under the QDII rules and regulations, such arrangement will fall outside the prohibition of Article 1 of Notice 47.
Disclaimer
The views set out in this publication are based on our experience as international counsel representing clients in their business activities in China. As is the case for all international law firms licensed in China, we are authorized to provide information concerning the effect of the Chinese legal environment. However we are not admitted to practice Chinese law and so are unable to issue opinions on matters of Chinese law.