PBOC limits risk in interbank market

In a fresh attempt at curbing illegal trading practices, the country's central bank on Thursday unveiled a series of rules regulating investment in wealth management products on the interbank bond market.

Wealth management products - investment products managed "off-balance-sheet" by banks - have taken off on the Chinese mainland in recent years as they offer higher returns than bank deposit rates.

A People's Bank of China notice published on the China Foreign Exchange Trade System website Thursday announced that for each such product sold on the interbank bond market an individual account must be opened.

A wealth management portfolio account can be opened for a product under the independent custody of a third party, the notice said.

Banks must set up an account book for each product, the notice also said, to ensure each product is subject to separate management and audit.

Transactions between proprietary bond accounts and other wealth management product accounts by the same bank will be prohibited, it said. Transactions between different bond accounts managed by the same bank will also be prohibited.

"The rules aim to regulate wealth management products which have taken off in recent years and are follow-up rules to those issued last year by the country's securities regulator," Yang Weixiao, an analyst at Lianxun Securities Co, told the Global Times Thursday.

"To mandate an individual account for each wealth management product and to prevent transactions between different accounts run by the same bank will limit the gray area of the bond market," Yang said.

In March 2013, the China Banking Regulatory Commission issued rules for wealth management products, requiring banks invest in non-standard assets - assets not traded on the interbank bond market or stock exchanges - at no more than 35 percent of the total outstanding product, or no higher than 4 percent of total assets. The rules also mandated an individual account for each wealth product.

"The new rules will prevent banks transferring the proceeds from the sale of new wealth management product to repay previous investors," Li Daxiao, director of research at Yingda Securities, told the Global Times Thursday.

Banks usually offer a range of proprietary and third-party wealth management products but not all of these products deliver the promised returns.

Concerns about default risks due to lack of information disclosure and unclear investment structures arose as previously banks could pool proceeds from the sale of new products to repay earlier ones.

In a bid to strengthen supervision and encourage innovation of the financial system, China has approved a financial pilot zone for wealth management in Qingdao, East China's Shandong Province, the Xinhua News Agency reported Thursday.

The zone will encourage establishment of diversified wealth management organizations and participation of private capital in order to build a professional wealth management market in the city, the report said.