Top regulator orders banks to tighten risk control and compliance measures

Tracy Li
Two recent high-profile cases have highlighted long-standing problems in the banking sector, says the China Banking and Insurance Regulatory Commission.
Tracy Li

Chinese banks have been ordered to strengthen their risk control and business compliance measures after two widely-reported scandals recently hit the sector, the top industry regulator has said.

The economic and financial environment facing the banking industry is complex and severe, and some long-accumulated problems have been extensively exposed, the China Banking and Insurance Regulatory Commission said in a notice on Wednesday.

Some banks are ineffective in implementing national macro-policies, some have been repeatedly investigated due to problems in their credit management and some have tried every trick to use regulatory arbitrage, the commission said.

"In particular, the recent cases involving the bills business pledged by certificates of deposit have damaged the overall reputation of the banking industry, and problems such as weak awareness of compliance, insufficient assessment of potential business risks and a lack of core management systems and control measures have surfaced," it said.

Last month, China Bohai Bank, a national joint-stock commercial bank based in the northern city of Tianjin, was accused by an enterprise client of secretly using its 2.8 billion yuan (US$438 million) of deposits as collateral.

Shanghai Pudong Development Bank, another national joint-stock commercial lender, was reported in mid-November to be involved in similar cases.

But the creditor companies and the banks have made contradictory public statements, creating confusion.

Shanghai Pudong Development Bank posted on its official Weibo account on Wednesday that it is making a thorough investigation and will fully cooperate with an inquiry by the public security bureau.

In response to the disputes and the stir they have made on social media, the CBIRC said on Saturday that it "attaches great importance" to the issue, and is conducting on-the-spot investigations at the two banks.

"If the banks are found to have violated rules and laws, they will be severely punished and held accountable," a commission spokesperson said.

There is an urgent need to learn lessons, speed up the remedy of management defects and loopholes, and fundamentally reverse the situation in which internal control requirements give way to business development, the notice added.

The CBIRC also vowed to severely crack down on banking staff's participation in private lending, illegal fundraising and acting as fund brokers.

Investigations of the two cases are continuing.

Special Reports