Karl Zhang
On May 11, 2021, the China Banking and Insurance Regulatory Commission (the “CBIRC”) announced the Interim Measures for the Administration of Wealth Management Product Sales of Wealth Management Companies (the “Measures”), which went into effect on June 27, 2021. The Measures are highlighted below:
I. Defining relevant concepts
Wealth management refers to a wealth management company being retained by an investor to invest and manage the investor’s assets according to the investment strategy, risk assumption and return distribution methods agreed with the investor in advance. A wealth management company means to the wealth management subsidiary of a commercial bank established in accordance with the law of the People’s Republic of China, or a non-bank financial institution approved by the CBIRC to primarily engage in wealth management. Wealth management products refer to those offered by a wealth management company that pays a return to an investor according to the agreed-upon terms and conditions and actual investment returns without guaranteeing the payment of principal and the level of returns.
Wealth management product sales include some or all of the following business activities developed for investors: (1) promotion or introduction of wealth management products through a display, introduction, or comparison of information on some or all of the characteristics of one or more wealth management products and a direct or indirect provision of subscription, application or redemption services; (2) investment advice concerning one or more wealth management products; (3) subscription, application or redemption of wealth management products for investors; or (4) other business activities recognized by the CBIRC. Institutions that engage in some or all of the above are considered wealth management product sales institutions. Personnel in a such institutions are wealth management product salespersons.
II. Wealth management product sales institutions
Wealth management product sales institutions include: (1) a wealth management company that sells wealth management products offered by the company; (2) agents that accept the commission of the wealth management company to sell its wealth management products, including other wealth management companies, commercial banks, rural cooperative banks, village banks, rural credit cooperatives, banking financial institutions that take in public deposits, as well as other institutions stipulated by the CBIRC.
Wealth management products sales institutions that engage in wealth management products sales are required to possess the relevant financial, corporate governance, and other qualifications. Without the permission of financial supervision and administration authorities, non-financial institutions and individuals may not sell wealth management products on behalf of others. Wealth management products sales institutions shall not use the wording “wealth management” for sales of other financial products.
Wealth management companies should be prudent in the selection of sales agents and perform their management responsibilities. They shall conduct at least one normative assessment of their sales agents per year. The sales agent headquarters should also conduct due diligence on the wealth management products that the agent is selling and assume the responsibility of issuing approvals. The headquarters of the sales agent and the wealth management company shall sign an agency sales agreement in writing, announce it within 10 working days after the signing of the agreement, and submit an annual report on the wealth management product sales cooperation to the CBIRC or its dispatched agencies within 2 months after the end of each year.
III. Risk management and internal control
A wealth management product sales institution should have a system that effectively carries out sales, and it should establish systems that are appropriate to its development strategy, such as product access, risk management, and internal control, investor suitability management, business operations, fund settlement, customer service, information disclosure, partner institution management, personnel and behavior management, complaints and emergency response, confidentiality management. Such institution should also evaluate and improve related systems on a timely basis to ensure their effectiveness. The institution shall establish a special department and personnel to review, supervise and inspect the legal compliance of the wealth management product sales, and the institution shall ensure that the department and its personnel can perform their duties independently and effectively.
IV. Managing wealth management product sales
A wealth management product sales institution and its sales staff shall not mislead investors to buy wealth management products that do not match their risk tolerance, make false product promotions, exaggerate performance, predict performance, advertise expected return or other similar acts.
Wealth management product sales institutions shall continuously assess the risk tolerance of non-institutional investors, prepare an assessment document on the investors’ risk tolerance, determine the level of risk tolerance, and establish a method for matching the investors with wealth management products. The institution shall conduct know-your-customer in accordance with the anti-money laundering, anti-terrorist financing, and tax-related due diligence for non-resident financial accounts and other matters according to relevant laws and regulations.
After a wealth management product sales agreement takes effect, the wealth management product sales institution shall handle the subscription, application, and redemption of wealth management products in accordance with the laws, administrative regulations, regulatory provisions, and the wealth management product investment agreement and sales agreement. The institution may not refuse an investor’s subscription or redemption request without authorization.
Wealth management product sales institutions shall provide continuous information services to investors, including but not limited to the following: (a) timely informing the investors of the confirmation date, shares and amount of each subscription, and the redemption of a wealth management product; (b) regularly providing the investors with basic information of the financial products in their holdings, and timely informing the investors of information that has a significant impact on their decisions.
V. Management of the sales staff
A wealth management product sales institution shall establish and improve its wealth management product salespeople qualifications, continuous training, information disclosure, and inquiry and verification systems, and it shall ensure that the salespeople have the necessary professional knowledge, industry experience, and management ability for the job, are familiar with the relevant laws, administrative regulations and regulatory provisions, fully understand the legal relationship, transaction structure, main risks, and risk control methods associated with wealth management products, and will comply with the code of conduct and professional ethical standards.
Wealth management product salespeople should have at least the following qualifications: (1) full civil capacity; (2) a senior high school education or above; (3) one year or more of experience in finance; (4) a good integrity and professional conduct record; (5) familiarity with wealth management and the laws and regulations related to wealth management product sales; and (6) any other qualifications specified by the CBIRC.
VI. Protection of the rights and interests of investors
Wealth management product sales institutions should verify the authenticity of the investor’s identification information in conducting their sales. The basic information, income sources, financial condition, investment experience, risk appetite, etc., of non-institutional investors should be fully understood in combination with their age, region, and occupational background so as to prudently and objectively assess their risk tolerance and use the assessment results. The appropriate product shall be sold to the investor based on the investor’s risk tolerance profile. Wealth management product sales institutions should require the investors to provide true information, independently make subscription and redemption decisions, sign and confirm sales documents, and assume investment risks. Wealth management product sales institutions that collect and use personal information shall comply with laws and regulations and abide beyond the proper and necessary principles to ensure the security and legality of information collection, processing, and use.
VII. Supervision, administration, and legal liability
For the cooperation between wealth management companies and its agents, the wealth management companies shall register with the national banking wealth management information registration system pursuant to the registration requirements. Institutions that provide fund transfer and settlement services for wealth management product sales all register and update the status of transaction settlement funds to the national banking information registration system in a timely manner to ensure that the registered information is true, accurate and complete. Wealth management product sales institutions shall register the information of its sales personnel in the national banking industry financial information registration system and update it in a timely manner to ensure that the registered information is true, accurate, and complete.
For violations of relevant laws, administrative regulations, and national regulations on banking supervision and administration by wealth management product sales institution in their sales of wealth management products, the CBIRC and its dispatched agencies will not only impose penalties in accordance with the Provisions, they may also deal with the directly responsible directors, senior managers, and other personnel as well. Those who are suspected of a crime will be referred to the judicial authorities pursuant to law.