China’s banking regulator has issued new rules requiring financial institutions to make video and audio recordings of all investment product sales, saying they were needed to “further regulate market order and protect customer rights”.
The recordings will also help state-owned banks and the government fend off compensation demands from retail customers when their investments turn sour.
“If investors make irrational choices after sales staff have clearly explained the risks, then they will have to accept the consequences,” said Zhao Xijun, a finance professor at Renmin University in Beijing. “In the event there is a dispute, the recordings can be used as evidence.”
Most wealth management products in China are sold by banks on behalf of third-party issuers. Although the banks do not guarantee third-party WMPs, investors often assume that the bank or government will compensate them for any losses.
The new surveillance rules issued by the China Banking Regulatory Commission require financial institutions to preserve the recordings for six months after the relevant investment product has expired. Banks are also not allowed to market investments to customers who refuse to be recorded.
The CBRC rules coincide with a larger government campaign, ordered by President Xi Jinping, to identify and mitigate the myriad financial risks that have been building in the world’s second-largest economy.
The value of outstanding WMPs has soared from Rmb4.6tn ($690bn) at the end of 2011 to Rmb29tn last year, according to data from Wind Information. But year-on-year growth moderated in 2016 to 23 per cent, compared to a 56 per cent increase in the value of outstanding WMPs in 2015.
Data for the value of WMP products sold this year are not yet available. In volume terms, Chinese financial institutions sold 43 per cent more WMP contracts through August 25 compared to the same period a year earlier.
“The financial product industry has developed rapidly over recent years and investment products are getting more and more complex,” the CBRC said. “This has led to misleading sales behaviour and sales of unauthorised financial products in some banks.”
China’s banking regulator is not the first to order surveillance of investment sales staff and retail customers. The Hong Kong Monetary Authority requires audio taping of banks’ sale of investment products in certain circumstances. This rule was implemented after retail investors in the city lost money on “mini bonds” linked to Lehman Brothers, sparking protests.
The CBRC rules will add to the mountain of surveillance footage already collected by the ruling Chinese Communist party in the world’s most populous country. Authorities are rolling out camera networks in urban centres across the country, especially in regions such as Tibet and Xinjiang where ethnic tensions often run high.
At the other end of the threat spectrum, officials in the southern border city of Shenzhen have installed cameras that identify jaywalkers and then project their personal information on nearby display screens.
Additional reporting by Xinning Liu and Gabriel Wildau