Multiple wealth management subsidiaries of commercial banks have reported significant but uneven progress in implementing valuation reforms, according to 21st Century Business Herald investigations.
Regulatory Framework Established
In December last year, financial regulators issued guidelines prohibiting wealth management products from using closing prices, smoothed valuations, or proprietary valuation models. Instead, firms must adopt daily valuations provided by China Central Depository & Clearing Co., China Securities Index Co., or the China Foreign Exchange Trade System. The rules also require asset management plans to implement look-through management to ensure consistent valuation principles across products.
The notification mandated corrective actions including returning positive deviation returns to original investors, prohibiting their use in marketing new products. Firms were required to submit rectification reports within one month and provide monthly progress updates.
Phased Implementation Timeline
A wealth management executive at a joint-stock bank in northern China revealed regulators have set clear deadlines: 50% completion by end-June and full compliance by year-end, with monthly reporting on product balances, asset values, and deviation amounts.
“The requirements were communicated to all wealth management subsidiaries around March,” the executive noted. “While everyone is working toward these targets, implementation varies across institutions.”
Divergent Industry Progress
Progress reports show substantial variation across firms. A southern China joint-stock bank representative stated their company completed reforms last December, minimizing current business impact. Conversely, an eastern China counterpart reported adjusting strategies by shortening bond durations and tightening credit bond investments to reduce volatility.
City commercial bank subsidiaries expressed confidence in meeting deadlines, with one northern China executive noting: “The volume of affected business is manageable.” Another emphasized compliance without rushing the process.
Increased Product Volatility Expected
The reforms address concerns about unfair competition, as some institutions previously used valuation methods to artificially smooth returns. Hua Yuan Securities fixed income analyst Liao Zhiming noted the changes will constrain long-duration bond investments and likely increase product volatility.
This aligns with eastern China bank strategies to shorten bond durations. A joint-venture wealth management fixed income researcher acknowledged the new rules complicate stable return maintenance.
Market Stabilization vs. Short-Term Disruption
Financial regulation expert Zhou Yinqin emphasized the reforms’ long-term benefits: “Standardizing valuation methods creates fair competition based on investment research and risk management capabilities rather than accounting techniques.”
However, city commercial bank executives warned of short-term market impacts, noting difficulties finding counterparties for closing-price valuation assets and compressed yields in historically low-rate environments. “Narrowing yield cushions and unstable liability sides could amplify market reactions to any disturbances,” one cautioned.
Balancing Compliance with Investor Expectations
Analysts note the reforms will make bank wealth products more comparable to bond funds, potentially driving conservative investors toward deposits or risk-tolerant clients toward higher-yield alternatives.
Industry participants identified two enduring advantages for bank wealth products: stronger client trust through existing banking channels, and greater asset allocation flexibility with diverse product lines and investment tools.
Strategic Challenges Ahead
The transition presents dual challenges: investor education to manage expectations about volatility, and investment strategy adjustments that may pressure returns. Analysts predict the reforms will accelerate industry consolidation, with larger firms benefiting from scale while smaller players face intensified pressure to build research capabilities.
A city commercial bank executive summarized the core challenge: “Our clients sit between deposit seekers and risk-tolerant investors. While we must reflect true asset values, we also need to better educate clients about volatility – this remains significant work for our industry.”
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