Lending institutions were admonished by the banking regulator of China to limit investments of client's funds in debt that is not traded publicly. It also advised that these specific risks need to be amply isolated during their operations.
According to a statement of the China Banking Regulatory Commission, these investments cannot exceed 35% of all proceeds from the sale of wealth management instruments or not exceeding 4% of total assets of the lending institution at the end of the previous year.
The CBRC noted that non-standardized debt assets, such as loans, letters of credit and other instruments that aren't traded publicly, such as exchanges or interbank market have 'increased rapidly', There are lending institutions that didn't isolate the risks while other performed acts that skirt these lending regulations.
The regulator has recommended that banks should keep separate accounts for each product and set aside capital by year's end non-traded assets invested before the issuance of the regulation.
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