China to ban banks, insurers from offering over-the-counter derivatives to individuals

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A woman walks in the Central Business District (CBD) on a hazy morning in Beijing

BEIJING -China’s financial regulators will ban banks and insurance firms from providing over-the-counter derivative trading products to individual clients, part of measures to step up risk control of the sector.

Lenders and insurers will also be banned from providing derivatives trading services to corporate clients for non-hedging purposes, the People’s Bank of China (PBOC), the China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE) said in draft rules published on their websites on Friday.

China has been urging lenders to unwind books of products that link to commodity futures and stop selling investment products linked to commodities futures to mom-and-pop buyers, to curb investment losses amid volatile commodity prices, Reuters has reported.

The draft rules also come amid rising regulatory concerns about the risks of speculative bets as market prices surge, with some products packaged and sold as investment products or wealth management products via banks or insurers.

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“The identification of derivatives should follow the substance of the business” rather than the name of the product, according to the draft rules.

“Financial institutions must not conduct derivative business in disguised forms … and the regulators should access whether a new product or new business is a derivative business by nature, and take effective measures accordingly.”

Non-financial institutions will be banned from providing derivative products or products with derivative features, according to the draft rules.

(Reporting by Samuel Shen, Kevin Yao and Cheng Leng; Editing by Toby Chopra and Susan Fenton)