Banking Regulator Puts Kibosh on Nepotism

(Beijing) — China’s banking regulator is taking aim at the industry’s preferential hiring practices, including nepotism and the employment of the regulator’s former employees.

A policy document issued April 7 by the China Banking Regulatory Commission (CBRC) and seen by Caixin orders banks to stop giving the relatives of government officials and clients special consideration when hiring.

The document also described the CBRC’s stepped-up scrutiny of financial institutions’ executives who used to work for the regulator.

Officials will look at whether ex-regulators employed at banks used relationships to streamline the supervisory process, and whether financial institutions intentionally ordered employees to take jobs at regulatory agencies for the sake of insider influence.

The policy is the latest of several rolled out since CBRC’s new director, Guo Shuqing, assumed office March 2. Guo earned the nickname “whirlwind reformer” when he headed the China Securities Regulatory Commission by helping implement 70 regulations in 18 months during his term from 2011 to 2013.

Preferential hiring and other forms of favoritism, such as special transaction deals for bank officer relatives, have long dogged the Chinese banking sector. China Minsheng Bank was rocked by what was called an “officials’ wives club” scandal after it was found that spouses of Communist Party officials were being hired for jobs with big paychecks but few responsibilities.

From now on, CBRC said, bank directors, senior executives and risk compliance officers must have relevant job qualifications and be approved for their posts by government supervisors.

At his first news conference as CBRC chief on March 2, Guo called on regulators to make sure bank assets are protected from influential shareholders and executives seeking illicit gains. At the same time, he applauded a rising tide of private capital in China’s financial market.

Guo’s appointment parallels growing concerns about interconnected risks affecting China’s banking, securities and insurance sectors.

Risks are tied to the practice of cross-sector shareholding, which could cause loss spillovers in the event of default. Separate government agencies supervise banks, fund managers and insurers.

Contact Liu Xiao (liuxiao@caixin.com)