Caixin
May 03, 2021 08:03 PM

Patchy Risk Disclosure Earns Shanghai Pudong Development Bank a Slap on the Wrist

Shanghai Pudong Development Bank Co. Ltd. (SPD Bank) (600000.SH), one of China’s largest joint-stock commercial banks, has been fined 7.6 million yuan ($1.2 million) for breaching regulatory requirements when selling investment products.

The fine was announced in a statement (link in Chinese) released Friday by the China Banking and Insurance Regulatory Commission (CBIRC)’s Shanghai bureau, and followed mounting investor complaints about the bank. The regulator did not specify SPD Bank’s misconduct or the products involved.

The fine came two weeks after the CBIRC accused the bank of failing to fully disclose the risks of a private placement investment product to investors.

Sources told Caixin previously that the product was a private placement fund set up in September 2016. The fund, which managed assets worth 1.1 billion yuan and was registered as a non-principal protected product, was operated by Western Leadbank Fund Management Co. Ltd., a Shanghai-based wealth manager. SPD Bank served as an agent to sell the product and charged Western Leadbank certain commissions in return.

When it began selling the product, SPD Bank made guarantees to investors that their principal would not incur any losses, Caixin learned from multiple investors. The product defaulted when it matured in August 2018.

SPD Bank did not disclose the credit risk level or the type of product when selling it, the CBIRC’s consumer protection department said in a statement (link in Chinese) released on April 16. It also found the bank did not conduct sufficient due diligence before making its deal with Western Leadbank.

It is not the first time that SPD Bank has faced such criticism. In 2019, an investor sued the bank alleging it provided misleading information in selling risky investment products for Shandong-based broker Luzheng Futures Co. Ltd. The investor, who lost more than 4.5 million yuan, said SPD Bank touted the investment as a fixed-income product. The lawsuit is ongoing.

SPD Bank is the latest target of regulators’ sweeping campaign against off-balance-sheet banking activities. China’s banks are making progress to comply with new regulations governing the management and sale of wealth management products, which bars banks from making implicit guarantees.

SPD Bank reported net profits of 18.7 billion yuan on revenue of 49.5 billion yuan in the first quarter this year, according to the company’s latest earnings report (link in Chinese). It had 8.1 trillion yuan in total assets by the end of March, up 1.5% from the end of 2020.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com)

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