Former Sichuan Trust President Banned From Banking for Eight Years

A former president of Sichuan Trust Co. Ltd. will be banned from the banking industry for eight years in the wake of investigations into the fallen trust star that has yet to repay about 25 billion yuan ($3.9 billion) of investors’ money.

Chen Jun, 52, is being punished over the trust firm’s violations of the rules regarding “prudent operating,” the Sichuan branch of the China Banking and Insurance Regulatory Commission (CBIRC) said in a notice (link in Chinese) on Wednesday. The regulator didn’t offer details about the violations.

Chen was named as Sichuan Trust president in 2010 and resigned in 2014. Prior to taking on that role, he had been a vice president of Zhonghai Trust Co. Ltd. Zhonghai Trust is the second-largest Sichuan Trust shareholder with a 30% stake.

In 2015, the Sichuan branch of the banking regulator disqualified (link in Chinese) Chen from taking any senior managerial position in the industry for four years. The reason for the punishment was that Chen’s wife was accused of illegally purchasing Sichuan Trust’s trust products.

Trust companies have come into the authorities’ crosshairs as part of a broader campaign to defuse risks — especially those stemming from shadow banking — that could undermine the stability of the financial system. The trust industry has played an important role in shadow banking by providing loans to higher-risk companies and those that struggle to get bank credit. The authorities became increasingly concerned about risks in the once-freewheeling and lightly regulated sector following a series of scandals and defaults involving billions of yuan.

Sichuan Trust is one of the highest-profile problematic firms. Its failure to pay the principal and yield on several trust products in May 2020 triggered investor protests and a credit crunch. At stake was the repayment of about 25 billion yuan that investors put into Sichuan Trust’s risky “trust of trust” (TOT) products, Caixin reported in June 2020. TOT products buy into other trust products that invest in a wide variety of assets, including bonds, stocks and loans.

In December, the local government in Sichuan and the local CBIRC branch took control of the firm, sending in a team to supervise its operations and shakeup management. The CBIRC branch accused Sichuan Trust of violating the rule of prudent operation and said it misused part of its loans and trust investment funds on relevant shareholders and their related parties. Shareholders who misused the company’s funds refused to return the money despite being ordered to do so, affecting the company’s operations and hurting investors’ interests, the banking regulator said.

In March, Sichuan Trust was fined 34.9 million yuan for conducting quasi-shadow banking businesses and issuing illicit loans, as well as other misconduct, marking one of the biggest fines ever levied on a Chinese trust company. Earlier this month, Liu Canglong, the actual controller of Sichuan Trust, was detained by police on suspicion of misappropriating trust funds.

Regulators said (link in Chinese) earlier this month that they are working to dispose of Sichuan Trust’s risky assets and to recover investors’ money.

Luo Meihan contributed to this report.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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