Data provisioning norms for banks tightened

China's banking and insurance regulator issued guidelines on May 21 that stipulate higher data governance requirements for banking institutions.

The regulations follow rules announced by the China Banking and Insurance Regulatory Commission earlier governing various aspects of banking, ranging from equity management for commercial banks to the management of entrusted loans.

Under the new rules, banking institutions will need to build a top-down and coordinated system for data governance. While the board of directors of banking institutions should make a data strategy, senior executives will be responsible for building a data governance system, a mechanism for data quality control, as well as incentive and accountability mechanisms.

The guidelines came after the CBIRC had vowed to make steady headway in cracking down on financial irregularities at a teleconference attended by regulators, and major banking and insurance institutions on May 14.

"We will continue to maintain a highhanded posture, hold banking institutions responsible for conducting irregular and illegal financial activities, and punish them severely," said the CBIRC in a post on its website after the teleconference.

The regulator recently announced its decision to penalize three listed national joint-stock commercial lenders for violations in different categories such as internal control, personal financial investments, interbank investments and loan management. It imposed fines and confiscated illegal income totaling 182.99 million yuan ($28.72 million) from China Merchants Bank Co Ltd, Industrial Bank Co Ltd and Shanghai Pudong Development Bank Co Ltd.

Earlier this year, the regulator made it clear that it would focus on straightening eight major categories of problems, including unsound corporate governance, violations of macroeconomic control policies, and risks associated with shadow banking activities and with cross-sector financial products.

On April 27, China's central bank, foreign exchange administration and financial regulators jointly issued new guidelines for the asset management industry to prevent cross-sector financial risks.

"The new regulations will help transform the current business practices (of asset management) in terms of net-value product management, banning firm commitment to redemption, prohibiting pooling of funds business, limiting the duration mismatch between nonstandard assets and asset management products, and enhancing capital measurement, provisioning of reserves and information disclosure," said Steven Xu, partner of financial services at EY Hua Ming LLP.

For listed national joint-stock commercial banks, the volume of outstanding off-balance-sheet wealth management products fell 12.1 percent year-on-year to 7.97 trillion yuan at the end of 2017, according to a report released by global accounting and consulting firm EY, formerly known as Ernst & Young.