Vice Chairman HU Huaibang s speech at the Wealth Management Seminar

Vice Chairman HU Huaibang s speech at the Wealth Management Seminar

HU Huaibang

Vice Chairman of the China Banking Regulatory Commission

June 6, 2007

Dear fellows from the HKMA and the SFC, Ladies and Gentlemen,

Good morning. On behalf of the CBRC, I would like to express my congratulations on the convocation of the Wealth Management Seminar and extend you warm welcome of Chairman LIU Mingkang and Vice Chairman TANG Shuangning.

The CBRC, Hong Kong Monetary Authority (HKMA) and Securities and Futures Commission (SFC) of Hong Kong have been maintaining a good regulatory collaboration particularly during recent years along with the deepening of the economic integration between Hong Kong and the mainland. Since mainland commercial banks were allowed to do the overseas wealth management business on behalf of their clients (so called QDII business in the mainland) in April 2006, supervisory agencies on both sides have further strengthened the cooperation on this regard. In October 2006,the CBRC, the State Administration of Foreign Exchange (SAFE), the HKMA and the SFC jointly established a QDII task force with a view to reinforcing the supervision of banks overseas wealth management business on behalf of their clients. Up to now, the task force has held two meetings, at which the regulatory collaboration framework was worked out and the four regulators signed a Memorandum of Understanding on Regulatory Cooperation. Being one of the important issues of the cooperation, to strengthen the communication of supervisors and related businesses of both sides as well as to offer trainings to mainland QDII practitioners are benefit for the mainland to share the Hong Kong s experience and practices, and meanwhile will lay a good foundation for both sides to develop cooperation with regard to wealth management.

With the steady growth of national economy, residents income keeps increasing and the investors awareness of wealth management is gradually enhanced, which creates external conditions for banks to develop customer-tailored and diversified wealth management service according to various financial needs. Meanwhile, the acceleration of the RMB capital account free convertibilityalso brings new opportunities to the development of wealth management business. If we take a look at international banking community, the non-interest income in American commercial banks accounts for around 43% in total income, the average proportion of that in the banks of European Union in 2005 was 54.6%. However, the proportion of non-interest income in the Chinese best developed banks was less than 30% at the end of 2006, and that in quite a few banks was only one digit. Obviously, China s wealth management business has huge development space in comparison with international counterparts.

In recent years, the wealth management business in mainland banks has developed rapidly. In 2006, the combined amount of funds in domestic or foreign currencies of banks wealth management products reached RMB400 billion, which was nearly one time than that in 2005, and the amount is anticipated to hit a new high in 2007. Each bank has gradually changed to stick to the customer-centered and market-oriented principle, endeavored to build up their own wealth management brand image, and made some progress in the internal management, risk control, human resources and service segmentation, etc.

In April 2006, the QDII policy came into practice, which marks an important step forward to steadily quicken the pace of the RMB capital free convertibility and is conducive to addressing the issue of balance of payments to a certain extent. Furthermore, this initiative is helpful for domestic residents to broaden the investment channels by making advantage of international financial markets in a bid to optimize asset collocation, decentralize investment risks and improve capital proceeds. In addition, it is beneficial for the domestic financial institutions to being familiar with international financial markets step by step as well as enhancing risk management awareness and capability of self-investment.

With a view to encouraging banks to make innovation for the wealth management business, facilitating market entry in a sequenced manner and nourishing a favorable policy environment for the innovation, the CBRC promulgated the Provisional Rules on Commercial Banks Overseas Wealth Management Business of Mainland Commercial Banks on Behalf of Their Clients and relevant notices. As of end-April 2007, altogether 22 domestic and foreign banks were approved to engage in QDII business; 26 products in 21 series were developed with a sales volume of nearly RMB3.6 billion and USD0.3 billion. On May 11 2007, the CBRC issued a Notice of the Adjustments to the Offshore Investment Scope of Overseas Wealth Management Business of Commercial Banks on Behalf of Their Clients, which adjusted the policy for the investment scope of QDII business and permitted banks to, on behalf of their clients, make offshore investments on stocks and their structural products. Since the policy came into force half a month ago, both domestic and foreign banks have actively engaged in the preparations for product design. On June 1, the Industrial and Commercial Bank of China took the lead to bring its QDII products to the market.

As we note, while banks go all out with respect to the QDII, they are facing, on the one hand, the issues of improving management motivation mechanism and enhancing the capability of wealth management practitioners as well as that of investment management. On the other hand, the factors, such as anticipation of RMB appreciation, the lack of measures to hedge RMB exchange rate risk, customers inadequate understandings of wealth management products, and increasingly fierce competition among banks themselves and from the outside, also impose adverse influence on banks development of wealth management business. Given this recognition, banks should step up efforts particularly on the followings: first is to further strengthen the construction of business strategies; second is to improve management motivation mechanisms and have in place an effective assessment arrangement for wealth management business; third is to build up a professional wealth management team; fourth is to put in place a fitness assessment system of customers based on the principle of know your customer to assess customers risk endurance according to their financial status, investment purpose, investment experience, risk appetite, investment expectation, etc.; fifth is to make classification of customers and provide targeted customer group with proper wealth management products, which is suitable to their risk appetite; sixth is to ensure quality after-sale service and mitigate customer s complaints; and seventh is to improve information technology, reduce operating costs and satisfy various financial needs of customers.

Hong Kong, being the international finance center, provides favorable conditions to the mainland commercial banks to conduct QDII business with its sound supervisory system, active capital market, a good deal of market participants, and human resources and information advantages. Meanwhile, the QDII investment in Hong Kong will benefit the further integration of the capital markets of Hong Kong and mainland. We hope that the supervisory agencies and the business cycles on both sides can, via this seminar, strengthen the communication and exchanges, share experience of supervision and business management, and discuss and study significant issues in the development of wealth management business. Also, we hope the Hong Kong Institute of Bankers and China Banking Association make continuous collaboration to organize more activities like this in a bid to promote the further communication between the two sides. The CBRC would like to, under the supervisory cooperation framework, deepen the collaboration with the Hong Kong supervisory agencies on the QDII and promote the business development in a fast but steady manner.

Finally, I wish the seminar be a success.

Thank you.