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Author: Lin Qiutong and Li Lanqing

Editor: Zhou Yanyan

Image source: Tuchong

On July 22, the Shanghai Regulatory Bureau of the State Financial Supervision and Administration issued two administrative penalty decisions against the Shanghai Branch of Industrial and Commercial Bank of China Limited. The two administrative penalty documents listed a total of 8 major violations of laws and regulations.The issues mainly involved investment management of wealth management funds and management of working capital loans, with a total fine of 13.9 million yuan. Twelve relevant responsible persons from the branch were also punished.

Careless management of working capital loans

In the first administrative penalty document (Shanghai Financial Penalty Decision No. [2024] 95), the Shanghai Branch of the Industrial and Commercial Bank of China was fined a total of 3.4 million yuan for four violations: seriously imprudent management of working capital loans, with loan funds eventually flowing into the capital market; seriously imprudent management of working capital loans, with loan funds eventually used to purchase financial products; charging fees for loans; and quality-price mismatch.

According to the latest "Working Capital Loan Management Measures" issued by the State Financial Regulatory Bureau on January 30, working capital can only be used for the borrower's daily operating turnover, and cannot be used for the borrower's shareholder dividends, or for investments in financial assets, fixed assets, equity, etc., and cannot be used in areas and for purposes prohibited by the state for production and operation. The above management measures will be implemented from July 1 this year.

Previously, the China Banking Regulatory Commission proposed "seven prohibitions" for standardized loan operations and "four principles" for charging financial services in its relevant notices on rectifying irregular operations of banking financial institutions. It clearly stipulated that no fees may be charged for loans, and banks are prohibited from charging commitment fees and fund management fees for loans to small and micro enterprises. There are strict restrictions on charging financial advisory fees and consulting fees to small and micro enterprises.

Judging from the existing fines, working capital loan management is the hardest hit area for regulatory penalties, and the problems of credit funds being used to purchase financial products, invest in the stock market, and invest in the real estate market are more prominent. In this batch of regulatory fines, three heads of ICBC's Shanghai Yuqiao Branch, Songjiang Branch, and Jintiandi Branch all received warnings and were fined 50,000 yuan each.

The first time a fine appeared for investment of wealth management funds in structured bond business

The reason why the Shanghai Branch of ICBC received a fine of tens of millions of yuan was the problem of investment management of wealth management funds.

The second administrative penalty document (Shanghai Jin Penalty Decision No. [2024] 105) shows thatThe Shanghai Branch of the Industrial and Commercial Bank of China was fined a total of 10.5 million yuan for four violations: serious violation of prudent operation rules in the risk management and control of wealth management funds invested in structured bond business, failure to fulfill its prudent management responsibilities for the investment of wealth management funds, accounting treatment that did not truly reflect the financial status of wealth management products, and failure to fully implement the credit approval conditions for fixed asset loans.

It is worth noting that this is the first time that a bank has received a fine for investing wealth management funds in structured bond business. Previous fines issued by regulators for wealth management fund investment management focused on the connection of wealth management funds with the bank's proprietary assets to achieve balance sheet return, illegal flows into restrictive areas such as the capital market or real estate market, and illegal credit granting of wealth management funds.

In recent years, the supervision of structured bonds has become stricter and the penalties have increased. In January this year, the Shanghai, Shenzhen and Beijing Stock Exchanges issued the "Notice on Further Regulating Bond Issuance Business Related Matters", which clearly stipulates that structured bond issuance is prohibited. According to a previous report by 21st Century Business Herald, some structured bond issuances use ordinary flat structures in order to appear compliant, which are manifested in the form of regular subscriptions to asset management products and regular subscriptions to bonds by asset management products.

It is worth mentioning that Cao Qi, then deputy president of ICBC Shanghai Branch, Li Zhaohui, general manager of the Asset Management Department, Qin Guogang, deputy general manager of the Financial Interbank Department, Li Dongyuan, deputy general manager of the Asset Management Department, and Liu Yaowu, section chief of the Asset Management Department, were all fined for related violations in ICBC Shanghai’s wealth management fund investments.

Among them, Cao Qi was directly responsible for the serious violation of prudent operation rules in the risk management and control of the investment of wealth management funds in the structured bond business of the Shanghai Branch of the Industrial and Commercial Bank of China, and was given a "warning" penalty.

However, judging from Cao Qi's work experience, she was approved to serve as the deputy general manager of the Shanghai Branch of the Industrial and Commercial Bank of China in 2014, in charge of the international business, financial markets, asset management and product innovation of the Shanghai Branch of ICBC. Until February 2021, Cao Qi left the ICBC system and joined Taiping Asset Management. She has served as a director of Taiping Asset Management Co., Ltd., deputy general manager of Taiping Asset Management Co., Ltd., and financial director of Taiping Asset Management Co., Ltd. In November 2023, Taiping Fund issued an announcement that Cao Qi was the new general manager of Taiping Fund.

this meansThe relevant fines received by ICBC Shanghai Branch this time may have occurred between 2014 and 2021.

In addition to the large fines, ICBC Shanghai Branch has recently fallen into a "troubled time". Just on July 18, the Central Commission for Discipline Inspection and the National Supervisory Commission's Discipline Inspection and Supervision Group stationed at the Industrial and Commercial Bank of China and the Qinghai Provincial Commission for Discipline Inspection and Supervision reported that Xu Yanfeng, member of the Party Committee and deputy president of ICBC Shanghai Branch, was suspected of serious violations of discipline and law. He is currently undergoing disciplinary review by the Central Commission for Discipline Inspection and the National Supervisory Commission's Discipline Inspection and Supervision Group stationed at the Industrial and Commercial Bank of China and the Xining Municipal Supervisory Commission of Qinghai Province. A week ago, public information showed that Xu Yanfeng, as the deputy president of ICBC Shanghai Branch, attended the "2024 Shanghai Banking Industry Data Governance Work Exchange Forum" held by the Data Governance Professional Committee of the Shanghai Banking Association at the Shanghai Branch of ICBC. In 2022, Xu Yanfeng was transferred from the deputy president of ICBC Liaoning Branch to the deputy president of Shanghai Branch.

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Editor of this issue: Li Yutong, intern: Li Jie

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