"Stabilizing scale" and "de facto downward trend": The crossroads for small and medium-sized banks' wealth management reforms before the deadline

Recently, a reporter from China Securities Journal, in discussions with people from the asset management departments and wealth management business departments of a number of smaller and medium-sized banks in Zhejiang, Jilin, Jiangxi, Gansu, Shaanxi, and other places regarding progress in reducing the outstanding scale of wealth management products, received inconsistent responses. Some said, “Basically, we are no longer reducing the size,” while others said, “It’s still going down in a disguised way.”

Previously, regulatory authorities in some regions required that smaller and medium-sized banks that have not set up wealth management companies within their jurisdictions complete the “zero reduction” of their outstanding wealth management products on a proprietary basis by the end of 2026. However, the reporter’s investigation found that the regulatory stance in some regions is undergoing subtle changes, and that some banks have not stopped issuing new proprietary wealth management products this year.

Notably, the “Lianchuang Wealth Management” model, which had been highly expected, has not been rolled out as widely as the market anticipated. The model has encountered major difficulties during actual implementation. The “Lianchuang Wealth Management” approach is hard to make work; fully shifting to agency sales is also something smaller and medium-sized banks are unwilling to do; applying for a wealth management company license appears to have become the most ideal way out for wealth management businesses at smaller and medium-sized banks.

“I am actively seeking a wealth management company license, but now the difficulty of applying for licenses has increased. From what we understand, in addition to obtaining approval from the Financial Regulation Administration, this year’s application for a wealth management company license also needs to be submitted to higher-level authorities,” Wu Hao (a pseudonym), a person from the asset management department of a city commercial bank in Zhejiang, told the reporter directly. In the squeeze between reducing the scale and continuing business, how can wealth management at smaller and medium-sized banks find a path to transformation?

● Zhang Jialin, Reporter

Regulatory guidance has become somewhat ambiguous

“Currently, the regulatory guidance has become somewhat unclear; we are no longer requiring as strictly that smaller and medium-sized banks within our jurisdiction reduce the scale of wealth management products. Since the beginning of this year, we have been stabilizing our scale.” When discussing changes in the industry, Li Wei (a pseudonym), general manager of the wealth management business department of a city commercial bank in East China, told China Securities Journal. Another person from the asset management department of a city commercial bank in the same province told the reporter: “The zeroing-out requirement for the scale is not so strict, but regulatory authorities still require reducing the scale of wealth management products.”

Wu Hao said: “Local regulators still adhere to a prudent orientation and still have relevant requirements. They have not clearly stated that smaller and medium-sized banks within the jurisdiction can avoid reducing the outstanding scale of wealth management products. Currently, our proprietary wealth management scale is no longer increasing, which is essentially going down in a disguised way.”

Evidently, regulatory requirements and standards differ across regions. Multiple people from smaller and medium-sized banks admitted to the reporter: “Regulatory guidance is not exactly the same across regions, and the gap is quite large.” These differences in regulation between regions cause some banks to move forward on the track of scale reduction, while others gain breathing space.

After checking the China Wealth Management Network (China Financial Management Network), the reporter found that since April alone, more than 100 wealth management products issued by city commercial banks and rural cooperative financial institutions have been listed, and the end dates for some products are 2027 or 2028. For example, on April 2, Jilin Bank issued “Jili Wealth Jijin Stable Series Fixed-Income Closed-End Wealth Management Product 2026 Issue No. 20,” with a term of 3–6 months; Changsha Bank issued “Jin Furong 2026 Changji No. 11 Closed-End Net Asset Value-Based Wealth Management Product,” with a term of 1–3 years; and Zhejiang Hucheng Rural Commercial Bank issued “Fengshou Fenghe 2026 Issue No. 063 Closed-End Net Asset Value-Based Wealth Management Product,” with a term of 3–6 months.

In addition, many smaller and medium-sized banks, including Shangrao Bank, Guangzhou Bank, Zhongyuan Bank, Hubei Bank, and others, also have wealth management products in the fundraising period. According to the China Wealth Management Network, Guangzhou Bank’s “Hongmian Wealth Management Add Yield Balanced—Shortest Holding 180 Days No. 2” product’s start date is April 10, and its end date is April 2056. Changsha Bank’s “Jin Furong 2026 Changfu Net Asset Value 15 Closed-End Net Asset Value-Based Wealth Management Product” has a start date of April 9 and an end date of April 2029.

“Lianchuang Wealth Management” hits a cold spot

“Smaller and medium-sized banks have been deeply rooted in the local area for many years, and customers have a high level of loyalty to our proprietary wealth management products. If we completely remove that part of the business, it would mean reducing a good investment channel for local customers.” Wu Hao said. In addition, he said that local asset management institutions often allocate some local assets, which plays a role in supporting the local real economy. If the proprietary wealth management business of smaller and medium-sized banks is cut, that corresponding role would also be weakened.

A Jilin Bank person also told the reporter that smaller and medium-sized banks’ proprietary wealth management products are recognized by local customers, largely because of a regional brand effect. If the wealth management business of smaller and medium-sized banks were to completely shift to pure agency sales, this brand effect and customer stickiness would be difficult to maintain.

In earlier market discussions, “Lianchuang Wealth Management” was viewed as a “flexible exit” for non-licensed banks—smaller and medium-sized banks without wealth management company licenses jointly develop wealth management products with wealth management companies. The bank recommends assets to the wealth management company; both parties jointly screen and determine an asset whitelist. The wealth management company then includes these assets and issues wealth management products, which are subsequently fully sold through agency sales by the non-licensed bank.

However, based on feedback from multiple smaller and medium-sized banks, the “Lianchuang Wealth Management” model is full of difficulties during actual implementation.

“Very few institutions are currently doing ‘Lianchuang Wealth Management.’ The fundamental obstacle is that wealth management companies find it difficult to cede the real authority over investment research and risk-control management to the partnering banks. They are constrained by their internal governance systems, and they also face issues of how risk responsibilities are recognized and allocated,” Wu Hao said.

“‘Lianchuang Wealth Management’ should be suspended.” Yang Peng, a person from the asset management department of a city commercial bank in Gansu, told the reporter. Although non-licensed smaller and medium-sized banks have related demand, “the actual implementation difficulty of ‘Lianchuang Wealth Management’ is quite high.” Regulators maintain a cautious stance toward the model, believing that “Lianchuang Wealth Management” can easily lead to problems such as unclear responsibilities and risk shifting, which does not comply with the “seller’s duty of due care” principle in the new wealth management regulations.

License approval authority levels are raised

“Our bank has proprietary wealth management products that are currently being issued, with the longest term of around a year and a half. There are no licensed banks in the province now. We definitely hope to apply for a wealth management company license,” a person from the asset management department of a city commercial bank in Northeast China told the reporter.

However, obtaining a wealth management company license is not easy for smaller and medium-sized banks. Multiple people from smaller and medium-sized banks told the reporter that the approval department for wealth management company licenses has raised its level.

Industry insiders said that for the vast majority of city commercial banks and rural commercial banks, reaching the application threshold for a wealth management company license is already not easy. Not to mention standing out in fierce approval competition. “For smaller and medium-sized banks in developed provinces, there is still hope for getting a wealth management company license, while smaller and medium-sized banks in relatively underdeveloped regions have very slim hopes,” Yang Peng said.

Xue Hongyan, a special research fellow at SuShang Bank, said that the raising of the level of the wealth management company license approval department reflects the deepening of reform in the financial regulatory system. It means that wealth management business regulation moves from the industry level to the height of national financial governance. Its core is to strengthen top-level coordination, unify regulatory standards, and prevent systemic financial risks. This is aligned with the trend of expanding the scale of the wealth management market and increasing the complexity of risks, and it helps avoid regulatory arbitrage. This adjustment also reflects a shift in regulatory orientation from “quantity expansion” to “quality improvement.” By raising approval thresholds and coordinating efforts, it guides institutions to focus on building core competitive strengths such as investment research, risk management, and customer service.

“After Zhejiang Bank’s wealth management unit obtained approval to establish at the end of 2023, the issuance of new wealth management company licenses has been stalled. After the approval authority level was raised, the relevant standards may be even stricter,” Xue Hongyan believed. Even if new licenses are approved this year, the approval pace will still be “few but high-quality.”

“A likely scenario is that the issuance of wealth management company licenses will become tighter and stricter, to ensure that the management scale and actual management capacity of the licensed wealth management companies match,” said the general manager of the wealth management business department of a city commercial bank in Shaanxi.

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Responsible editor: Cao Ruitong