The China Banking Regulatory Commission on June 6 ordered banks to improve their internal controls and prevent “operational risks” at tellers’ windows.
Statistics from the CBRC show that 31 major cases of deposit fraud occurred from Jan 1, 2014 to the end of March this year, involving a total of 3.1 billion yuan ($500 million).
Among these cases, banks were partially responsible for 19 incidents involving 1.1 billion yuan.
Deng Zhiyi, director-general of the CBRC’s banking consumer protection department, said: “With the economic slowdown, banks can no longer maintain double-digit profit growth ... competition for deposits has become increasingly intense.
“The CBRC aims to stop banks from putting too much pressure on branches to expand deposits and profits. Under this pressure, many branches have broken the rules.”
Most of the deposit fraud cases occurred at bank counters because of weak internal controls, according to the CBRC.
“Banks devote a lot of resources to getting business but not so much to risk control,” Deng said.
In some cases, Deng said, “criminals” persuaded customers to make what they believed were large fixed-term deposits at unidentified banks at interest rates far above the central bank’s benchmark levels. The deposits were subsequently transferred to other accounts.
In other cases, bank clerks sold third-party wealth management products to customers without the bank’s authorization. The products later defaulted, causing customers to lose “huge” sums.
To improve customer protection, the CBRC announced 20 steps for banks to strengthen internal controls. For instance, banks must establish a system to verify suspicious transactions and improve their ability to detect and warn of risks.
Banks should develop standardized procedures to report, assess and resolve risks, as well as hold relevant individuals accountable when risks emerge.
The CBRC also ordered banks to accelerate trials that involve recording and videotaping sales of WMPs and third-party financial products, to ensure that customers are well-informed about the products and potential risks.
Dong Jianjun, vice-general manager of the consumer protection department at the Industrial and Commercial Bank of China Ltd, said that the bank has tightened controls on the sales of third-party WMPs.
ICBC also encouraged its staff and customers to become whistle-blowers, and it has improved disclosures for customers in the areas of financial risk and fraud.
Similar measures have been taken by other large State-owned banks, including Bank of China Ltd and China Construction Bank Corp.