Changpeng Wan
Major Regulatory Shift Targets Deceptive Practices
The National Financial Supervision and Administration (NFSA) has issued sweeping regulatory reforms through Order No. 7, formally titled ‘Financial Institution Product Suitability Management Measures’. These regulations specifically prohibit financial institutions from manipulating performance metrics or using improper displays to mislead customers about investment products. This intervention comes after disturbing industry practices like ‘new product chart-topping’ emerged, where institutions temporarily boosted returns through strategic timing and selective asset allocation to attract unsuspecting investors.
Key Regulatory Provisions
- Explicit ban on manufactured performance benchmarks
- Prohibition of selective data presentation
- Strict penalties for misleading product promotion
Covered Products and Enforcement Mechanisms
Investment Products Under Scrutiny
The regulations primarily target investment products with uncertain returns under former CBIRC supervision. These include wealth management products, asset management trusts, insurance asset management plans, and AIC debt-to-equity investment schemes. Non-guaranteed structured deposits, derivatives, and specific insurance products also fall under these rules.
Enforcement Strategy
Seasoned financial policy expert Zhou Yiqin (周毅钦) confirms regulators will monitor for artificially inflated returns, historical data cherry-picking, and product misrepresentation. Enforcement integrates with existing frameworks like the 2018 asset management reforms, creating comprehensive compliance requirements.
Investor Classification System
Two-Tier Classification Approach
Order No. 7 introduces mandatory investor categorization:
- Professional investors: Financial institutions, accredited corporates
- Ordinary investors: Retail clients with standard protections
Risk Rating Harmonization
The rules standardize product risk ratings using a five-tier system (R1-R5), addressing previous inconsistencies across banking, trust, and insurance sectors. Product assessments must include:
- Asset liquidity analysis
- Structural complexity evaluation
- Historical volatility assessments
- Issuer creditworthiness review
Enhanced Vulnerable Investor Protections
Special Provisions for Elderly Clients
Institutions must implement strict protocols for investors aged 65+:
- Mandatory enhanced due diligence
- Special high-risk product warnings
- Digital interface accessibility improvements
Assessment Frequency Limits
The regulation restricts risk tolerance reassessments:
- Maximum two evaluations daily
- Eight evaluations annually
- Twelve-month validity period
Implementation Timeline and Industry Impact
Order No. 7 takes effect immediately following its July 2025 announcement. Financial institutions face comprehensive operational adjustments:
- Marketing material revisions within 90 days
- Investor classification system implementation
- Compliance training completion requirements
Future Regulatory Direction
Fahren Financial founder Sun Haibo (孙海波) notes this signals tighter public fund marketing oversight. The NFSA’s coordinated approach with securities and insurance regulators suggests forthcoming cross-sector guidelines focusing on suitable product matching and fiduciary duty enforcement.
Practical Implications for Market Participants
These regulations fundamentally alter product distribution dynamics:
- Wealth products must emphasize risk disclosure
- Performance displays require contextual benchmarks
- Investor education becomes compliance requirement
Compliance Roadmap
Financial institutions should immediately:
- Audit existing marketing materials
- Implement assessment tracking systems
- Establish elderly investor protocols
The NFSA’s decisive action establishes China’s financial regulatory framework among global consumer protection leaders. Investors gain unprecedented safeguards against misleading practices, while institutions must fundamentally rethink distribution strategies. Continuous regulatory updates can be tracked through official NFSA publications.
