The Chinese regulators are upset that the smaller banks have been rapidly increasing the issuance in a bid the CNY100bn requirement to set up separate wealth management units. Credit: Christian Lue on Unsplash.

Chinese regulators have reportedly instructed banks to cap the sales of wealth management products following concerns over the sudden boom of the business in the country.

Some small banks were asked to limit the issuance of such offerings at current levels in so-called window guidance issued by the regional offices of the China Banking and Insurance Regulatory Commission (CBIRC), Bloomberg reported citing people aware of the development.

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Some details of the verbal orders were previously reported by Chinese publication Caixin.

The CBIRC did not comment on the news.

China allows banks with a minimum capacity to issue $16bn (CNY100bn) of investment products to set up independent wealth management units.

According to sources, the Chinese lenders were pushing to show they have the capacity beyond this threshold as several new regulations focused on asset management space is set to take effect this year-end.

Once these regulations come into effect, the banks without separate wealth arms are expected to pull the plug on the sale of wealth management products.

The regulators are upset that the smaller banks have been rapidly increasing the issuance in a bid the CNY100bn requirement, according to one of the sources.

To date, CBIRC has granted wealth management licenses to 29 banks while 19 banks have their applications pending.

A data by CICC shows that additional seven banks with a wealth management capacity of more than CNY 50bn are yet to officially announce whether they will apply to establish a separate wealth arm.

In the last ten years, China’s economic growth has been considerably driven by the funding for wealth management products.  Investors rallied behind bank-issued wealth offerings as they promised stable returns.

Recently, Reuters reported that the CBIRC was planning to launch a wealth management product pilot in Wuhan, Qingdao, Chengdu, and Shenzhen, targeting retail investors seeking to boost their pension savings.