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The financial industry regulator of China has asked one of the largest lenders in the country, Bank of China, to investigate problems of its structured products linked to oil benchmarks that burnt many Chinese investors in last week’s market carnage.
China Banking and Insurance Regulatory Commission (CBIRC) told Reuters on Thursday that it had asked Bank of China to look into its crude futures-linked product. The regulator has also called on banks to carefully assess risk when offering and structuring products linked to crude oil price swings, CBIRC told Reuters.
The commission has also told banks to suspend new sales of wealth management products that can amass unlimited losses for the investor.
The consequences of last week’s negative WTI Crude prices went far and wide, burning even retail Chinese investors who aren’t allowed to invest in the international crude oil futures markets directly.
Chinese retail investors cannot directly trade WTI Crude or Brent Crude, but Chinese state-held lenders offer structured products with exposure to the price swings of the two most active international crude benchmarks.
For example, Bank of China has a paper investment structured product for retail investors linked to international futures contracts, including WTI Crude and Brent Crude. The bank sells this product, Yuan You Bao, to individual clients. Other banks such as Agricultural Bank of China (ABC), Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), and Bank of Communications (BoComm) also have similar crude-linked products.
Last week, following the turmoil in international oil markets, Bank of China suspended the opening of new positions in its product.
Investors started complaining that they weren’t adequately informed of the actual risks of betting on crude oil price swings.
Sources with knowledge of the matter told Caixin Global that Bank of China’s Yuan You Bao product alone burnt more than 60,000 Chinese retail investors with a total of US$1.4 billion (10 billion yuan).
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.