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

Zhang Jialin China Securities Journal

Recently, when China Securities Journal reporters exchanged views with people from the asset management departments and wealth management business departments of multiple small and midsize banks in Zhejiang, Jilin, Jiangxi, Gansu, Shaanxi, and other places, they received inconsistent responses on progress in reducing the stock of wealth management assets.

Some said, “Basically, we are no longer reducing,” while others said, “It’s still going downward in disguise.”

Previously, regulatory authorities in some regions required small and midsize banks that do not have wealth management companies under their jurisdiction to complete a zero-cut reduction of the stock of self-run wealth management assets by the end of 2026. However, the reporter’s research found that the regulatory stance in some regions is undergoing subtle changes. This year, some banks have not stopped the issuance of newly underwritten self-run wealth management products.

It is worth noting that the much-anticipated “Lianchuang Wealth Management” model has not been rolled out as widely as the market expected. Difficulties have piled up in its actual implementation. The “Lianchuang Wealth Management” approach is hard to make work; fully shifting to an agency business model is also something small and midsize banks are unwilling to do. Applying for a wealth management company license seems to have become the most ideal way out for the wealth management business of small and midsize banks.

“I’m actively trying to secure a wealth management company license, but the difficulty of applying for one has increased now. According to our understanding, this year’s application for a wealth management company license not only requires approval from the National Financial Regulatory Administration, but also must be submitted to a higher-level department.” 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 scale and continuing business, how can small and midsize banks’ wealth management find a path for transformation?

Regulatory guidance is somewhat vague

“The current regulatory guidance is somewhat unclear; it no longer strictly requires small and midsize banks under its jurisdiction to cut wealth management asset scale. Since this year, our bank has been stabilizing our scale.” Li Wei (a pseudonym), general manager of the wealth management business division of a city commercial bank in East China, told China Securities Journal reporters when discussing industry changes. A person from the asset management department of another city commercial bank in the same province told the reporter: “The zeroing-out requirement on scale isn’t as strict, but regulatory authorities still require us to reduce the wealth management asset scale.”

Wu Hao said: “Local regulators are still following a prudent-oriented approach and still have related requirements. They have not clearly stated that small and midsize banks under their jurisdiction can avoid reducing the stock of wealth management assets. At present, our self-run wealth management asset scale is no longer increasing, which is essentially going downward in disguise.”

Obviously, regulatory requirements and enforcement levels differ across regions. Multiple people from small and midsize banks told the reporter frankly: “Regulatory guidance isn’t exactly the same everywhere, and the differences are pretty big.” Such regulatory discrepancies between regions have led some banks to move along the track of scale reduction, while others have been granted room to catch their breath.

The reporter checked the China Wealth Management Network and found that since April alone, more than 100 wealth management products issued by city commercial banks and rural cooperative financial institutions have been listed, with some products’ end dates in 2027 or 2028. For example, on April 2, Bank of Jilin issued “Jili Wealth Jiweng Series Fixed-Income Closed Wealth Management Product 2026, No. 20,” with a term of 3–6 months; Changsha Bank issued “Jinfurong 2026 Changji No. 11 Closed Net Value-Based Wealth Management Product,” with a term of 1–3 years; and Zhejiang Hecheng Rural Commercial Bank issued “Fengshou Fenghe 2026 No. 063 Closed Net Value-Based Wealth Management Product,” with a term of 3–6 months.

In addition, many small and midsize banks such as Shangrao Bank, Guangzhou Bank, Central Plains Bank, and Hubei Bank also have wealth management products in the fund-raising period. The China Wealth Management Network shows that Guangzhou Bank’s “Hongmian Wealth Management Adds Earnings Balanced—Shortest Holding 180 Days No. 2” product start date is April 10, and its end date is April 2056. Changsha Bank’s “Jinfurong 2026 Changfu Net Value 15 Closed Net Value-Based Wealth Management Product” start date is April 9, and its end date is April 2029.

“Lianchuang Wealth Management” cools off

“Small and midsize banks have cultivated locally for many years, and customers have a high level of loyalty to our self-run wealth management products. If we completely remove that line of business, for local customers it would amount to reducing a good investment channel.” Wu Hao said. In addition, he said that local asset management institutions often allocate part of the local assets, which can help support the local real economy. If we cut small and midsize banks’ self-run wealth management business, the corresponding function would also be weakened.

A person from Bank of Jilin also told the reporter that small and midsize banks’ self-run wealth management products are recognized by local customers largely because there is a regional brand effect. If small and midsize banks’ wealth management business 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 way out” for small and midsize banks that are not licensed as wealth management companies—small and midsize 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 sides jointly screen and determine an asset whitelist; the wealth management company incorporates these assets and issues wealth management products; afterward, the unlicensed bank performs full-amount agency sales.

However, based on feedback from multiple small and midsize banks, in actual implementation, the “Lianchuang Wealth Management” model faces serious difficulties.

“Very few institutions are doing ‘Lianchuang Wealth Management.’ The fundamental obstacle is that it’s hard for a wealth management company to cede the real investment research and risk management authority to its partner bank. It is constrained by its internal governance rules and also faces issues related to determining where risk responsibility lies.” Wu Hao said.

“‘Lianchuang Wealth Management’ should be halted.” Yang Peng, a person from the asset management department of a city commercial bank in Gansu, told the reporter that although non-licensed small and midsize banks have related demand, the actual implementation difficulty of “Lianchuang Wealth Management” is high. Regulators have maintained a prudent stance toward this model, believing that “Lianchuang Wealth Management” can easily lead to unclear responsibilities, risk transfer, and other issues, and does not comply with the “seller is accountable” principle in the new rules on asset management.

Higher-level approval authorities for licenses

“Our bank has self-run wealth management products currently being issued, with the longest term of about one and a half years. There are no licensed banks in the province. We certainly hope to obtain a wealth management company license,” a person from the asset management department of a city commercial bank in Northeast China told the reporter.

However, it is not easy for small and midsize banks to obtain wealth management company licenses. Multiple people from small and midsize banks told the reporter that the approval authority’s hierarchy level for wealth management company licenses has been raised.

Industry insiders said that for the vast majority of city commercial banks and rural commercial banks, meeting the application threshold for a wealth management company license is already not easy, let alone standing out in fierce approval competition. “For small and midsize banks in developed provinces, there is still some hope in receiving wealth management company licenses. But for small and midsize banks in relatively less developed areas, hopes are slim,” Yang Peng said.

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

“After Zhejiang Securities Wealth Management was approved to筹建 by end of 2023, the issuance of new wealth management company licenses has been in a standstill. After the approval authorities’ hierarchy level is raised, the relevant standards will likely be even more stringent,” Xue Hongyan believed. Even if new licenses are approved this year, the approval rhythm will still be “few and refined.”

“Around the issuance of wealth management company licenses, it will be tightened and made more strict to ensure that the management scale and actual management capacity of licensed wealth management companies are well matched,” the general manager of the wealth management business division of a city commercial bank in Shaanxi said.

(Editor: Qian Xiaorui)

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