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

Recently, Chinese securities reporters inquired about the progress of reducing the scale of existing wealth management products. When speaking with personnel from asset management departments and wealth management business units of several small and medium-sized banks in Zhejiang, Jilin, Jiangxi, Gansu, Shaanxi, and other regions, they received inconsistent responses: some said, “Basically no longer reducing,” while others stated, “Still covertly decreasing.”

Previously, regulatory authorities in some regions required small and medium-sized banks without wealth management companies within their jurisdiction to clear out and reduce their existing proprietary wealth management scale by the end of 2026. However, investigations found that the regulatory tone in some areas is subtly changing, with some banks not stopping the issuance of new proprietary wealth management products this year.

It is worth noting that the much-anticipated “Lianchuang Wealth Management” model has not expanded as market expectations suggested. The model faces many difficulties in practical implementation. “Lianchuang Wealth Management” has a hard time taking off, and completely shifting to agency distribution is also unsatisfactory. Applying for a wealth management company license seems to have become the most ideal path for small and medium-sized banks’ wealth management businesses.

“We are actively applying for a wealth management company license, but the difficulty of license application has increased. From what we understand, this year, applying for a wealth management company license not only requires approval from the China Banking and Insurance Regulatory Commission but also needs to be reported to higher-level authorities,” said Wu Hao (pseudonym), an asset management department staff member of a city commercial bank in Zhejiang. Amid the squeeze of scale reduction and business continuation, how can small and medium-sized banks find a path for transformation?

● By Zhang Jialin, our reporter

Regulatory tone is somewhat ambiguous

“Currently, the regulatory tone is somewhat ambiguous, and there is no longer such strict requirement for small and medium-sized banks within the jurisdiction to reduce their wealth management scale. This year, our bank has been stabilizing the scale,” said Li Wei (pseudonym), general manager of the wealth management division of a city commercial bank in East China, when discussing industry changes. Another asset management department staff member from another city commercial bank in the same province told China Securities Journal: “The requirement to clear out the scale is not as strict, but regulatory authorities still require a reduction in wealth management scale.”

Wu Hao stated, “Local regulatory authorities still maintain a cautious approach and have relevant requirements. They have not explicitly stated that small and medium-sized banks within the jurisdiction can avoid reducing their existing wealth management scale. Currently, our proprietary wealth management scale is no longer increasing, which is essentially a covert reduction.”

Clearly, regulatory requirements and standards vary across regions. Several small and medium-sized bank personnel admitted, “Regulatory guidelines differ across regions, and the gap is quite large.” This regional regulatory disparity allows some banks to continue on the reduction track, while others gain some breathing room.

A review of China Wealth Management Network found that since April alone, over 100 wealth management products issued by city commercial banks and rural cooperative financial institutions have been launched, with some products ending in 2027 or 2028. For example, on April 2, Jilin Bank issued “Jili Wealth Jiwen Series Fixed Income Closed Wealth Management Product, 2026, Issue 20,” with a term of 3-6 months; Changsha Bank issued “Jin Furong 2026 Changji 11-Period Closed Net Value Wealth Management Product,” with a term of 1-3 years; Zhejiang Hecheng Rural Commercial Bank issued “Harvest, Hehua 2026, Issue 063, Closed Net Value Wealth Management Product,” with a term of 3-6 months.

Additionally, many small and medium-sized banks such as Shangrao Bank, Guangzhou Bank, Zhongyuan Bank, and Hubei Bank also have wealth management products in the fundraising stage. China Wealth Management Network shows that Guangzhou Bank’s “Red Cotton Wealth Management Tianying Balanced Short-term Holding No. 2” product started on April 10 and will end in April 2056. Changsha Bank’s “Jin Furong 2026 Changfu Net Value 15-Period Closed Net Value Wealth Management Product” started on April 9 and will end in April 2029.

“Cold Reception for ‘Lianchuang Wealth Management’”

“Small and medium-sized banks have cultivated local markets for many years, and customers have a high loyalty to our proprietary wealth management products. Completely removing this business would be equivalent to reducing a good investment channel for local clients,” Wu Hao said. He also noted that local asset management institutions often allocate part of their assets locally, supporting the local real economy. Cutting off proprietary wealth management business of small and medium-sized banks would weaken this role.

A staff member from Jilin Bank also told reporters that proprietary wealth management products of small and medium-sized banks are recognized by local clients because of regional brand effects. If the wealth management business of small and medium-sized banks shifts entirely to pure agency distribution, this brand effect and customer stickiness will be difficult to maintain.

In previous market discussions, “Lianchuang Wealth Management” was seen as a “flexible exit” route for non-licensed banks—small and medium-sized banks without wealth management company licenses jointly develop wealth management products with wealth management firms, with banks recommending assets to the firms. Both parties select and confirm an asset whitelist, which the wealth management firm includes and issues products from, then the non-licensed bank conducts full-scale distribution.

However, feedback from multiple small and medium-sized banks indicates that the “Lianchuang Wealth Management” model faces many difficulties in practice.

“Few institutions are actively doing ‘Lianchuang Wealth Management.’ The main obstacle is that wealth management firms find it difficult to transfer real research, investment, and risk control authority to partner banks, due to internal governance constraints and issues in risk responsibility attribution,” Wu Hao explained.

“‘Lianchuang Wealth Management’ is likely to be halted,” said Yang Peng, an asset management department staff member at a city commercial bank in Gansu. Despite the demand from non-licensed small and medium-sized banks, the actual implementation of “Lianchuang Wealth Management” is quite challenging. Regulatory authorities maintain a cautious attitude, believing that this model could lead to unclear responsibilities and risk transfer issues, which do not comply with the “seller’s due diligence” principle in the new asset management regulations.

License approval department levels are being raised

“Our bank has ongoing proprietary wealth management products, with the longest term about one and a half years. Currently, there are no licensed banks in the province. We definitely hope to obtain a wealth management company license,” said an asset management department staff member at a city commercial bank in Northeast China.

However, obtaining a wealth management company license is not easy for small and medium-sized banks. Several sources told reporters that the approval department level for wealth management company licenses has been elevated.

Industry insiders say that for most city commercial banks and rural commercial banks, meeting the threshold for applying for a wealth management company license is already difficult, let alone standing out in fierce approval competition. “Issuance of wealth management company licenses still holds hope for small and medium-sized banks in developed provinces, but in economically lagging regions, the prospects are slim,” Yang Peng said.

Xue Hongyan, a special researcher at Su Commercial Bank, stated that the elevation of approval department levels for wealth management company licenses reflects the deepening reform of the financial regulatory system. It signifies that wealth management business regulation has been elevated from the industry level to the national financial governance level. The core is to strengthen top-level coordination, unify regulatory standards, and prevent systemic risks, aligning with the trend of expanding market scale and increasing risk complexity. This helps prevent regulatory arbitrage. This adjustment also indicates a regulatory shift from “quantity expansion” to “quality improvement,” guiding institutions to focus on research, risk management, and customer service as core competencies by raising approval thresholds and coordination efforts.

“Since Zhejiang Silver Wealth Management was approved to establish at the end of 2023, the issuance of new wealth management company licenses has been stagnant. After the approval department level was raised, standards may become even stricter,” Xue Hongyan said. Even if new licenses are approved this year, the pace is expected to be “small but refined.”

“It is expected that the issuance of wealth management company licenses will tighten further to ensure that the management scale and actual management capacity of licensed firms are matched,” said the general manager of a city commercial bank’s wealth management division in Shaanxi.