Minsheng Bank Sold Forged Wealth Management Products to Customers

A wealth management product sold by China Minsheng Bank was found forged and did not even exist. This wealth manage product was sold to 150 customers and involves 3 billion RMB. The president of Hangtian Qiao Branch of Minsheng Bank, Zhang Ying, was suspected of major involvement in the case and was detained by the police for further investigation. The vice president, investment manager and another three involved employees of the branch are also controlled by the police and are under a probe. According to some sources close to the bank, the representatives of the aggrieved investors have reached a settlement with the bank on how to solve this problem.

This scandal reflects a lack of internal controls and external supervision of the banks in China. Banks are reluctant to build a complete internal control system with database or software because the cost may be very high. The hierarchy of banks in China is so “strict” that everyone is trying to avoid offending the head of a bank, thus the head has too much power to decide things on his own. At the same time, as China is a developing country, it doesn’t have enough supervision mechanism in banking industry. This thrives in a system under which unethical behaviors seem to be acceptable to keep the bank moving forward in the market while customers’ legitimate interests are infringed.

However, customers also need to increase vigilance against money temptation. Customers always search for high returns but ignore the growing risks when they make their investment decisions. While customers are buying a wealth management product, they shall keep an eye on all documentations and/or permits, licenses, qualifications issued to the banks by governmental authorities if applicable. Customers shall make a conscious effort to notice whether the wealth management product is legal or illegal, and to learn the truth of the products, such as the maturity, the potential losses, any guarantees or supervisions, etc.

The problems with banks’ internal control and external supervision are by no means limited to banks. All financial institutions shall improve their internal procedures and build a better oversight and accountability mechanisms. Once the incident happens, the person involved shall take legal responsibilities.