Interpretation No. 8 of the Accounting Standards for Business Enterprises

1. How should commercial banks and their subsidiaries (collectively referred to as "commercial banks") determine whether they control wealth management products issued in accordance with the regulations of the China Banking Regulatory Commission (referred to as "wealth management products")?

Answer: Commercial banks shall determine whether they control wealth management products they issue in accordance with the relevant provisions of Accounting Standards for Business Enterprises No. 33 — Consolidated Financial Statements (hereinafter referred to as the "Consolidated Financial Statements Standard"). If a commercial bank controls such a wealth management product, it shall consolidate the product into its consolidated financial statements in accordance with the Consolidated Financial Statements Standard.

When determining whether a commercial bank controls the wealth management products it issues, it shall comprehensively consider the power, variable returns, and their interrelationship that the bank itself directly enjoys or indirectly enjoys through all its subsidiaries (including structured entities it controls). In analyzing variable returns, at least the following aspects shall be considered:

Variable returns typically include the decision maker's compensation and other benefits obtained by commercial banks for providing management services to wealth management products. The former encompasses various forms of wealth management product management fees (including fixed management fees in various forms and performance-based fees) and may also include charges levied under the guise of sales fees, custody fees, and other service fees that are实质上 decision maker compensation. The latter includes various forms of direct investment income, compensation or remuneration received for providing credit enhancement or support, potential or actual losses incurred from providing credit enhancement or support, variable returns obtained from other transactions with the wealth management product or holding other interests in it, as well as sales fees, custody fees, and other service charges under various names. Credit enhancement provided includes guarantees (e.g., guaranteeing principal or returns for investors in the wealth management product, providing guarantees for the debt of the wealth management product, etc.) and credit commitments. Support provided includes financial or other assistance, such as liquidity support, repurchase commitments, financing provided to the wealth management product, purchase of assets held by the wealth management product, and derivative transactions conducted with the wealth management product, among others.

When analyzing variable returns, commercial banks should not only examine the substance of laws, regulations, and contractual arrangements related to wealth management products but also assess whether costs and returns are clearly defined, whether transaction pricing (including fees) aligns with market or industry practices, and whether there are other circumstances that could result in the bank ultimately bearing losses on these products. Banks must carefully consider whether they have provided credit enhancement or support for previously issued wealth management products with similar characteristics despite having no contractual obligation to do so. At a minimum, this assessment should cover the following aspects:

1. Describe the triggering events and reasons for providing this credit enhancement or support, as well as the expected likelihood and frequency of similar events in the future.

2. The reasons why the commercial bank provided this credit enhancement or support, along with the internal control and management processes that guided this decision. Whether the bank will continue to provide credit enhancement and support in the event of similar triggers in the future (this assessment should be based on the bank's response mechanisms for such events and its internal control and management processes, taking into account historical experience).

3. Consideration received from wealth management products in providing credit enhancement or support, including but not limited to whether the consideration is fair, and the existence and degree of uncertainty regarding its receipt.

4. Risk exposure resulting from providing credit enhancement or support.

If a commercial bank determines, in accordance with the Consolidated Financial Statements Standard, that it does not have control over an issued wealth management product but provides credit enhancement or support beyond its contractual obligations during the product's term, the bank shall reassess whether it has gained control based on such facts and circumstances. If the reassessment concludes that the bank has control, the wealth management product must be included in the consolidated financial statements. Additionally, for other wealth management products with similar characteristics (such as comparable contract terms, underlying asset composition, investor profile, or the structure of variable returns the bank receives), the bank shall apply the same consistency principle to reassess control.

II. How should commercial banks account for wealth management products they issue?

Answer: Wealth management products issued by commercial banks shall be treated as independent accounting entities and accounted for in accordance with the relevant provisions of Accounting Standards for Business Enterprises.

(I) Accounting

For financial instruments held or issued as part of wealth management products, when applying Accounting Standards for Business Enterprises No. 22 — Recognition and Measurement of Financial Instruments (hereinafter referred to as the "Financial Instrument Recognition and Measurement Standard"), Accounting Standards for Business Enterprises No. 37 — Presentation of Financial Instruments (hereinafter referred to as the "Financial Instrument Presentation Standard"), and Accounting Standards for Business Enterprises No. 39 — Fair Value Measurement (hereinafter referred to as the "Fair Value Measurement Standard"), at least the following considerations shall be made:

1. Category

For financial assets or liabilities held for wealth management products, classify them appropriately in accordance with the classification principles for financial assets and financial liabilities under the Financial Instruments Recognition and Measurement Standard, considering factors such as the purpose or intent of holding, the presence of active market quotes, and the cash flow characteristics of the financial instruments.

If a non-derivative financial asset held in a wealth management product is difficult to sell in the market due to lack of liquidity (e.g., non-standardized debt assets), this typically does not indicate that the asset was held for trading purposes (such as being intended for sale in the near term, or being part of a portfolio of identifiable financial instruments managed on a collective basis with objective evidence of short-term profit-taking). Consequently, it should not be classified as a financial asset at fair value through profit or loss under the "trading" category.

If an equity investment held by a wealth management product has no quoted price in an active market and its fair value cannot be reliably measured using valuation techniques, it shall not be designated as a financial asset at fair value through profit or loss.

If a commercial bank lacks an adequate valuation process or the necessary valuation capability, and cannot effectively utilize third-party valuations due to such limitations, it may be unable to reliably measure the fair value of financial assets or liabilities held by wealth management products. In such cases, this generally indicates that the bank does not manage and evaluate these financial assets or liabilities on a fair value basis. Consequently, the bank shall not designate them as financial assets or liabilities measured at fair value through profit or loss in accordance with the "Recognition and Measurement Standard for Financial Instruments."

Financial instruments issued for wealth management products shall be classified in accordance with the relevant provisions of the Financial Instruments Presentation Standard.

When accounting for wealth management products, use accounting titles in accordance with the relevant provisions of the Accounting Standards for Business Enterprises. Titles such as "Agency Wealth Management Investment" that may cause ambiguity are prohibited.

2. Measurement

For financial assets or liabilities held by wealth management products, measurement shall be performed in accordance with the "Financial Instruments: Recognition and Measurement Standard," the "Fair Value Measurement Standard," and other applicable standards. Specifically:

Fair value measurement (1)

For financial assets or liabilities measured at fair value, determine their fair value in accordance with the Fair Value Measurement Standard. Generally, the cost upon initial recognition of a financial instrument does not meet subsequent fair value measurement requirements unless there is sufficient evidence or justification that the cost remains an appropriate estimate of fair value at the measurement date.

Impairment (2)

Financial assets held by wealth management products, excluding those measured at fair value through profit or loss, shall be assessed for impairment in accordance with the impairment provisions for financial assets in the Standard on Recognition and Measurement of Financial Instruments. This includes evaluating whether objective evidence of impairment exists, determining the amount of impairment loss, and performing the corresponding accounting treatment.

(II) Presentation

Commercial banks are the legally responsible entities for preparing financial statements of wealth management products. If applicable laws, regulations, or regulatory authorities require submission or public disclosure of such financial statements, commercial banks must ensure that they comply with the requirements of Accounting Standards for Business Enterprises.

III. Commercial banks shall apply the requirements of this Interpretation in their financial reports for the fiscal year 2016 and subsequent periods. If a commercial bank's accounting treatment of wealth management products prior to the effective date of this Interpretation is inconsistent with it, retrospective adjustment shall be made, except where such adjustment is impracticable.