Chinese banking regulator has called on the country's banks to strengthen risk controls when trading derivatives after a Chinese jet fuel importer lost $550 million by using them to bet on oil prices. Chinese banks needed stricter systems for authorising derivatives trading and for stemming losses, the China Banking Regulatory Commission said in a notice to banks posted on Monday on its Web site (www.cbrc.gov.cn).
The move was aimed at helping banks to introduce "effective management of credit, market, liquidity, operational and legal risks when trading derivatives", it said.
Banks must "draw a lesson" from the huge trading losses incurred by the jet fuel importer, China Aviation Oil (Singapore) Ltd, and strengthen risk controls, the banking regulator said.
Large trades and new derivative products must have board approval, the regulator said. Senior managers who controlled derivative trading risks could not also trade.
Supervision of derivatives traders at the banks would be stepped up and there would be timely reporting to senior management of trading losses, it said.
China Aviation Oil (Singapore) sought protection from creditors in November after betting heavily that oil prices would fall. Instead they hit record highs.
The Beijing-backed company said last week it would publish an independent auditors' report into its troubles this week.
The Stock Exchange of Singapore has appointed PricewaterhouseCoopers to investigate the company, whose stock was once a darling of the Singapore share market.
The debacle, Singapore's biggest trading scandal since the 1995 fall of Barings Bank, put the spotlight on corporate governance at Chinese companies, which are turning to foreign markets to raise funds.
The regulator, set up in 2003 to oversee reforms in a banking sector awash with bad debt and considered the weakest link in the booming economy, has been emphasising improvements in corporate governance and risk controls.
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