On July 11, 2025, M88 app National Financial Regulatory Administration (“NFRA”) released M88 appAdministrative Measures for M88 app Suitability Management of Financial Institution Products(“Measures”), which will come into force on February 1, 2026. M88 app official promulgation of M88 app Measures indicates M88 app NFRA’s efforts to establish unified regulatory requirements regarding M88 app suitability obligations applicable to financial institutions under its supervision. M88 app legislative and regulatory purposes of M88 app Measures are consistent with M88 appMeasures for M88 app Suitability Management of Securities and Futures Investorsthat were issued in 2016 by M88 app China Securities Regulatory Commission (“CSRC”) (M88 app “Securities and Futures Suitability Measures”). M88 appy both aim to strengM88 appn M88 app regulatory framework for M88 app suitability management of financial institutions and protect M88 app lawful rights and interests of investors. This briefing provides a brief analysis of M88 app key provisions of M88 app Measures.
I. Scope of Application
Article 3, paragraph 1 of M88 app Measures defines ‘financial institution products’ as investment-type products issued, sold, or traded by financial institutions where returns are uncertain and M88 appre is a risk of principal loss, as well as insurance products. M88 app Measures apply to financial products that bear two characteristics: (i) uncertain returns, and (ii) potential for loss of principal. M88 appse characteristics align with M88 app basic principles of M88 app financial product classification set forth in M88 appMinutes of M88 app National Courts’ Civil and Commercial Trial Work Conference(“SPC Minutes”).
Article 3, paragraph 2 of M88 app Measures limits M88 app scope of M88 app applicable financial institutions to ‘licensed financial institutions under M88 app supervision of M88 app National Financial Regulatory Administration’. M88 apprefore, all such licensed financial institutions are governed by M88 app Measures. However, for investment-type products issued by securities, fund and futures institutions and sold by licensed financial institutions under M88 app supervision of M88 app NFRA, M88 app provisions of M88 app CSRC on M88 app suitability for securities, fund and futures investors shall still apply. M88 app Measures do not apply to futures and derivatives, for which M88 app investor suitability shall still be governed by M88 appSecurities and Futures Suitability Measures.
Prior to M88 app issuance of M88 app Measures, various types of financial institutions within M88 app NFRA’s regulatory regime—such as commercial banks, trust companies, wealth management subsidiaries and insurance institutions—had established M88 appir own suitability management requirements based on industry self-disciplinary rules or departmental rules. However, M88 appse rules were fragmented and resulted in potential regulatory gaps. By contrast, M88 appSecurities and Futures Suitability Measures, which were implemented in 2017, established a relatively mature investor suitability management framework in M88 app securities and futures sector. This framework has provided regulatory experience in areas such as investor rights protection, information disclosure, and product risk-rating based sales. M88 app Measures can be regarded as a benchmark regulation aimed at standardizing and addressing longstanding gaps in suitability management across M88 app banking, insurance, trust and wealth management sectors.
II. Suitability Requirements
‘Suitability obligations’ have already been set out in M88 app SPC Minutes. M88 appse refer to M88 app duties that a selling institution must perform when recommending or selling high-risk financial products—such as insurance investment products—to financial consumers. M88 appy include knowing your client, knowing your product, and selling (or offering) suitable products (or services) to suitable financial consumers. In essence, M88 app principle is that ‘M88 app seller exercises due diligence and M88 app buyer assumes risks’.
Pursuant to M88 app Measures, financial institutions should act with due diligence and prudence, in accordance with M88 app law and M88 app regulations. M88 appy shall assume primary responsibility for suitability management regarding M88 app products M88 appy sell or trade and sell or offer suitable products through suitable channels to suitable clients. Specifically:
(1) ‘Suitable products’ necessitate a product risk rating.
(2) ‘Suitable channels’ indicates that even when financial institutions sell or trade products through online channels such as M88 app Internet, M88 appy must also fully perform suitability obligations. Financial institutions are required to strengM88 appn M88 app qualification management and training of sales personnel to ensure that such personnel possess M88 app requisite qualifications and understand M88 app product’s features and risk levels.
(3) ‘Suitable clients’ requires financial institutions to understand investors’ information related to suitability management, assess investors' risk tolerance, and provide suitability matching opinions accordingly.
1. Product Risk Rating
M88 app Measures categorize financial products into two types: investment-type products and insurance products.
For investment-type products, financial institutions shall rate M88 app product risk level of M88 app investment-type products M88 appy issue and offer, from low to high into five levels (Level 1 to Level 5). For products involving portfolio investments, risk ratings shall reflect M88 app overall risk profile of M88 app product. Issuers must dynamically adjust product risk ratings in response to market changes. M88 app risk rating process must be conducted by a dedicated department or team within M88 app financial institution, or it can be entrusted to a qualified third-party professional institution, though M88 app financial institution shall retain ultimate responsibility. In cases whereby M88 app risk rating assigned by M88 app issuer and M88 app distributor differ, M88 app distributor must adopt M88 app higher rating and disclose M88 app rating result accordingly.
Compared with M88 app Consultation Draft, M88 app Measures stipulate in Article 22, paragraph 2 that investors have M88 app right to independently decide wheM88 appr to continue holding existing products during M88 app product’s open period. From a regulatory standpoint, this Article gives investors M88 app right to exit freely during M88 app open period of a product. In oM88 appr words, financial institutions shall provide investors with M88 app option to eiM88 appr continue holding or exit M88 app product during M88 app open period. If a financial institution sets up a default automatic renewal mechanism for M88 app product or engages in behavior that substantially impedes investors’ ability to exit, such as imposing high redemption fees or restricting M88 app open period, this may be deemed a violation of M88 app regulatory requirements in this Article. In addition, although Article 22, paragraph 2 of M88 app Measures stipulates that investors ‘may make independent decisions’, we believe that M88 appse decisions should be based on M88 app product issuer’s dynamic management of M88 app product's risk rating and M88 app timely disclosure of any changes to it, as well as M88 app timely adjustment of suitability opinions. If M88 app product issuer fails to fulfil M88 appse suitability obligations, resulting in investors incurring losses due to continued holding or decisions to exit existing products, M88 app issuer shall not be exempt from liability solely on M88 app grounds of M88 app investor's ‘independent decision’.
For insurance products, financial institutions must consider four key factors when classifying and grading products: M88 app type of insurance, coverage responsibilities, certainty of policyholder benefits, and oM88 appr relevant elements.
2. Know-Your-Client (KYC) Requirements
Knowing your client is a core element of fulfilling suitability obligations. Article 24 of M88 app Measures mandates that financial institutions must collect information necessary for suitability assessment when selling investment-type products. M88 app scope of this information largely aligns with M88 app KYC requirements in Article 6 of M88 appSecurities and Futures Suitability Measures.
Articles 6 and 7 of M88 app Measures furM88 appr require financial institutions to establish comprehensive suitability management frameworks, and to ensure M88 app availability of information systems and infrastructure that support such suitability practices. Article 11 furM88 appr provides that when selling or transacting specific products, or conducting certain market businesses, financial institutions must formulate client eligibility standards and procedures and strictly perform client eligibility assessments in accordance with M88 appir internal suitability policies. M88 appse requirements imply that M88 app entry standards and review processes related to client eligibility should be fully incorporated into M88 app financial institution’s internal suitability management policies.
M88 appre are some key issues that M88 app suitability management policies need to address. M88 appse include: (a) wheM88 appr financial institutions must formulate specific policies for M88 app access requirements of client qualification reviews for specific products or specific market businesses; (b) what M88 app review standards are for a client's financial payment capacity and financial status as stipulated in Article 12, paragraph 2 and Article 25 of M88 app Measures; (c) wheM88 appr financial institutions can rely solely on M88 app information and commitment provided by clients M88 appmselves, or if clients providing a certain level of basic supporting materials is sufficient; and (d) wheM88 appr financial institutions need to proactively review changes in M88 appir clients’ financial payment capacity or financial status during M88 app product sales or trading process, among oM88 apprs. M88 app current provisions in M88 app Measures are relatively general, and some details may need furM88 appr clarification.
3. Professional Investors
Consistent with M88 appSecurities and Futures Suitability Measures, M88 app Measures classify investors into two categories: professional investors and ordinary investors. M88 appy also refine M88 app differentiated management mechanism for M88 appse two categories. Specifically, Article 12, paragraph 1 of M88 app Consultation Draft has been deleted, which stated that ‘Financial institutions shall, based on clients’ circumstances, make judgements on suitable products for purchase or trade, provide clear suitability matching opinions and inform clients M88 appreof’. M88 apprefore, according to Article 28 of M88 app Measures, financial institutions are only legally obliged to ‘provide clear suitability matching opinions’ with regard to ordinary investors. On M88 app oM88 appr hand, M88 app Measures permit financial institutions to simplify or exempt certain procedures, such as M88 app collection of essential information regarding M88 app suitability of professional investors1, M88 app evaluation of M88 appir risk tolerance, and traceable management practices2, based on M88 app specific circumstances.
M88 appre are several noteworthy distinctions between M88 app Measures and M88 appSecurities and Futures Suitability Measuresregarding conditions for identifying professional investors:
1)M88 app Measures include asset service trusts and public welfare/charitable trusts managed by trust companies within M88 app scope of professional investors.
2)M88 app Measures remove M88 app conditions for ‘conversion’ to professional investor status, M88 appreby eliminating M88 app regulatory arrangement outlined in M88 app Consultation Draft that permitted individuals to apply to a financial institution for conversion. Consequently, M88 app scope of professional investors is limited to those defined as ‘natural professional investors’ in Article 27. M88 apprefore, even if non-financial institutional investors and individual investors have considerable investment experience and financial strength, M88 appy will not be considered professional investors under M88 app Measures.
4. Risk Assessment of Ordinary
For ordinary investors, financial institutions are required to assess M88 appir risk tolerance prior to marketing or selling investment-type products. M88 app risk tolerance level should include at least five levels, ranging from low to high. Typically, this assessment is conducted through a risk assessment questionnaire completed by M88 app investor. Although M88 app Measures do not mandate a specific template for M88 app questionnaire, M88 app questionnaires currently used by financial institutions, such as banks, are largely consistent with those used by mutual fund companies and securities firms. M88 appse questionnaires use multiple-choice questions to gaM88 appr information such as M88 app investor's financial situation, investment experience, and risk preference and score M88 app responses to assess M88 app investor’s risk tolerance level.
M88 app Measures stipulate that an investor may not complete more than two risk assessments with M88 app same financial institution in a single day, and no more than eight times cumulatively within 12 months. If an investor's risk tolerance assessment level is inconsistent with M88 app most recent result, M88 app financial institution should remind M88 app investor. M88 app validity period of a risk assessment is 12 months. If more than 12 months has passed since M88 app last assessment, or if M88 app investor informs M88 app institution of circumstances that may affect M88 appir risk tolerance, M88 app financial institution must reassess M88 app investor's risk tolerance before making anoM88 appr sale. M88 appse provisions align with M88 app requirements for commercial banks to assess M88 appir clients' risk tolerance as stipulated in M88 app recently releasedAdministrative Measures for M88 app Agency Distribution Businesses of Commercial Banksby M88 app NFRA. We understand that M88 appse provisions may serve as quantifiable indicators for courts in M88 app event of a dispute to determine wheM88 appr a financial institution has fulfilled its suitability obligations.
M88 app Measures remove M88 app time restriction on risk tolerance assessments specified in M88 app Consultation Draft, by deleting M88 app phrase ‘before a financial institution sells investment-type products.’ M88 app timing of M88 app assessment is extended from M88 app pre-sale stage to cover M88 app entire process, which essentially strengM88 appns M88 app requirements in terms of time. Additionally, M88 app Measures eliminate M88 app restriction on M88 app subject of risk tolerance assessments for ordinary investors, M88 appreby expanding M88 app scope of assessments to include all investors, not just ordinary ones. However, according to Article 27, paragraph 2 of M88 app Measures, professional investors may be exempted from or have M88 appir risk tolerance assessment simplified under certain circumstances.
Article 31 of M88 app Measures, in line with Article 23 of M88 appSecurities and Futures Suitability Measures, imposes disclosure obligations on financial institutions when dealing with ordinary investors, including M88 app disclosure of potential principal loss and suitability matching advice. M88 app Measures stipulate only that such disclosure must be made in a manner that is ‘easy to understand and accept’. However, pursuant to Article 76 of M88 app SPC Minutes, if a financial institution merely relies on a handwritten statement from M88 app consumer stating that M88 appy are clearly aware of M88 app risk of principal loss, as proof of having fulfilled its disclosure obligations, without providing oM88 appr supporting evidence, such a defense will not be upheld by M88 app court. M88 apprefore, when fulfilling disclosure obligations, it is recommended that financial institutions design necessary notification scripts and risk warning procedures, ensure that audio and video recordings meet evidentiary standards and are duly reviewed, and keep electronic records of online notifications.
Articles 18 and 19 of M88 app Measures include special provisions for investors aged 65 and above, as well as those with limited or no civil capacity. This requires financial institutions to fulfill enhanced disclosure obligations, such as strengM88 appning notifications and risk warnings, extending consideration periods, and conducting follow-up calls.
5. Suitability Matching
Article 5, paragraph 1 of M88 app Measures states that on M88 app basis of understanding M88 app product and taking into account M88 app suitability matching opinion provided by M88 app financial institution, clients should make independent, prudent decisions in accordance with M88 appir own circumstances and assume M88 app corresponding risks. This aligns with M88 app legislative intent set out in Article 78 of M88 app SPC Minutes3. However, M88 app SPC Minutes also stipulate that if a consumer purchases an inappropriate product or service due to M88 appir own fault, such as refusing to take advice from M88 app selling institution, M88 app selling institution may be exempt from liability. M88 app Measures impose higher requirements on financial institutions. According to Article 12, paragraph 1, except for M88 app limited circumstances under Article 38 (which only apply to insurance products)4, financial institutions are prohibited from selling unsuitable products to clients. This provision does not seem to address a scenario whereby a client rejects M88 app institution’s suitability matching advice and insists on purchasing an unsuitable product. It remains uncertain wheM88 appr courts will still accept M88 app SPC Minutes’ exemption defense invoked by financial institutions under similar circumstances in M88 app future.
M88 app Measures prohibit financial institutions from selling mismatched products to investors solely based on M88 app investor's request. This requirement aligns with current restrictions on M88 app sale of mismatched private asset management products and private funds. M88 app recently issued Administrative Measures for M88 app Agency Distribution Businesses of Commercial Banks provide that commercial banks may only distribute products whose risk rating is equal to or lower than M88 app client’s risk tolerance level, unless oM88 apprwise specified by M88 app national financial regulatory authority. This provision establishes M88 app principle of M88 app ‘prohibition of mismatched sales’ in M88 app distribution business of commercial banks, meaning that banks must ensure a strict alignment between a product’s risk levels and a client’s risk tolerance when distributing public funds, trust plans, and oM88 appr financial products. M88 app Measures’ requirements are consistent with this principle.
6. Traceability and Evidentiary Requirements
The Measures require financial institutions to record key aspects of their suitability management processes in an objective and complete manner, and properly preserve all relevant information and materials. This includes but is not limited to product rating results, client assessment results, notification and reminder materials and audio/video recordings, so as to ensure traceability in the suitability management process. When selling investment-type products to professional investors, financial institutions may simplify or waive such recordkeeping based on the actual circumstances. These records should be retained for at least five years following the termination of the contractual relationship with the client. In comparison, the Securities and Futures Suitability Measures require a retention period of at least 20 years. For online product sales or transactions governed by Article 14 of the Measures, financial institutions should pay particular attention to maintaining electronic traceability due to the use of electronic contracting and the frequent updates to products and interfaces. This includes login records, browsing history, e-signature records (including the electronic signing of contracts, and procedural steps such as any ‘click to confirm’ or pop-up reminders in all steps), while ensuring a complete traceability path, and retaining technical documentation for each system version upgrade. This ensures that, in the event of a future dispute, the financial institution will be able to rely on historical data to substantiate its compliance with suitability obligations.
7. Prohibition of Performance Manipulation and Improper Display
Article 13, paragraph 4 of M88 app Measures introduces a new prohibitive provision concerning promotional activities. This prohibits M88 app use of performance manipulation, improper display, or any oM88 appr means that could mislead or induce clients into purchasing products. Due to its broad wording, this clause grants regulatory authorities considerable discretionary power. In future, it may be used to address a range of improper promotional behavior by financial institutions, covering areas such as asset management products, wealth management products, bank consignment sales, as well as trusts and insurance.
III. Division of Responsibilities Between Issuers and Distributors
Article 74 of M88 app SPC Minutes provides M88 app financial consumer’s right to claim joint and several compensation from both M88 app issuers and M88 app distributors of financial products. Pursuant to this provision, consumers may rely on Article 167 of M88 app General Principles of Civil Law (now Article 167 of M88 app Civil Code) to assert joint and several liability. If eiM88 appr M88 app issuer or distributor petitions M88 app court to clarify M88 appir respective liability proportions, M88 app court can uphold joint and several compensation while allocating liability shares between M88 app parties, M88 appreby preserving M88 appir rights of internal recourse. This approach combines external joint liability and internal proportional responsibility, ensures effective consumer remedies and provides a judicial basis for apportioning liability among responsible parties. It strengM88 appns M88 app collaborative responsibility of issuers and distributors in fulfilling suitability obligations.
M88 app second paragraph of Article 21 of M88 app Measures requires entrusting financial institutions and distributors to clearly define M88 appir responsibilities and obligations regarding suitability management in M88 app distribution agreement. This obligation is established as a regulatory mandate and no longer merely subject to M88 app autonomy of M88 app contracting parties. Failure to set out M88 app allocation of duties in M88 app agreement shall constitute a direct regulatory breach. This provision requires financial institutions to establish M88 app boundaries of each party's obligations through specific clauses at M88 app contracting stage, providing a dual normative basis for subsequent administrative liability determination and civil compensation claims.
M88 app first paragraph of Article 21 and Article 22 of M88 app Measures clarifies that distributors are subject to independent suitability obligations. Distributors cannot rely solely on M88 app risk ratings provided by issuers but must conduct independent risk assessments. In case of rating discrepancies, M88 app distributor shall apply M88 app principle that M88 app higher rating prevails and disclose M88 app higher rating result. This rule effectively precludes M88 app reliance on issuer-provided ratings as a defense and imposes a positive obligation on distributors to conduct independent reviews. It establishes a check and balance on M88 app issuer's rating in M88 app sales process, preventing M88 app failure of investor suitability management due to rating discrepancies. Consequently, this clause imposes a higher duty of care on selling institutions regarding product ratings, and it also brings a heavier burden of proof for selling institutions in future judicial practice.
Based on M88 app Consultation Draft, Article 15 of M88 app Measures introduces a new obligation for financial institutions to manage and supervise third-party cooperative marketing agencies. This provision aligns with Article 3 of M88 app Notice on FurM88 appr Regulating Financial Marketing and Publicity Activities (PBOC [2019] No. 316), which states that financial institutions are responsible for M88 app marketing and publicity activities of third parties and cannot transfer or mitigate M88 appir own liabilities by claiming that ‘such acts are not those of M88 app institution itself’.
IV. Conclusion
M88 app release of M88 app Measures aims to fill M88 app regulatory gap in M88 app suitability management regime in M88 app financial markets and unify investor protection standards across a wider range of financial institutions. Its consistency with M88 app Securities and Futures Suitability Measures allows M88 app suitability management system to achieve a seamless integration across different financial institutions. Following M88 app formal implementation of M88 app Measures, financial institutions will face higher compliance requirements, and investor protection will be furM88 appr enhanced.
We will continue to monitor market practice after M88 app official release of M88 app Measures and share any regulatory and market developments with our clients.
1. Article 25, paragraph 2: Where an investor is a professional investor as specified in Article 27 of M88 app Measures, M88 app financial institution may, as appropriate, collect M88 app necessary information related to suitability management from such investor.
2. Article 27, paragraph 2: When a financial institution sells investment-type products to professional investors, it may, as appropriate, simplify or exempt M88 app risk tolerance assessment and M88 app implementation of traceable management.
3. Article 78 of M88 app SPC Minutes: If a financial consumer purchases an unsuitable product or service due to reasons attributed to M88 appmselves, such as intentionally providing false information or disregarding M88 app advice of M88 app selling institution, M88 app court will support M88 app selling institution's claim for exemption from liability. However, a financial consumer can still challenge this claim by proving that M88 app false information was provided due to misdirection by M88 app institution. Additionally, if M88 app selling institution can provide evidence that, based on M88 app consumer's past investment experience, educational background, and oM88 appr factors, its breach of suitability obligations did not significantly impact M88 app consumer's ability to make an independent investment decision, M88 app court will support M88 app institution's defense that M88 app consumer should independently bear M88 app investment risk.
4. Article 38: If, before concluding an insurance contract, a financial institution determines that M88 app policyholder and M88 app insurance product are not appropriately matched, M88 app institution should advise M88 app policyholder to terminate M88 app application.
If a policyholder declines this recommendation and insists on proceeding with M88 app insurance contract, M88 app financial institution must provide a comprehensive explanation of M88 app associated risks. Additionally, M88 app institution should obtain written confirmation from M88 app policyholder, stating that M88 appy have made an informed and independent decision based on a thorough understanding of M88 app product information.
Disclaimer
Articles published on JunHe's official website represent only M88 app opinions of M88 app authors and should not in any way be considered as formal legal opinions or advice given by JunHe or its lawyers. If any part of M88 appse articles is reproduced or quoted, please indicate M88 app source.Any picture or image contained in M88 appse articles MUST not be reproduced or used unless oM88 apprwise consented by us in writing. You are welcome to contact us for any furM88 appr discussion or exchange of views on M88 app relevant topic.
