The Chinese bond market regulator has closed a loophole that had allowed banks selling high-yield wealth management products to evade regulatory requirements by moving money between the accounts they manage and their proprietary accounts, Reuters has reported, citing bond trades at four Chinese banks.

The four traders – who were not named – said the China Government Securities Depository Trust & Clearing Co and the Shanghai Clearing House had jointly notified commercial banks they could no longer trade bonds between their own proprietary accounts and the WMPs they manage for clients.

The rules were due to take effect from last Friday afternoon, the news service quoted the traders as saying.

The report said that CDC did not answer requests for comment.

The traders said the new rule would prevent a common practice in which banks shift bonds back and forth between their own balance sheets and the WMP accounts they manage for clients, allowing them to deliver promised payouts to WMP investors, even if the underlying bonds have not yet matured or have declined in value. Such transactions have also enabled banks to temporarily shift WMP funds back onto bank balance sheets at quarter-end, as a way to window dress their financial statements by boosting the customer deposits they report.

The China Banking Regulatory Commission (CBRC) had announced measures to deal with “fund pooling” in January.

There have been concerns that such “pools” allow inflows from the sale of new products to deliver promised returns on products already sold – similar to the sort of Ponzi scheme structures that are typically treated as criminal operations in countries such as the US.

Such wealth management products have drawn their appeal from a demand for yields above official interest rates.