(Yicai Global) July 16 -- China's banking and insurance regulator has issued a warning to the country's financial institutions to ensure they stay alert to the risks of supply chain financing and keep an eye out for false transactions and fake funding.

Several companies have encountered problems during the supply chain finance funding process, China Securities Journal reported today, citing a notice sent by the China Banking and Insurance Regulatory Commission to banks and insurers.

The CBIRC wants financial institutions to offer supply chain finance to companies based on their actual transactions with upstream and downstream firms, and said lenders must be vigilant in their monitoring of borrowers' operations, logistics processes and capital flow. It also said they must not illegally conduct business in the name of financial innovation, operate without licenses or build asset-trading platforms that provide intermediary services like matching and quoting disguised as supply chain financing.

Supply chain financing involves linking the parties involved in a transaction, the buyer, seller and lender, to lower the cost of borrowing, and many lenders began offering the service this year amid development of China's financial services sector.

Lenders should pay attention to risk and focus on supporting competitive enterprises that operate in line with national policies, have advanced technologies and are principally engaged in the real economy, the regulator said.

Editor: James Boynton