(Bloomberg) -- Chinese regulators have tightened the rules on offering structured deposits as they clamp down on the $1.5 trillion sector.

Banks must have credentials for trading general derivative products to offer structured deposits, according to a notice on the website of the China Banking and Insurance Regulatory Commission. The sale of the high-yield products will have to follow wealth management product distribution rules and banks will have a grace period of 12-months grace to comply with the requirements.

Structured deposits, often known as yield-enhancement products overseas, have gained in popularity after authorities tightened oversight of wealth management products. They have proven especially attractive as a funding source for China’s smaller banks, which don’t have the huge branch networks of big lenders and have been hardest hit by the shadow banking clampdown.

See also: China’s Banks See Another Key Source of Funding at Risk

A typical structured deposit offers a fixed return, normally in line with regular bank deposits, together with the potential for a higher yield depending on embedded derivative contracts linked to currencies, commodities or stock prices. As of the end of September, Chinese banks had 10.9 trillion yuan ($1.5 trillion) of structured deposits outstanding, the majority with small- and medium-sized banks.

To contact Bloomberg News staff for this story: Lucille Liu in Beijing at xliu621@bloomberg.net

To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, Ben Sharples

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