14 January 2020

Opening-up Policies in the Banking Industry Widely Implemented

By:Chen Yun, Wang Rong, Zhang Yushi

After the promulgation of the amended Regulations of the PRC on the Administration of Foreign Funded Banks (the "Administration Regulations") by the State Council on 30 September 2019 and the amended Implementation Rules of the Regulations of the PRC on the Administration of Foreign Funded Banks (the "Implementation Rules") by the China Banking and Insurance Regulatory Commission (the "CBIRC") on 29 November 2019, the CBIRC promulgated the amended Implementation Measures on the Administrative Licensing Items of Foreign Funded Banks (the "Implementation Measures") on 26 December 2019 to implement and specify the details of the opening-up policies in the banking industry since 2017 with the aim to optimize the business environment. 

I. Timeline of Regulations and Policies

Since 2017, several regulations and policies, as listed below, have been published by the regulatory authorities for the opening-up of the banking industry:

2017

March 10 The General Office of the former China Banking Regulatory Commission (the “CBRC”) promulgated the Circular on Carrying on Certain Business by Foreign Funded Banks

July 5 The CBRC promulgated the amended Implementation Measures on the Administrative Licensing Items of Domestic Funded Commercial Banks

November 10 The Ministry of Foreign Affairs and the State Council Information Office issued the press release entitled Several Important Consensuses Reached in the Xi-Trump Meeting

December 13 The CBRC issued the press release entitled CBRC Actively and Steadily Push Ahead the Opening-up of the Banking Industry

2018

February 13 The CBRC promulgated the amended Implementation Measures on the Administrative Licensing Items of Foreign Funded Banks

April 27 The CBIRC General Office promulgated the Circular on Matters relating to the Further Relaxation of the Market Access of Foreign Funded Banks

August 17 The CBIRC promulgated the further amended Implementation Measures on the Administrative Licensing Items of Domestic Funded Commercial Banks (the "DFB Implementation Measures")

October 25 The CBIRC, as authorized by the State Council, solicited public comments for the amended Regulations of the PRC on the Administration of Foreign Funded Banks

November 28 The CBIRC solicited public comments on the amended Implementation Rules of the Regulations of the PRC on the Administration of Foreign Funded Banks

2019

May 1 The CBIRC issued the press release entitled Interview with Guo Shuqing on the further Opening-up of the Banking and Insurance Industries

July 20 The Financial Stability and Development Committee of the State Council published 11 measures to promote the further opening of the financial industry (policies known as the "11 measures (国11条)")

September 30 The State Council promulgated the amended Regulations of the PRC on the Administration of Foreign Funded Banks

November 8 The CBIRC solicited public comments on the further amended Implementation Measures on the Administrative Licensing Items of Foreign Funded Banks 

November 29 The CBIRC promulgated the amended Implementation Rules of the Regulations of the PRC on the Administration of Foreign Funded Banks

December 26 The CBIRC promulgated the further amended Implementation Measures on the Administrative Licensing Items of Foreign Funded Banks

December 30 The CBIRC promulgated the Guiding Opinions on Promoting the High-quality Development of the Banking and Insurance Industries

II. Amendment Highlights

The amendments to the Implementation Measures this time focus on implementing and specifying the details of opening-up policies in the banking industry since 2017, streamlining administration and delegating powers, unifying the regulations over the domestic funded banks (the "DF Banks") and foreign funded banks (the "FF Banks"), and reflecting the latest regulatory developments relating to anti-money laundering ("AML") and counter-terrorist finance ("CTF"). The amendment highlights include the following aspects:

1. Implementing and specifying the details of the opening-up policies in the banking industry

The major amendments to the Implementation Measures are targeted at implementing and specifying the opening-up policies in the banking industry since 2017, unifying the rules and requirements under the Implementation Measures with those under the Administration Regulations and Implementation Rules, as well as incorporating the latest policies specified in the previous regulatory documents into the core regulations relating to the administration of the FF Banks.  The major highlights are:

 (1) the sole/major Chinese shareholder of a Sino-foreign joint venture bank (the "JV Bank") is no longer required to be a financial institution;

 (2) the minimum total asset requirement imposed on the foreign shareholder of a wholly foreign owned bank (the "WFOB") or a JV Bank is removed;

 (3) the minimum total asset requirement imposed on the foreign parent bank of a foreign bank PRC branch (the "FB Branch") is removed;

 (4) foreign banks are allowed to maintain the FB Branches and locally incorporated banks (the "FB LIBs", including the WFOBs and JV Banks) in China at the same time but shall ensure the independency between the FB Branches and the FB LIBs;

 (5) the approval requirement which was necessary before conducting the RMB business by an FF Bank is removed and the "waiting period" (i.e. a period of time for which an FF Bank shall open business before applying for conducting the RMB business) for conducting the RMB business is also lifted. However, the prudential requirements remain applicable and each FF Bank is obliged to provide a report on the preparations for the RMB business when submitting the application for business opening.

2. Unifying the regulations over the DF Banks and FF Banks

There is no substantial discrepancy between the businesses which could be conducted by the FB LIBs and those in respect of the DF Banks since the restrictions on the foreign shareholding in the DF Banks are relaxed, and, after the amendment of the Administration Regulations, the business scope of the FB LIBs is in consistent with that of the DF Banks, together with the removal of the approval and the "waiting period" requirements in respect of the FB LIBs' RMB business. 

In order to achieve the uniformity of the regulations over the DF Banks and FF Banks, certain qualification requirements on the Chinese shareholders of the JV Banks are further incorporated into the Implementation Measures, e.g. the profit-making requirement in respect of the latest three consecutive fiscal years and the restrictions on several financial indicators in respect of the non-financial institution shareholders.  Those qualification requirements are in line with those imposed on the shareholders of DF Banks under the DFB Implementation Measures so as to fix the potential regulatory loopholes.

Meanwhile, the Implementation Measures also reflect the requirements on the legitimate source of the capital injected by the foreign shareholders into the FB LIBs and by the parent banks into the FB Branches, and the shareholding structure check in respect of the shareholders of the FB LIBs and the parent banks of the FB Branches, including checking the lists of their major shareholders, controlling person(s) and ultimate beneficial owner(s); the records of any crime committed intentionally or in gross negligence; and the lists of overseas branches and affiliates.

In addition to the above, the Implementation Measures set out the provisions, which are aligned with those prescribed in the DFB Implementation Measures in substance, relating to the establishment of the branch-level specialized departments under the FB LIBs.  The branch-level specialized departments include credit card centers, small enterprise credit centers, private banking departments, bill centers, the treasury operation centers and precious metal business departments.  The establishment of the above departments reflects the business risk isolation requirement recommended by the regulators in recent years.

3. Strengthening the supervision on the AML and CTF compliance 

After the promulgation of the Opinions on Improving the Regulatory Systems and Mechanisms of Anti-money Laundering, Counter-terrorism Financing and Combating Tax Evasion (the "SC Letter No.84") by the General Office of the State Council, a series of measures have been promulgated by the People’s Bank of China (the "PBOC") and the CBIRC to implement the SC Letter No.84 and strengthen the regulation of the AML and CTF compliance in the financial sector.  Against this background, the Implementation Measures prescribe several requirements in relation thereto.  For instance, evidential materials of the AML and CTF compliance shall be submitted upon the application for the establishment of or conducting a new business by the FB LIBs and FB Branches.  Furthermore, the AML and CTF compliance training records and relevant commitment letters are added as the documents required to be submitted for the qualification verifications of the directors and senior management personnel.  These additional requirements intend to reflect the tightened and enhanced regulatory requirements on the AML and CTF compliance imposed by the PBOC and CBIRC.

4. Delegating approval powers to the lower-level authorities

In response to the trend of administration streamlining, power delegation, and business environment optimization, some approval and/or verification powers are delegated to the local CBIRC branches or sub-branches in accordance with the Implementation Measures.  For example, the acceptance and approval of the qualification verification application relating to the directors and certain senior management personnel of certain FF Banks may be obtained from the local CBIRC branches or sub-branches (as the case may be).

In addition, in the trend of optimizing government services and strengthening data sharing, in order to avoid the duplicated provision of the application documents that could be obtained by the authority through data sharing, the Implementation Measures further simplify certain application document requirements under some administrative licensing items, e.g. the opinion on passing the business opening inspection (开业验收合格意见书) is no longer required in respect of the FB LIBs’ application for the business opening, and the copy of the business license is no longer required in respect of the FB LIBs’ application for the establishment of any branch or branch-level specialized department.

III. Our Observations

After the amendment of the Implementation Measures, the Administration Regulations and the Implementation Rules, together with the Implementation Measures, have generally implemented the opening-up policies in the banking industry since 2017, with details specified in several aspects in relation thereto.

The Implementation Measures also explicitly emphasize that the special rules applicable in the free trade zones shall prevail and reserve the room for the CBIRC to adjust the acceptance, verification and decision-making authorities of each administrative licensing item if needed.  These provisions are interpreted as leaving flexibilities for the further steps on streamlining administration and delegating powers. 

The amendments to the three core regulations relating to the administration of the FF Banks set out a great business environment for FF Banks to cooperate and compete with the DF Banks and will, as a result, promote the stable development of the financial market.


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