By:Chen Yun, Wang Rong
On October 15, 2019, the State Council published an order ("Order No.720") to amend the Regulation of the PRC on the Administration of Foreign-Funded Insurance Companies (《中华人民共和国外资保险公司管理条例》) and the Regulation of the PRC on the Administration of Foreign-Funded Banks (《中华人民共和国外资银行管理条例》).
The Order No.720 intends to further open the financial market to the foreign investors and finalise the amendments purported to be made in the consultation paper in late October 2018The major measures include:
(1) In respect of the insurance sector:
a) the requirement that a foreign insurance company shall be engaged in the insurance business for more than 30 years when applying for the establishment of a foreign-funded insurance company ("FFIC") is removed;
b) the requirement that a foreign insurance company shall establish a representative office in the PRC and operate for more than 2 years before applying for the establishment of an FFIC is removed;
c) foreign insurance group companies are explicitly permitted to establish FFICs; and
d) foreign financial institutions are allowed to invest in the FFICs.
(2) In respect of the banking sector:
a) the sole / major Chinese shareholder of a joint venture bank ("JV Bank") is no longer required to be a financial institution;
b) the minimum USD 10 billion total asset requirement on each foreign shareholder of a wholly foreign owned bank ("WFOB") or a JV Bank is removed, and the minimum USD 20 billion total asset requirement on each foreign shareholder of a foreign bank PRC branch ("FB Branch") is removed;
c) foreign banks are allowed to maintain FB Branches and locally incorporated banks ("FB LIBs", including WFOBs and JV Banks) in China at the same time;
d) the business scope of foreign funded banks ("FF Banks", including WFOBs, JV Banks and FB Branches) is expanded and there is no discrepancy between the business scope of FB LIBs and that of domestic-funded banks;
e) the minimum amount required for FB Branches to accept the fixed term deposit from Chinese citizens is lowered from RMB 1 million to RMB 0.5 million;
f) the approval and licencing 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 (for the avoidance of doubt, the prudential requirements remain applicable); and
g) the operating funds requirements for FB Branches are relaxed.
A few days before the publication of the Order No.720, the China Securities Regulatory Commission (the "CSRC") issued two notices, and the timetable for the opening-up in the securities, futures and fund management sectors is laid down:
(1) in respect of the securities sector: after December 1, 2020, foreign investors are allowed to 100% own the securities companies;
(2) in respect of the fund management sector: after April 1, 2020, foreign investors are allowed to 100% own the fund management companies; and
(3) in respect of the futures sector: after January 1, 2020, foreign investors are allowed to 100% own the futures companies.
The opening-up measures generally reflect the opening-up policies mentioned in the 11 measures issued by the general office of the State Council in July, 2019 (policy known as the "11 measures (国11条)") and the 12 policies indicated by Guo Shuqing in a press release in May, 2019.
Amongst all the opening-up policies, a further significant step is to remove the approval and licencing requirement which was necessary before conducting the RMB business by FB Branches and FB LIBs. With the same business scope as the domestic-funded banks and the capability in the RMB business, FB LIBs would obtain the equal business opportunities in the Chinese market and it would be a great chance for FB LIBs to expand their RMB retail business and wealth management business. In addition, with the globally recognised brand and well-developed experience, FF Banks would obtain advantages in exploring further market shares.
Meanwhile, as the foreign shareholding restrictions are to be removed, and the wealth management market is facing a turning point due to the implementation of the strict asset management rules and the massive defaults of the high yield investment products with the said "low" risks (which has proved to be high), Chinese clients with soaring wealth are eager to seek for appropriate investment products, and as a result, it is a great opportunity for foreign investors to present and expand comprehensive financial services through various wholly owned financial institutions to Chinese clients.
With abundant experience of assisting foreign funded financial institutions in setting up their PRC presences, carrying on their business in compliance with the law, exploring new business boundaries and seeking business cooperation, King & Wood Mallesons is right here standing by to hold your hands crossing the jungle!