This article was written by Chen Yun (Robert)(Partner), Wang Rong(Managing Associate) and Chai Beibei (Assistant).
On February 13, 2018, the China Banking Regulatory Commission (the “CBRC”) promulgated the “Decision on Amending the CBRC’s Implementation Measures for the Administrative Licensing Matters of Foreign-Invested Banks” (CBRC Order 2018 No. 3, the “Order No.3”). Following a series of regulations and policies relating to opening-up of the banking industry issued in 2017 (the “2017 Regulations and Policies”), the Order No.3 is considered to be a significant step for the purpose of implementing the general principles in further relaxing foreign restrictions in the Chinese banking sector by streamlining administrative procedures while simultaneously delegating additional powers to lower-level regulatory authorities.
Timeline of Regulations and Policies
Since 2017, there have been several regulations and policies promulgated with the aim of opening-up the PRC’s banking industry:
The following major administrative licensing requirements for foreign-invested banks were further simplified and relaxed by the Order No.3:
1. Further clarifications and specific implementation procedures for the opening-up of the 2017 Regulations and Policies:
- setting out in detail the administrative licensing framework, procedures and application materials for the establishment of, or investment in, PRC incorporated banks by locally incorporated foreign invested banks;
- removing the requirement for CBRC approval for the custody services provided to securities funds by locally incorporated foreign-invested banks, and substituting this with a reporting regime; and
- removing the CBRC approval requirement for the custody services provided to the overseas wealth management products issued by banks for and on behalf of customers by the foreign-invested banks (including the locally incorporated foreign-invested banks and foreign bank PRC branches), and substituting this with a reporting regime.
2. On top of the 2017 regulations and policies, taking additional steps to increase expansion to the banking sector:
- removing the requirement for CBRC approval for overseas wealth management products issued for and on behalf of customers by foreign-invested banks, and substituting it by a reporting requirement;
- removing the CBRC approval requirement for the withdrawal of interest-earning assets by the closed foreign bank PRC branches after obtaining the approval for closure and the full repayment of all obligations, and substituting it by a reporting requirement; and
- for the first time, Order No. 3 allows for locally incorporated foreign-invested banks to establish or invest in non-banking financial institutions which are regulated by the CBRC.
3. to the greatest extent possible, providing the same market access standards for foreign-invested banks as compared with domestic-funded banks:
- as far as a sub-branch of a locally incorporated foreign-invested bank is concerned, consolidating the initial approval procedures for the preparatory work as well as the approval for the business commencement into a single approval requirement;
- optimizing conditions for the raising and issuance of debt and capital supplement instruments by locally incorporated foreign-invested banks; and
- further simplification of the qualification and verification procedures for the appointment of a foreign-invested bank’s senior management personnel. This removes the previous verification requirements for already verified management personnel appointed to a new position in the same or similar foreign-invested bank, provided that a document filing requirement is complied with. Additional requirements include appointment needing to be an equivalent or less senior level of management, and that the candidate has not been suspended from taking a management position for any consecutive period of more than one year.
Competition and Opportunities
Since their entry into the PRC financial market, foreign-invested banks have been conducting business operations with a robust and prudent risk appetite (from a legal and compliance perspective). This has in turn promoted the compliance-based development of the PRC’s overall financial market. However, foreign-invested banks are also facing increased competition against domestic-funded banks with aggressive risk appetites. As a result, foreign-invested banks have had relatively slow growth and a small market share. The further expansion and opening-up of market access is expected to provide increased opportunities for foreign-invested banks to develop their PRC businesses, build and strengthen a compliance culture in the banking industry and promote further compliance-based development of the PRC financial market.