Interpretation of Paragraph One of Article 294 of the «PRC, Criminal Law»

Intermediary services that do not require examination and approval or record filing by the People's Bank of China (PBOC) may be launched by a commercial bank upon submitting a prior written report thereon to the PBOC, without the need for a reply from the PBOC.

After receipt of a report from the (sub-)branch of a commercial bank, the PBOC shall carry out the necessary examination thereof. The PBOC has the power to appropriately punish, pursuant to Article 26 of the Provisions, the (sub-)branches of commercial banks that offer new intermediary services without submitting a prior report thereon to the PBOC.

(2) Reporting Method

When a commercial bank applies to offer new intermediary service products, it may refer to the Commercial Bank Intermediary Service Reference Classification and Definitions (see Annex 1) and apply to offer services at the second tier or apply to offer a specific service product. For example, if a commercial bank wishes to offer "foreign exchange option services" it may apply for "option services", which category encompasses "foreign exchange option services", or apply for "foreign exchange option services" only, but it may not apply to offer services at the first tier, "trading-type intermediary services". If a commercial bank applies to offer services at the second tier, it shall formulate comprehensive rules and regulations for services at such tier, list in detail the specific service products included and formulate the sequential steps involved in the provision of the different service products.

In the case of applications by commercial banks for intermediary services at the second tier, the regulatory department of the PBOC shall indicate on the approval document the specific service products approved under the applied for category and may, depending on the complexity of the services, appropriately lengthen the duration of the examination, provided that such duration does not exceed 45 working days.

If after examination by, and the approval of, the PBOC of its second tier intermediary service application a commercial bank wishes to offer additional intermediary service products in the same category, it may do so upon notifying the PBOC to that effect, without the need for a reply from the PBOC.

(3) Format of Approval

Responses to commercial banks applying to offer intermediary services governed by the record filing system shall henceforth uniformly be made using a "Notice of Record Filing", which shall be dispatched after the regulatory department of the PBOC affixes its official seal thereto.

For applications to offer intermediary services governed by the examination and approval system, the PBOC shall continue to issue official written replies to commercial banks.

2. All Commercial Banks Shall Screen and Classify the Intermediary Services That They Are Currently Offering

In order to strengthen the administration of intermediary services, the regulatory department of the PBOC shall urge all commercial banks to comprehensively screen and clearly classify, in accordance with the Provisions, the intermediary services that they currently offer.

Pursuant to Article 3 of the Provisions, the term "intermediary services" means services that do not appear as assets or liabilities on a commercial bank's balance sheet and that generate non-interest revenue for such bank. Based on those characteristics, intermediary services can be divided into nine broad categories:

(1) payment- and settlement-type intermediary services, including domestic and international settlement services;

(2) bank card services, including credit card and debit card services;

(3) agency-type intermediary services, including securities agency services, insurance agency services, acting as ordering, paying or collecting bank for financial institutions, etc.;

(4) security-type intermediary services, including banker's acceptance bills, standby letters of credit, various types of bank guarantees, etc.;

(5) commitment-type intermediary services, mainly including loan commitment services;

(6) trading-type intermediary services, e.g. forward exchange contracts, financial futures, swaps, options, etc.;

(7) fund custody services, e.g. closed-end or open-ended investment fund custody services;

(8) consultancy and advisory services, e.g. information consultancy, financial advice, etc.; and

(9) other types of intermediary services, e.g. safety deposit box services, etc.

(See Annex 1 for a detailed classification and definitions.)

Commercial banks shall screen and classify their current intermediary services in accordance with the foregoing classification and, upon completion of screening and classification, report their current intermediary service products and basic information on such services to the PBOC in a timely manner. Alternatively, commercial banks may formulate their own methods of classifying and categorizing their intermediary services and provide an explanation thereof in the report submitted to the PBOC.

While screening their existing intermediary services, commercial banks shall appropriately classify those intermediary services that they have launched without the consent of the PBOC, and, pursuant to the Provisions, consolidate the information thereon in a single report to the head office, branch or business management department of the PBOC to carry out approval procedures ex post facto. No submission is required for those intermediary services that commercial banks have launched with the approval of the PBOC.

3. Strict Control of Securities Agency Services Offered by Commercial Banks

The term "securities agency services" means the business of a bank to offer, cash, buy or sell negotiable securities as agent for a client upon engagement, and further includes such services as acting on behalf of the client to repay the principal of, and pay interest on, bonds, distribute share dividends, clear securities monies, etc. For the purposes of this Circular, the term "negotiable securities" mainly includes treasury bonds, corporate bonds, financial bonds, stocks, etc.

By nature, the provision of securities agency services by a commercial bank involves its acceptance of its appointment as an agent. Accordingly, the commercial bank and the client shall enter into a service agreement clarifying their obligations and responsibilities. The commercial bank is neither the issuer nor the buyer/seller of the negotiable securities and is merely responsible for handling such matters as offering the negotiable securities, collecting payment, paying interest, effecting fund transfers between accounts, etc. on an agency basis, for which it charges a commission. It is not liable for fund transaction losses, repaying principal and paying interest, etc.

According to Articles 7 and 8 of the Provisions, securities agency services other than the offering, cashing and distributing of government bonds on an agency basis are governed by the examination and approval system. Commercial banks are currently prohibited from offering agency services in the purchasing and selling of stocks, so as to avoid bank funds flowing into the stock market in violation of these Provisions.

4. Commercial Banks Shall Strengthen Risk Management and Establish a System for the Regular Reporting of Their Intermediary Services

Regulatory departments of the PBOC at all levels shall be fully cognizant of the risks involved in intermediary services, and urge commercial banks to establish mechanisms to recognize, monitor and control intermediary service risks, clarify management responsibilities and promote the steady development of intermediary services.

Additionally, a system for regular reports on the intermediary services of commercial banks shall be established:

(1) using the format of the Statistical Table on the Basic Information Concerning Intermediary Services, commercial banks shall submit to the regulatory and statistics departments of the PBOC by April 10, July 10 and October 10 each year information on the intermediary services offered during the preceding quarter; submit by January10 each year information on the intermediary services offered during the fourth quarter of the preceding year, and submit by January 20 each year information on the intermediary services offered during the entire preceding year;

(2) commercial banks shall submit, at the beginning of each year, a report summing up basic information concerning the intermediary services offered during the preceding year, existing problems and development plans for the current year to the regulatory department of the PBOC.

Commercial banks shall commence reporting information on their intermediary services to the PBOC from the first quarter of 2002.

5. Rural Credit Cooperatives and Urban Credit Cooperatives May Offer Intermediary Services and the Same Shall be Handled by Reference to the Provisions

(1) Procedure for the application by rural credit cooperatives to offer intermediary services

(a) If a rural credit cooperative wishes to launch bank card services, security-type intermediary services, trading-type intermediary services and/or fund custody services, the application shall be centrally submitted to the head office of the PBOC by the federation to which it belongs. After examination by, and the approval of, the PBOC, the rural cooperative shall be centrally authorized to launch the services by the federation to which it belongs.

(b) If a rural credit cooperative wishes to launch other intermediary service products, the application shall be centrally submitted to the PBOC branch or business management department by the federation to which it belongs. After examination by, and the approval of, such branch or business management department, the rural cooperative shall be centrally authorized to launch the services by the federation to which it belongs.

(c) Before a rural credit cooperative authorized to offer intermediary services formally commences to do so, the federation to which it belongs shall report the products and features of the services to be launched to the competent local PBOC branch.

(d) Federations of rural credit cooperatives shall formulate measures for authorizing rural credit cooperatives to offer intermediary services and submit the same to the PBOC for the record.

(2) If an urban credit cooperative wishes to offer intermediary services, it shall apply to the PBOC branch or business management department. It may only commence to offer such services after examination by, and the approval of, the PBOC branch or business management department. The PBOC branch or business management department may, as required, authorize a central sub-branch under its authority to take charge of overseeing the granting of market access to urban credit cooperatives for some or all of their intermediary services.

6. The System and Procedure for Granting Market Access to the Intermediary Services of Policy Banks Shall be Handled by Reference to Those Requirements of the Provisions that Govern Wholly State-owned Commercial Banks. The Scope of the Intermediary Services That May Be Offered will be Formulated Separately

Branches and business management departments of the PBOC are requested to promptly transmit this document to the rural credit cooperatives and urban credit cooperatives in their jurisdictions after the receipt hereof.

Annex 1

Commercial Bank Intermediary Service Reference Classification and Definitions

The intermediary services offered by commercial banks may be broadly classified into the following nine categories:

1. Payment- and settlement-type intermediary services

The term "payment- and settlement-type intermediary services" means the services relating to the payment of monies and transfer of funds arising from claim and debt relationships that commercial banks provide to their clients for a fee.

(1) Settlement instruments. The main instruments used in settlement services include banker's bills of exchange, commercial bills of exchange, banker's promissory notes and cheques.

(a) A banker's bill of exchange is a negotiable instrument signed and issued by the issuing bank under which it agrees to pay unconditionally at sight the actual settlement amount to the payee or bearer.

(b) A commercial bill of exchange is a negotiable instrument signed and issued by the drawer ordering the drawee to pay unconditionally on a fixed date a sum certain in money to the payee or bearer. Commercial bills of exchange are divided into banker's acceptance and commercial acceptance bills of exchange.

(c) A banker's promissory note is a negotiable instrument signed and issued by a bank, engaging it to pay unconditionally at sight a certain sum to the payee or bearer.

(d) A cheque is a negotiable instrument signed and issued by the drawer ordering a bank handling cheque deposits to pay unconditionally at sight a certain sum to the payee or bearer.

(2) Method of settlement, mainly including settlement within the same city and settlement in a different location.

(a) Remittance is a settlement operation whereby the payor orders the bank to transfer an amount to a payee in a different place. Settlement by remittance is divided into telegraphic transfer, mail transfer and remittance by postal order or bank draft.

(b) Collection is a settlement method whereby the creditor or seller draws a bill of exchange on a debtor or buyer located in a different place in order to collect money therefrom, and instructs a bank to collect the payment on his behalf.

(c) A letter of credit is a written security instrument issued to the beneficiary by a bank as requested and instructed by the applicant, which instrument indicates a certain sum within a specified period of time at a designated place upon presentation of the prescribed documents.

(3) Other payment and settlement services, including such services as fund transfer and settlement effected through modern payment systems, account transfers effected through the bank's internal network or external banking networks, etc.

2. Bank card services

Bank cards are credit payment instruments issued to the public by authorized financial institutions (mainly commercial banks) that have all or some of the following functions: consumer credit, settlement by account transfer, depositing and withdrawing of cash, etc. In general, bank card services may be classified as follows:

(1) Depending on the method of payment, bank cards may be divided into credit cards, credit cards requiring security deposits and debit cards. Debit cards may be further divided into account transfer cards, dedicated cards and stored-value cards.

(2) Depending on the settlement currency, bank cards may be divided into renminbi cards and foreign currency cards.

(3) Depending on the user, bank cards may be divided into work unit cards and personal cards.

(4) Depending on the carrier material, bank cards may be divided into magnetic cards and smart cards (IC cards).

(5) Depending on the credit standing of the user, bank cards may be divided into gold cards and ordinary cards.

(6) Depending on the area of circulation, bank cards may be divided into international cards and local cards.

(7) Other classification methods, including co-branded cards/affinity cards jointly issued by commercial banks and for-profit organizations or non-profit organizations.

3. Agency-type intermediary services

The term "agency-type intermediary services" means a commercial bank's business of handling designated economic matters and providing financial services on behalf of a client upon engagement by such client, for which the bank charges a certain fee. Such services include policy bank agency services, PBOC agency services, commercial bank agency services, collection and payment agency services, securities agency services, insurance agency services, bill collection services for the bank cards of other banks, etc.

(1) Policy bank agency services, being a commercial bank's handling, upon engagement by a policy bank, of business that the policy bank is unable to handle due to the restrictions placed on it in terms of service functions and the establishment of service points, including the management of loan projects on an agency basis.

(2) PBOC agency services, being services that, pursuant to policies, laws or regulations, are to be provided by the central bank but that, due to reasons of departmental structure, professional dominance, etc. are handled by a commercial bank designated or appointed by the central bank, and mainly include financial deposit agency services, national treasury agency services, issue vault agency services, gold and silver agency services, etc.

(3) Commercial bank agency services, being mutual agency services between commercial banks, e.g. such services as cheque collection for instructing banks, etc.

(4) Collection and payment services, being a commercial bank's services of collecting and paying designated sums of money using its own settlement facilities on behalf of a client upon engagement by such client, e.g. acting as an agent for various utility charges, administrative charges and fiscal impositions, acting as an agent in the payment of wages, acting as an agent in the deduction of amounts for the repayment of housing mortgages and consumer loans, etc.

(5) Securities agency services, being a bank's services of acting as agent in the offering, cashing, purchasing and selling of negotiable instruments upon engagement by clients and further includes such services as acting on behalf of clients to repay the principal of, and pay interest on, bonds, distribute share dividends, clear securities monies, etc. after having been entrusted with doing so. As used here, the term "negotiable securities" mainly includes treasury bonds, corporate bonds, financial bonds, stocks, etc.

(6) Insurance agency services, being a commercial bank's services of acting as an agent of insurance companies in handling insurance business upon engagement by such companies. When providing insurance agency services, a commercial bank may, upon engagement, act on behalf of individuals or legal persons in obtaining various types of insurance coverage or act as a representative of an insurance company in accepting relevant insurance business under an agency contract executed with such company. In general, insurance agency services include selling insurance policies or paying insurance monies on an agency basis.

(7) Other agency services, including acting on behalf of the client in financial entrustment, acting on behalf of another bank in the collection of bank card bills, etc.

4. Security-type intermediary services

The term "security-type intermediary services" means a commercial bank's services of providing security in respect of the debt repayment capability of clients and bearing clients' breach of contract risks. Such services mainly include banker's acceptance bills, standby letters of credit, various types of guarantees, etc.

(1) Banker's acceptance bills, being commercial bills of exchange issued and signed by the payee or the payor (or the acceptance applicant) for which the acceptance applicant applies to his bank for acceptance and which are subject to the examination and approval of the bank before acceptance.

(2) Standby letters of credit, being a special type of letter of credit issued by a bank at the request of the borrower with the lender as the beneficiary thereof. They serve as a guarantee that in the event the borrower goes bankrupt or is unable to perform his obligations in a timely manner, the issuing bank will repay the principal of the loan and pay the interest thereon to the beneficiary in a timely manner.

(3) Various types of guarantee services, including tender guarantees, contracting guarantees, repayment guarantees, loan guarantees, etc.

(4) Other guarantee services.

5. Commitment-type intermediary services

The term "commitment-type intermediary services" means a commercial bank's services of providing agreed upon credit to clients on pre-agreed terms at a certain future date. Such services mainly involve loan commitments, including revocable and irrevocable commitments.

(1) Revocable commitments are subject to specific terms that the client is required to perform before obtaining the loan. If he fails to do so within the term committed to by the bank, the bank may revoke its commitment. Revocable commitments include overdraft lines, etc.

(2) Irrevocable commitments are legally binding loan commitments that banks cannot arbitrarily revoke without the permission of the client and include standby lines of credit, repurchase agreements, note issuance facilities, etc.

6. Trading-type intermediary services

The term "trading-type intermediary services" means fund trading activities conducted by a commercial bank using various financial instruments to satisfy the hedging requirements of clients or its own risk management requirements, etc. and mainly include financial derivatives businesses.

(1) Forward contracts, a forward contract being a commitment between the two parties to the transaction to sell and purchase an agreed upon quantity of assets at a specific future time at an agreed upon price. Such contracts include interest rate forward contracts and forward exchange contracts.

(2) Financial futures, a financial future being a futures contract with a financial instrument or a financial index as its subject matter.

(3) Swaps, a swap being an exchange between the parties to the transaction of their respective cash flows based on their comparative advantages. Swaps are generally divided into interest rate swaps and currency swaps.

(4) Options, an option being a right, acquired by the buyer of the option through payment of a premium to the seller, to conduct a transaction with the option seller in respect of a specific subject matter of an agreed upon quantity at the strike price during the term of the option or on the date the option matures. Depending on the subject matter of the transaction, options may be divided into stock index options, foreign exchange options, interest rate options, futures options, bond options, etc.

7. Fund custody services

The term "fund custody services" means the acceptance by a commercial bank with custodial qualifications of a commission from a fund management company to safeguard all of the assets in the entrusted fund, to handle for the entrusted fund the transfer of cleared amounts of fund monies, to handle the accounting of the fund, to appraise the value of the fund and to supervise the investments and operations by the manager. Fund custody services include custody services associated with the entrusted closed-end securities investment funds, open-ended securities investment funds and other funds.

8. Consultancy and advisory services

The term "consultancy and advisory services" means service activities wherein a commercial bank, relying on its own advantages in terms of information, personnel, reputation, etc., collects and organizes relevant information, which it provides to clients in order to fulfil their business operation and management or developmental requirements after it has recorded and analyzed both such information and bank and client capital movements and packaged the same into systematized materials and solutions.

(1) Corporate information consultancy services, including project appraisal, corporate credit rating, verification of enterprises' registered capital, certification of creditworthiness, enterprise management consultancy, etc.

(2) Asset management advisory services, being the provision of comprehensive asset management services to institutional or individual investors and including portfolio recommendations, investment analysis, tax services, provision of information, risk control, etc.

(3) Financial advisory services, including financial advisory services for large construction projects and corporate merger and acquisition advisory services. The phrase "financial advisory services for large construction projects" means a commercial bank's presentation of professional proposals for financing structures and financing arrangements for large construction projects. The term "corporate merger and acquisition advisory services" means a commercial bank's provision of financial advisory services to the parties involved in corporate mergers and acquisitions, whereby the bank not only participates in the corporate merger or acquisition processes but also, as advisor on enterprises' continued growth, participates in the planning and implementation of corporate reorganization, capital replenishment and re-verification, restructuring of bankrupt and troubled companies, etc.

(4) Cash management services, being the assistance given by a commercial bank to enterprises concerning the rational management of funds available in cash accounts and current deposit balances with the objective of increasing fund liquidity and improving the efficient use of funds.

9. Other types of intermediary services

Including safety deposit box services and other services that cannot be classified in the foregoing eight categories.