How to Set-up a QFII Custodian Business

Regarding materials to be submitted by Sino Banks, it is stipulated in the Circular that they shall submit those documents required in accordance with Article 16 of the Commercial Bank Intermediary Services Tentative Provisions, i.e., the application for carrying out such business, the feasibility study report and others.

Non-Sino Banks

In comparison with their Sino Bank colleagues, the Non-Sino Banks must meet more legal requirements and face more restrictions relating to the application. For example, the Circular states that in relation to a foreign bank with branches in China, only one of its branches may carry out the custodian business of domestic securities investments by qualified foreign institutional investors, while for a wholly foreign-owned bank or a joint venture bank in China that intends to make the application, only their head offices are allowed to do so. Furthermore, in the examination and approval procedure, a Non-Sino Bank is supposed to submit to the local PBOC branch their documentary materials for application purpose in triplicate to the local branch of the PBOC. Following approval by such branch, the application will be reported all the way to the PBOC's head office for final examination and approval.

In addition to the above and compared with those to be prepared by the Sino Banks, additional documentary materials are required for a Non-Sino Bank to make the application.

If the relevant application is signed by a signatory authorized by its head bank and who happens to be the chairperson of the board or the president (a chief executive officer or general manager are also acceptable), a power of attorney is not required. If the signatory does not hold such a position, a power of attorney is not only necessary but shall also be notarized by the institution approved by the state or region where the signatory holds his/her current position, or authenticated by the Chinese consulate or embassy in such state, or notarized by the local city notary public office within China. As an exception, in the event that the signatory now holds his/her position in China and the authorized competence in such power of attorney is identical with what was previously approved by PBOC with regard to his/her undertaking such position, the signatory is allowed to provide a photocopy of the power of attorney then approved by the PBOC, which however he or she must also sign.

A detailed introduction must also be submitted regarding the proposed business and a description of essential preparations that have been conducted, inter alia, the operational rules, risk analysis, control measures, professional personnel and configuration of computer systems.

Approval: Only the First Step

Since, in essence, procuring the PBOC's permission only means that such a commercial bank is permitted to conduct a new kind of intermediary business, it is unnecessary to change the financial business licence or make a public announcement. However, completion of all of the foregoing procedures is just the first step, after which the commercial banks are entitled to further apply to the China Securities Regulatory Commission for the custodianship by virtue of approval from the PBOC in accordance with the QFII Tentative Procedures.

By Mao Baigen & Roland Sun

Pu Dong Law Office,

Shanghai