Measures for the Administration of Pilot Money Brokers

Article 2: For the purposes of these Measures, the term 'money broker' means a non-bank financial institution established in China after approval that specializes in the provision of such brokerage services as facilitating financing and foreign exchange transactions between financial institutions, etc. through the use of electronic technology or other means, and for which it receives a commission.

Article 3: When doing business, money brokers must abide by the laws and administrative regulations of the People's Republic of China and may not prejudice the public interest of the People's Republic of China.

Article 4: The China Banking Regulatory Commission will oversee money brokers. Money brokers that engage in such brokerage activities as inter-bank borrowing, purchase and sale of bonds and foreign exchange transactions on the inter-bank market shall additionally be subject to the oversight and inspection of the People's Bank of China and the State Administration of Foreign Exchange. If a money broker's business involves matters relating to foreign exchange control, it shall implement the relevant provisions of the state foreign exchange control department and be subject to the oversight and inspection of the state foreign exchange control department.

PART TWO: ESTABLISHMENT, CHANGE AND TERMINATION OF MONEY BROKERS

Article 5: The establishment of money brokers shall be subject to the approval of the China Banking Regulatory Commission. Without approval, no work unit or natural person may establish a money broker or engage in the money brokerage business in another guise, nor may it use or use in another guise the words "money broker" in its name.

Article 6: When approving the application for the establishment of a money broker, the China Banking Regulatory Commission shall fully take into consideration the state of competition in and development of China's foreign exchange market, money market, capital markets and derivatives market and shall solicit the opinions of the relevant regulatory departments.

Article 7: An investor from abroad that applies to establish in China a wholly-owned money broker or a money broker with a Chinese equity joint venture partner must satisfy the following conditions:

(1) it is a lawfully established money broker in the country or region where it is located;

(2) it has engaged in the money brokerage business for at least 20 years, its operations are stable and it has sound internal control systems;

(3) it has a good creditworthiness rating and has no record of a major violation of laws or regulations;

(4) it has been profitable for the three consecutive years prior to the application and has had after-tax net earnings of not less than US$5 million in each of those years;

(5) it has the global network of establishments and the communications network required to provide money brokerage services;

(6) it has had a representative office in China for at least two years;

(7) the country or region where it is located has a sound financial regulatory system, the applicant is subject to the effective regulation of the relevant authorities in the country or region where it is located and the regulatory authority has executed a memorandum of regulation with the China Banking Regulatory Commission; and

(8) it satisfies other prudential conditions specified by the China Banking Regulatory Commission.

Article 8: A Chinese investor that applies to establish a money broker or to establish one with a foreign equity joint venture partner must satisfy the following conditions:

(1) it is a non-bank financial institution established in accordance with the law;

(2) it has engaged in money market, foreign exchange market or other such agency business for at least five years;

(3) its operations are stable and it has sound internal control systems;

(4) it has a good creditworthiness rating and has no record of a major violation of laws or regulations;

(5) it has been profitable for the three consecutive years prior to the application; and

(6) it satisfies other prudential conditions specified by the China Banking Regulatory Commission.

Article 9: The money broker to be established shall satisfy the following conditions:

(1) having the minimum registered capital that satisfies the requirements of these Measures;

(2) having articles of association that comply with the requirements of such relevant laws as the PRC Company Law and these Measures;

(3) having senior management personnel who are familiar with money brokerage and related business;

(4) having a sound organizational structure, management system and risk control system;

(5) having a place of business, security facilities and measures appropriate for the operation of its business; and

(6) satisfying other prudential conditions specified by the China Banking Regulatory Commission.

Article 10: The establishment of a money broker and its branches must pass through the two stages of preparation for establishment and commencement of business. Documents written in Chinese shall prevail in respect of the information submitted by an applicant when applying for preparation for establishment and for commencement of business.

Article 11: The minimum registered capital of a money broker shall be Rmb20 million or the equivalent in a freely convertible currency and such registered capital shall be paid in monetary capital.

The China Banking Regulatory Commission may adjust the minimum registered capital based on the development of the money brokerage business and the requirements of prudential regulation, provided however that such adjusted amount may not be less than the minimum specified in the preceding paragraph.

Article 12: The banking regulatory bureau of the place where a money broker is to be established shall be the authority that examines the application to establish the broker and its branches, whereas the China Banking Regulatory Commission shall be the authority that approves the application to establish the broker and its branches.

Article 13: The written application for the preparation for establishment of a money broker and the materials set forth below shall be submitted to the China Banking Regulatory Commission by the investor accounting for the largest investment percentage:

(1) an application for the establishment of a wholly-owned or equity joint venture money broker signed by the legal representatives of the investors, which shall include the name, registered address and registered capital of the proposed money broker, the percentages of the capital contributions of the investors, the money broker's scope of business, etc.;

(2) a feasibility study;

(3) the articles of association of the proposed money broker;

(4) the business licence (duplicate) or a photocopy of the company registration document of each investor issued by the regulatory authority of the country or region where it is located;

(5) opinions issued by the regulatory authorities or industry associations of the countries or regions where the investors are located;

(6) the basic particulars of the investors;

(7) accounting statements for the most recent three years audited by a qualified accounting firm or certified by the competent state department;

(8) the agreement, undertaking or contract executed by the parties to the joint venture;

(9) statements issued by the legal representatives of the contributors of capital as to the authenticity of the application materials; and

(10) other information that the China Banking Regulatory Commission requires be submitted.

With the exception of those in Items (4), (5), (6) and (7), all the materials specified in this Article shall be Chinese language versions; Chinese versions of those in Items (4), (5), (6) and (7) shall be submitted and, in the event of a conflict, the Chinese version shall prevail. The "business licence or company registration document" of an investor from abroad must be notarized by a notary public recognized by the country or region where the investor is located, or certified by the Chinese embassy or consulate in such country.

Article 14: The bank regulatory bureau shall complete the information integrity examination within five working days of receipt of the application information for the preparation for establishment. If the application information is found to be incomplete or not compliant with the format specified in these Measures, the bank regulatory bureau shall notify the applicant once in writing as to all the missing information it is to provide. The applicant shall submit such missing application information. The bank regulatory bureau shall accept application information that is complete and compliant with the specified format and notify the applicant thereof in writing within five working days. The bank regulatory bureau shall complete the preliminary examination within 20 working days and forward the materials to the China Banking Regulatory Commission.

The China Banking Regulatory Commission shall render its written decision on whether to approve the preparation for establishment within four months of receipt of the complete application materials for the preparation for establishment.

Article 15: The preparatory period for the establishment of a money broker and its branches shall be six months from the date of receipt of the approval document from the China Banking Regulatory Commission.

If the preparations are not completed within the prescribed period, such period may, if there is a valid reason therefor, be extended for three months subject to the approval of the China Banking Regulatory Commission. If the preparatory work remains incomplete after the extension, the approval document from the China Banking Regulatory Commission shall automatically become void.

During the preparatory period, business activities may not be engaged in in the name of the money broker or its branch.

Article 16: The applicant shall have raised in full its paid in capital within 30 working days of the date of receipt of the preparation approval document from the China Banking Regulatory Commission and deposit the same in the specified account in China. A qualified accounting firm shall verify the same and issue a capital verification report. During the capital verification period, the account may only be used to accept deposits and may not be used to make payments.

Article 17: Prior to the expiration of the preparatory period for establishment or the expiration of the extension of such period, the applicant shall submit an application for the commencement of business and the following documents and information to the China Banking Regulatory Commission:

(1) a report on the completion of the preparatory work and an application to commence business;

(2) the capital verification certificate issued by the statutory capital verification institution in China and the registration certificate for the preliminary approval of the name of the proposed institution issued by the administration for industry and commerce;

(3) the articles of association of the money broker;

(4) a list of the names of the proposed senior management personnel, their résumés and proof of their qualifications for their positions;

(5) the names of the shareholders and the amounts of their capital contributions;

(6) the rules and regulations for the business that the money broker is to engage in and its internal risk control systems;

(7) a report on the security testing of its business premises, equipment and systems;

(8) statements issued by the legal representatives of the contributors of capital as to the authenticity of the application materials; and

(9) other documents that the China Banking Regulatory Commission requires be submitted.

Article 18: The bank regulatory bureau shall complete the information integrity examination within five working days of receipt of the application information for the commencement of business. The bank regulatory bureau shall accept application information that is complete and compliant with the specified format and notify the applicant thereof in writing within five working days. The bank regulatory bureau shall complete the preliminary examination of the materials within 20 working days and forward the materials to the China Banking Regulatory Commission.

The China Banking Regulatory Commission shall render its decision on whether to approve the commencement of business within two months of formally accepting the application to commence business. The China Banking Regulatory Commission shall issue a finance permit to money brokers whose establishment it approves and shall announce the same. If it rejects an application, it shall notify the applicant thereof in writing and explain the reason therefor.

The applicant shall carry out registration procedures with the administration for industry and commerce on the strength of the finance permit, but may only commence operations after receiving its Enterprise Legal Person Business Licence.

Article 19: A money broker whose commencement of business has been approved must publish an announcement in the media designated by the China Banking Regulatory Commission within 30 days of the date of collecting its business licence.

Article 20: As required by its business and subject to the examination and approval of the China Banking Regulatory Commission, a money broker may establish branches in regions where the volume of business is relatively large.

The branches of a money broker shall not have legal personality and their civil liability shall be borne by the money broker.

Article 21: A money broker applying to establish a branch shall satisfy the following conditions:

(1) the establishment of such branch is genuinely required for the development of its business;

(2) it has been established for at least two years and its registered capital is not less than Rmb50 million;

(3) its business position is good and it has been profitable for two consecutive years; and

(4) it has no record of a violation of laws or regulations during the most recent two years.

Article 22: The branch of the money broker shall satisfy the following conditions:

(1) it has the minimum operating capital specified in these Measures;

(2) it has senior management personnel with the qualifications for their positions specified by the China Banking Regulatory Commission;

(3) it has sound business operation, internal control, risk management and accountability systems;

(4) it has a place of business, security measures and other facilities for its business that comply with requirements; and

(5) it satisfies other prudential conditions specified by the China Banking Regulatory Commission.

Article 23: The operating capital of a branch of a money broker may not be less than Rmb10 million. The total of the operating capital that a money broker disburses to its branches may not exceed 50% of its registered capital.

Article 24: When a money broker applies for the preparation for the establishment of a branch, it shall submit the following documents and information to the China Banking Regulatory Commission:

(1) an application that includes the name, location, operating capital, scope of business and service targets, etc. of the branch;

(2) a feasibility study that includes such information as the projected business volume of the branch, its medium and long-term development plans, etc.;

(3) the resolution of the board of directors of the money broker concerning the application to establish the branch and that concerning the authorization for the operation and management of the proposed branch;

(4) the articles of association of the money broker;

(5) (a photocopy of the) business licence of the money broker or (a photocopy of) its proof of lawful commencement of business;

(6) the basic particulars of the money broker and its accounting statements for the most recent two years audited by a qualified accounting firm;

(7) a statement issued by the legal representative of the money broker as to the authenticity of the application materials; and

(8) other information that the China Banking Regulatory Commission requires be submitted.

Article 25: An applicant that intends to establish a branch of a money broker shall submit an application for the commencement of business and the documents and information set forth below to the China Banking Regulatory Commission prior to the expiration of the preparatory period for establishment or the expiration of the extension of such period:

(1) a report on the completion of the preparatory work and an application to commence business;

(2) the investment certificate issued by a statutory capital verification institution and the registration certificate for the preliminary approval of the name of the proposed institution issued by the administration for industry and commerce;

(3) a list of the names of the proposed senior management personnel, their résumés and proof of their qualifications for their positions;

(4) the rules and regulations for the business that the branch is to engage in and its internal risk control systems;

(5) a report on the security testing of the branch's business premises, equipment and systems;

(6) a statement issued by the legal representative of the money broker as to the authenticity of the application materials; and

(9) other documents and information that the China Banking Regulatory Commission requires be submitted.

Article 26: The China Banking Regulatory Commission shall issue a finance permit to a branch of a money broker whose establishment it has approved and announce the same. The branch may only commence its operations after it has carried out registration procedures with the administration for industry and commerce on the strength of the finance certificate and collected its business licence.

Article 27: If a money broker or a branch thereof whose establishment has been approved fails, without just cause, to commence its operations within six months of the date of receipt of its business licence, or if it suspends operations, without just cause, for a continuous period of six months or more after the commencement of business, the China Banking Regulatory Commission shall revoke its finance permit and announce the same.

Article 28: As required for the management of its business, a money broker may establish a representative office in a region where business is relatively concentrated. When applying to establish such a representative office, the following materials shall be submitted to the China Banking Regulatory Commission:

(1) an application addressed to the chairman of the China Banking Regulatory Commission signed by the legal representative of the money broker;

(2) (a photocopy of the) business licence of the money broker or (a photocopy of) its proof of lawful commencement of business;

(3) the articles of association of the money broker;

(4) the basic particulars of the money broker and its accounting statements for the most recent two years audited by a qualified accounting firm;

(5) the proof of identity, proof of educational background and résumé of the proposed chief representative and a statement signed by him that he has no record of improper conduct;

(6) the power of attorney appointing the chief representative signed by the legal representative of the money broker or his authorized signatory; and

(7) other information that the China Banking Regulatory Commission requires be submitted.

The representative office of a money broker may not engage in business and may only engage in such work as business promotion, client service, dunning of claims and the collection and reporting of information, etc.

Article 29: The China Banking Regulatory Commission shall exercise control over the qualifications for the positions of chairman of the board, vice chairman of the board, general manager, deputy general manager, director and chief financial officer of money brokers and for that of general manager of branches in accordance with its provisions for the administration of the qualifications for such positions.

Article 30: The senior management personnel of a money broker may not serve concurrently in a position in a representative office in China.

Article 31: The following occurring in respect of a money broker shall be subject to the approval of the China Banking Regulatory Commission and the procedures for the amendment of registration shall be carried out with the administration for industry and commerce in accordance with the law:

(1) the division, merger or dissolution of the company;

(2) a change of name;

(3) amendment of the company's articles of association;

(4) an adjustment of its registered capital;

(5) an adjustment of its equity structure;

(6) an adjustment of its scope of business;

(7) a change in its place of business; or

(8) replacement of a senior officer.

If the branch of a money broker is to effect a change in its name, operating capital, place of business or scope of business or replace a senior officer, the same shall be reported by the money broker to the China Banking Regulatory Commission for its approval and the procedures for the amendment of registration shall be carried out with the administration for industry and commerce in accordance with the law.

PART THREE: SCOPE OF BUSINESS

Article 32: Money brokers and their branches are limited solely to providing brokerage services to financial institutions inside and outside China. They may not deal in any financial products for their own account.

Article 33: A money broker and its branches may engage in all or any of the brokerage businesses set forth below in accordance with their scope of business approved by the China Banking Regulatory Commission:

(1) foreign exchange market transactions inside and outside China;

(2) money market transactions inside and outside China;

(3) bond market transactions inside and outside China;

(4) derivatives transactions inside and outside China; and

(5) other business approved by the China Banking Regulatory Commission.

Article 34: If a money broker and its branches are to engage in the provision of brokerage services in respect of stock market related business, the same shall be reported to the China Securities Regulatory Commission for examination and approval.

PART FOUR: SUPERVISION AND ADMINISTRATION

Article 35: A money broker must operate in accordance with the law while complying with the principles of impartiality, fairness, good faith and protection of client confidentiality.

Article 36: The capital of a money broker in the form of cash assets or an equivalent value in sovereign bonds must be able to sustain the money broker's operating expenditures for at least three months.

Article 37: A money broker may not invest its capital in fixed assets that it does not itself use.

Article 38: A money broker shall formulate its various business rules and establish comprehensive and effective risk management procedures and internal control systems in accordance with the principles of prudential operation.

Article 39: A money broker shall establish a risk management department and a business audit department that are separately accountable to the board of directors, formulate risk control and business audit systems for each business and regularly report on the work of such departments to the board of directors and the China Banking Regulatory Commission each year.

Article 40: A money broker must establish an independent compliance department and staff it with professionals to manage compliance risks. The company's board of directors shall be responsible for supervising the management of compliance risks, approving compliance policies and supervising the effective implementation thereof by the company's senior management.

The compliance department shall proactively identify, explain in writing, evaluate and report compliance risks relating to money brokerage business activities, including compliance risks arising from the development of new products and new business, the establishment of new client relationships, major changes in client relationships, etc.

Article 41: When accepting a new client, a money broker must stringently examine the client's registration documents and financial position and may only provide it brokerage services after confirming that it is a qualified participant in the finance wholesale market.

Article 42: A money broker must examine the qualifications of its operation staff and require such persons to strictly abide by the professional code of conduct for operational staff in the money brokerage business. All front office and back office operation staff must undergo appropriate vocational training before taking up their positions.

Article 43: A money broker must subject transactions to risk monitoring throughout the entire course thereof, strictly separate front office transactions from back office confirmation, prohibit the person in charge of the front office from serving concurrently as the person in charge of the back office and vice versa and must establish and strictly implement an independent cross-checking system to control operational risks. A money broker must establish an effective emergency handling mechanism to manage the various types of operational risks that may arise in the course of transactions.

Article 44: A money broker must each year allocate a certain percentage of its profit to a risk provision to make up losses that may arise in the course of its operations.

Article 45: A money broker may not disclose client information to a third party during the course of a transaction without the consent of the client, unless otherwise specified in laws or regulations.

Article 46: A money broker shall ensure the integrity and normal operation of its transaction facilities so as to assure the smooth carrying out of transactions and the integrity and security of information and data.

Article 47: A money broker must install voice recording equipment on its transaction system and must equip itself with network and facsimile facilities so as to record such business activities as the transactions of its brokers, back office transaction confirmations and payments of commissions. The records of conversations in respect of relevant transactions shall be kept for at least three months and other transaction related information and data, such as transaction documents, etc., shall be preserved for at least 10 years. In the event that a dispute arises over a transaction and has not been resolved before the expiration of the period of preservation of transaction information and data, such transaction information and data as records of conversations, etc. shall be kept at least until the dispute is resolved.

Article 48: A money broker shall implement the relevant finance enterprise financial and accounting systems. A money broker shall prepare complete accounting statements, such as balance sheets, profit and loss statements, cash flow statements, etc., off-site oversight-related statements and other statements required by the China Banking Regulatory Commission that it shall submit to the China Banking Regulatory Commission.

Money brokers may not provide fraudulent financial and accounting reports or ones that omit material facts.

Article 49: A money broker shall establish a regular external audit system, engage a qualified accounting firm to conduct such audits and submit annual audit reports to the China Banking Regulatory Commission within three months of the end of each fiscal year.

Article 50: A money broker shall submit on a regular basis statistical data on its money brokerage business volume to the agency of the China Banking Regulatory Commission of the place where it is located. The format of such forms shall be determined separately by the China Banking Regulatory Commission.

Article 51: A money broker shall make a report to the agency of the China Banking Regulatory Commission of the place where it is located within three working days of any of the following material matters occurring:

(1) a major problem in its financial position or business activities, including abnormal transactions and major transaction disputes;

(2) a change in the articles of association, registered capital or registered address of its controlling shareholder;

(3) an organizational restructuring of its controlling shareholder undergoes or a change in the controlling shareholder's equity structure or main person in charge;

(4) a material change in its controlling shareholder's operations; or

(5) other material matters that could have an impact on the money broker's operations and that need to be reported to the China Banking Regulatory Commission.

Article 52: A money broker shall promptly report to the China Banking Regulatory Commission and its local agency any new brokerage business products it launches.

Article 53: Based on the requirements of prudential regulation, the China Banking Regulatory Commission has the authority to take the measures set forth below in accordance with relevant procedures and provisions to conduct an inspection or entrust a relevant professional institution to conduct an inspection of a money broker:

(1) enter the premises of the money broker to conduct an inspection;

(2) question the working personnel of the money broker and require them to provide an explanation of the matter under investigation;

(3) review and copy documents and information of the money broker that relate to the matter under investigation and placing under seal those documents and information that could be removed, hidden or destroyed; and

(4) inspect the computer system used by the money broker to manage its business data.

Article 54: The China Banking Regulatory Commission may, depending on the circumstances, order a money broker to undergo rectification if:

(1) its loss for the year in question exceeds 50% of its registered capital or if its aggregate losses for three consecutive years exceed 30% of its registered capital;

(2) it has difficulty making payments;

(3) it faces other major operating risks and the China Banking Regulatory Commission is of the opinion that it should undergo rectification; or

(4) the China Banking Regulatory Commission is of the opinion that it should undergo rectification.

Article 55: After it has ordered a money broker to undergo rectification, the China Banking Regulatory Commission may take the measures set forth below in respect of such money broker:

(1) order an adjustment in its directors or senior management personnel or place limits on their authority;

(2) suspend part or all of its operations;

(3) require it to increase its capital within a specified period of time;

(4) order its controlling shareholder to transfer equity or place restrictions on the authority of the relevant shareholder;

(5) place limits on the distribution of dividends and other revenues;

(6) place limits on asset transfers;

(7) revoke its finance permit; and

(8) take other measures it deems necessary.

Article 56: The rectification may only be concluded if the money broker, after such rectification, satisfies the following conditions and receives approval from the China Banking Regulatory Commission:

(1) it recovers its capacity to make payments;

(2) it has made up its losses;

(3) its major operational risks have been mitigated; and

(4) the China Banking Regulatory Commission is of the opinion that the measures it needed to take have been implemented.

Article 57: The rectification of a money broker shall not exceed one year. If the objective of the rectification has not been achieved within such period of time, the money broker shall be ordered to withdraw from the market in accordance with the law.

Article 58: The money brokerage industry may establish a self-regulation organization for the industry to effect self-regulation and administration. The brokers of money brokers shall abide by the code of conduct for the profession formulated by the industry self-regulation organization. The activities of the industry self-regulation organization shall be subject to the guidance and supervision of the China Banking Regulatory Commission.

PART FIVE: LEGAL LIABILITY

Article 59: If a money broker commits any of the acts set forth below, the China Banking Regulatory Commission shall penalize it in accordance with the PRC Banking Regulation Law and the Measures for Penalties for Illegal Financial Acts; if a criminal offence is constituted, criminal liability shall be pursued in accordance with the law:

(1) it exceeds its approved scope in carrying out its business;

(2) it submits such documents and information as reports, statements, etc. that are fraudulent or contain material omissions of fact or fails to submit such documents and information;

(3) it establishes a branch or sub-branch without the approval of the China Banking Regulatory Commission;

(4) it changes its name, registered capital, equity structure, location or senior management personnel without authorization;

(5) it makes a fraudulent capital contribution or spirits away capital;

(6) it commits a serious violation of prudential operating principles;

(7) it fails to disclose information in accordance with provisions;

(8) it violates the principles of fairness or confidentiality; or

(9) it refuses or impedes a legal supervisory inspection.

Article 60: If a money broker violates these Measures, the China Banking Regulatory Commission may, in addition to penalizing it in accordance with the relevant provisions of Article 59 of this Part, order the money broker to impose disciplinary sanctions on the directors and senior management personnel directly in charge and other persons directly responsible. If a criminal offence is not constituted, it shall impose fines of not less than Rmb50,000 and not more than Rmb500,000. If the circumstances are serious, it may revoke the qualifications of the company's directors and senior management personnel to serve as senior officers in a financial institution for a period of from 1 to 10 years or even impose a lifetime ban, or prohibit the relevant persons from engaging in money brokerage or other such finance industry work.

Article 61: If an institution uses in its name, without the authorization of the China Banking Regulatory Commission, such words as 'money broker', etc. that indicate that it is engaged in the money brokerage business, the China Banking Regulatory Commission shall order it to rectify the matter and impose upon it the corresponding fine.

Article 62: If a money broker is established or if money brokerage business is engaged in without the approval of the China Banking Regulatory Commission, the China Banking Regulatory Commission shall shut the same down in accordance with the law. If a criminal offence is constituted, the relevant responsible persons shall be handed over to the judicial authorities to pursue their legal liability in accordance with the law. If a criminal offence is not constituted, the China Banking Regulatory Commission shall confiscate the illegal income, and impose a fine of not less than the amount of and not more than five times the illegal income. If there is no illegal income, the China Banking Regulatory Commission shall order that the matter be rectified and impose a fine of not less than Rmb100,000 and not more than Rmb500,000.

PART SIX: SUPPLEMENTARY PROVISIONS

Article 63: Money brokers from the Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan are deemed investors from abroad and, as such, their applications to establish money brokers shall, mutatis mutandis, be handled in accordance with these Measures.

Article 64: The China Banking Regulatory Commission is in charge of interpreting these Measures.

Article 65: These Measures shall be effective as of September 1 2005.