Tentative Measures for the Administration of the Personal Financial Management Business of Commercial Banks

(Promulgated by the China Banking Regulatory Commission on September 24 2005 and effective as of November 1 2005.)

Order of the CBRC [2005] No.2

PART ONE: GENERAL PROVISIONS

Article 1: These Measures have been formulated pursuant to such relevant laws and regulations as the PRC Banking Regulation Law, the PRC Commercial Banking Law, etc. in order to strengthen administration of the personal financial management business activities of commercial banks and promote the healthy and orderly development of the personal financial management business.

Article 2: For the purposes of these Measures, the term "personal financial management business" means the activity of commercial banks wherein they offer such professional services to individual customers as financial analysis, financial planning, investment advice, asset management, etc.

Article 3: Commercial banks that engage in the personal financial management business shall comply with laws, administrative regulations and relevant state policies.

Commercial banks may not use their personal financial management business to violate state policy on interest rate control by seeking, in a disguised form, to attract deposits through the offer of high interest rates.

Article 4: Commercial banks shall duly and prudently engage in the personal financial management business in line with the principles of complying with the interests of the customer and his/her capacity to bear risk.

Article 5: A commercial bank wishing to engage in the personal financial management business shall establish the commensurate risk management system and internal control systems and strictly implement a system for the management of authorizations.

Article 6: The China Banking Regulatory Commission shall regulate the personal financial management business activities of commercial banks in accordance with these Measures and relevant laws and regulations.

PART TWO: CLASSIFICATION AND DEFINITION

Article 7: Depending on the management and operating method, the personal financial management business of commercial banks may be divided into financial management advisory services and comprehensive financial management services.

Article 8: The term "financial management advisory services" means such professional services as financial analysis and planning, investment advice, promotion of personal investment products, etc. offered to customers by commercial banks.

General business consulting activities engaged in by banks for the purpose of selling their savings deposit products, credit products, etc., such as product description, publicity and promotion, do not fall within the category of financial management advisory services mentioned in the preceding paragraph.

In the course of financial management advisory service activities, the customer manages and applies his/her funds in accordance with the financial management advisory services provided by the commercial bank and is entitled to the returns and bears the risks arising therefrom.

Article 9: The term "comprehensive financial management services" means the business activities whereby a commercial bank, on the basis of the financial management advisory services it provides to a customer, accepts the engagement and authorization of the customer to make investments and manages assets in accordance with the investment plan and by the investment method agreed in advance with the customer.

In the course of comprehensive financial management service activities, the customer authorizes the commercial bank to act on his/her behalf in making investments and managing his/her assets in accordance with the investment orientation and by the investment method specified in the contract, and the investment returns and risks are enjoyed and borne by the customer, or by the customer and the bank as agreed.

Article 10: In the course of comprehensive financial management service activities, a commercial bank may sell financial management plans to specific target customers.

The term 'financial management plan' means a fund investment and management plan developed and designed for and sold to certain target customers by a commercial bank based on its analysis and research of such prospective target customers.

Article 11: Based on the manner that customers obtain returns, financial management plans may be divided into financial management plans with guaranteed returns and financial management plans with non-guaranteed returns.

Article 12: The term "financial management plan with guaranteed returns" means a financial management plan under which a commercial bank undertakes to pay the customer fixed returns based upon the agreed conditions and bears the investment risks arising therefrom, or under which a commercial bank undertakes to pay the customer the minimum returns based upon the agreed conditions and bears the relevant risks, and the other investment returns are shared between the bank and the customer in accordance with the provisions of the contract and they jointly bear the relevant investment risks.

Article 13: Financial management plans with non-guaranteed returns may be divided into financial management plans with guaranteed principals and variable returns and financial management plans with non-guaranteed principals and variable returns.

Article 14: The term "financial management plan with guaranteed principals and variable returns" means a financial management plan under which a commercial bank guarantees that it will repay the principal to the customer based upon the agreed conditions, the investment risks other than those pertaining to the principal are borne by the customer and the customer's actual returns are based on the actual investment returns.

Article 15: The term "financial management plan with non-guaranteed principals and variable returns" means a financial management plan under which a commercial bank pays returns to the customer based upon the agreed conditions and the actual investment returns and does not guarantee the customer's principal.

PART THREE: ADMINISTRATION OF THE PERSONAL FINANCIAL MANAGEMENT BUSINESS

Article 16: A commercial bank shall establish a sound personal financial management business management system, expressly define the management department responsible for the personal financial management business and, with respect to the different features of the financial management advisory services and comprehensive financial management services, formulate separate management rules and regulations for the two services stipulating the responsibilities of the relevant departments and personnel.

Article 17: A commercial bank shall keep its financial management advisory services separate from its general business consulting activities and formulate a code of conduct and work rules for personal financial management business personnel in line with the principles of preventing the misleading of customers and improper sales.

A commercial bank's personal financial management business personnel shall include business personnel who provide financial analysis and planning or investment suggestions to customers, business personnel who sell financial management plans or investment products and other professionals who have a close connection with personal financial management business sales and management activities.

Article 18: A commercial bank shall establish sound internal control and regular inspection systems for its comprehensive financial management services so as to ensure that they comply with relevant laws, regulations and the provisions agreed upon between the bank and the customer.

Article 19: A commercial bank shall comprehensively standardize such aspects of its financial management plans as research and development, pricing, risk management, sales, fund management and application, accounting practices, distribution of returns, etc., establish and improve relevant rules and regulations and internal audit procedures, and strictly regulate its internal reviews and audits.

Article 20: A commercial bank shall have the financial management business personnel required for the personal financial management business it engages in and ensure that such staff undergo no less than 20 hours of training each year.

A commercial bank shall keep detailed records on the method of training its financial management business personnel, the number of hours of training and assessment results, etc. Financial management business personnel who fail to meet the training requirements shall be suspended from engaging in personal financial management business activities.

Article 21: A commercial bank that engages in the personal financial management business shall execute contracts with its customers specifying the rights and obligations of both parties and, in accordance with business needs, execute the required customer powers of attorney and other legal documents required to make investments on the behalf of customers.

Article 22: If the financial management plans sold by a commercial bank include a structural deposit product, the base assets of such product shall be separated from the derivative transaction portion. The base assets shall be managed as savings deposit business and the derivative transaction portion as financial derivative product business.

Article 23: A commercial bank may not sell general savings deposit products individually as financial management plans or forcibly combine and sell its financial management plans and savings deposits.

Article 24: If the guaranteed returns on a financial management plan with guaranteed returns or a related product are higher than the interest rates on savings deposits at the same period, extra conditions shall be imposed on the customer for such returns. A commercial bank may not unconditionally promise to customers a guaranteed return rate that is higher than the interest rates on savings deposits at the same period.

A commercial bank may not promise or promise in a disguised form any possible returns other than the guaranteed returns.

Article 25: The extra conditions that a commercial bank imposes on a customer to whom it has promised guaranteed returns may be such rights as adjusting the term of the financial management plan, currency conversion, etc. or the right to determine what will be the final currency and instrument in which the returns are paid, etc. The investment risks arising from the extra conditions imposed by a commercial bank on financial management plans with guaranteed returns shall be borne by the customer.

Article 26: A commercial bank shall set an appropriate term and the sale baseline based on the risks inherent in a financial management plan or related products.

Article 27: The funds collected by a commercial bank through the sale of a financial management plan shall be managed and used in accordance with the provisions of the financial management contract.

In addition to the normal accounts kept for the funds collected through the sale of financial management plans, a commercial bank shall prepare itemized records for each such plan.

Article 28: During the term of a financial management plan, the commercial bank shall provide to the customer account statements for all the relevant assets held by it that shall indicate the changes in the assets, income, charges, the estimated value of the assets at the end of the term, etc. The account statements shall be provided no less than twice, and shall be provided at least once per month, unless otherwise agreed by the commercial bank and the customer.

Article 29: Each quarter, a commercial bank shall prepare the financial statements for each of the investment instruments in a financial management plan, details of their market performance and related materials. Relevant customers shall have the right to inquire about such information or require the commercial bank to provide it to them.

Article 30: A commercial bank shall provide to the customer a detailed report on the investments made and returns obtained under a financial management plan at the expiration of such plan or at the time of distribution of the investment returns obtained under such plan.

Article 31: A commercial bank shall, depending on the nature of its personal financial management business and based on relevant state laws and regulations, adopt appropriate accounting and tax treatment methods.

If current laws and regulations do not contain specific provisions, the commercial bank shall actively liaise with the relevant departments and prepare for inspection by the relevant departments specific explanatory documents in respect of the accounting and tax treatment methods it has adopted.

Article 32: When a commercial bank engages in the personal financial management business, it may charge customers appropriate fees in accordance with relevant provisions. The fee rates and billing method shall be expressly stated in the contract executed with the customer.

If a commercial bank is required, pursuant to relevant state policies, to uniformly revise the fee rate and/or billing method agreed upon with the customer, it shall promptly notify the customer of the relevant details. Unless otherwise specified in the relevant agreement, if the commercial bank wishes to revise the fee rate and billing method agreed upon with the customer as required by the development of its business and investment management circumstances, it must obtain the consent of the customer.

Article 33: If the personal financial management business in which a commercial bank is engaged involves financial derivative product transactions and/or foreign exchange control provisions, it shall obtain the corresponding business qualifications in accordance with relevant provisions.

Article 34: If in engaging in its personal financial management business a commercial bank discovers that a customer may be involved in money laundering, tax evasion with malice or other such violation of laws or regulations, it shall promptly report the same to the relevant departments in accordance with relevant state provisions.

PART FOUR: MANAGEMENT OF RISKS ATTACHING TO THE PERSONAL FINANCIAL MANAGEMENT BUSINESS

Article 35: A commercial bank that engages in the personal financial management business shall establish a corresponding risk management system and incorporate the management of risks attaching to the personal financial management business into its risk management system.

The system for the management of risks attaching to the personal financial management business of a commercial bank shall cover all the risks to which the personal financial management business is exposed and effective control measures shall be formulated in respect of the relevant risks.

Article 36: A commercial bank that engages in the personal financial management business shall conduct stringent compliance audits, accurately define the various legal relationships included in the personal financial management business, clarify the legal and policy issues that may be involved, and study and formulate appropriate solutions to actively guard against legal risk.

Article 37: When a commercial bank uses financial management advisory services to promote investment products to a customer, it shall understand the customer's aversion to risk, his/her awareness of the risks and his/her capacity to bear risk, assess the customer's financial position, provide suitable investment products from which the customer may choose at his/her own discretion, explain to the customer the operating market and method for the relevant investment instrument, and make him/her aware of the relevant risks.

A commercial bank shall duly preserve records of customer assessments and the advisory services, as well as customer information and other documents and information.

Article 38: A commercial bank shall formulate the work process for the research, development and design of its financial management plans and products, its internal examination and approval procedures, clarify the principal risks and the risk management measures to be taken and report the same to the regulatory department in accordance with the relevant requirements.

Article 39: A commercial bank shall separately estimate the fund costs of and returns on its financial management plans and use a scientific and reasonable calculation method to forecast the rate of return on investment portfolios under its financial management.

A commercial bank may not sell financial management plans that cannot be calculated independently or whose rate of return is zero or negative.

Article 40: The publicity and descriptive materials for a commercial bank's financial management plans shall include a prominent warning on the risks attaching to its products expressed in straightforward language. Before executing a contract for a financial management plan with non-guaranteed returns with a customer, a commercial bank shall provide the customer the calculation data, calculation method and main calculation basis used to derive the forecast rate of return for the financial management plan.

Article 41: A commercial bank shall set market risk monitoring indicators for its financial management plans and establish an effective market risk identification, quantification, monitoring and control system.

If relevant market monitoring indicators serve as a condition or a reference condition for terminating a financial management plan contract, the commercial bank shall clearly define the relevant indicators and clearly explain the calculation method therefor in the financial management plan contract.

Article 42: A commercial bank that engages in the personal financial management business shall, in the course of managing the relevant market risks, conduct sufficient stress tests in respect of reforms of, and adjustments to, such important finance policies as interest rates and foreign exchange rates, etc. to assess the possible effects on its business activities and formulate commensurate risk handling and emergency response contingency plans.

A commercial bank may not sell financial management plans whose stress tests indicate potential losses that exceed its alert thresholds.

Article 43: A commercial bank shall formulate an emergency response plan for its personal financial management business and incorporate the same in its overall emergency response plan system so as to ensure the continuity and effectiveness of its personal financial management services.

Article 44: If its personal financial management business involves financial derivative product transactions or foreign exchange control provisions, a commercial bank shall establish commensurate management systems and risk control systems in accordance with relevant provisions.

PART FIVE: REGULATION OF THE PERSONAL FINANCIAL MANAGEMENT BUSINESS

Article 45: A commercial bank that engages in the personal financial management business shall be subject to an examination and approval system and a reporting system.

Article 46: A commercial bank that wishes to engage in the following personal financial management businesses shall apply to the China Banking Regulatory Commission for approval:

(1) financial management plans with guaranteed returns;

(2) new investment products that have a guaranteed return element and were designed for the purpose of engaging in the personal financial management business; and

(3) other personal financial management businesses that requires the approval of the China Banking Regulatory Commission.

Article 47: Before a commercial bank applies for a personal financial management business that requires approval, it shall hold discussions with the China Banking Regulatory Commission or its agency on the relevant business plan, analyze and explain its deployment of the relevant business resources, its knowledge of the main risks and the commensurate management measures, etc. and revise its relevant business plan in line with the comments of the China Banking Regulatory Commission or its agency.

Article 48: A commercial bank that wishes to engage in a personal financial management business that requires approval shall satisfy the following conditions:

(1) having the commensurate risk management system and internal control systems;

(2) having senior management personnel and business personnel who have the work experience and knowledge to engage in the relevant business;

(3) having an effective market risk identification, quantification, monitoring and control system;

(4) having a good reputation and, during the most recent two years, not being involved in any material event in which the interests of customers were harmed; and

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

Article 49: A commercial bank applying for a personal financial management business that requires approval shall submit the following materials to the China Banking Regulatory Commission in triplicate:

(1) an application signed by the person in charge of the commercial bank;

(2) a profile of the business for which the application is made, including the nature of the business, the target customers and related analyses and forecasts;

(3) a business implementation plan, including the management system for the business for which the application is made, the main risks and the management measures it intends to take, etc.;

(4) the comments upon examination of the commercial bank's relevant internal departments; and

(5) other documents and information that the China Banking Regulatory Commission requires.

Article 50: When a Chinese-invested commercial bank (excluding urban commercial banks and rural commercial banks) wishes to engage in a personal financial management business that requires approval, an application shall be centrally made by its legal representative to the China Banking Regulatory Commission, which shall carry out examination and approval.

When a wholly foreign-owned bank, equity joint venture bank or branch of a foreign bank wishes to engage in a personal financial management business that requires approval, it shall submit its application to the China Banking Regulatory Commission for examination and approval in accordance with the examination and approval procedures for the business of foreign-invested banks.

When an urban commercial bank or rural commercial bank wishes to engage in a personal financial management business that requires approval, its legal representative shall submit the application for examination and approval by the China Banking Regulatory Commission or its agency in accordance with the relevant procedure.

Article 51: When a commercial bank wishes to engage in other personal financial management businesses, it shall not require approval, but shall submit a report to the China Banking Regulatory Commission or its agency in accordance with the relevant provisions in a timely manner.

Article 52: Before a commercial bank commences selling financial management plans that do not require examination and approval, it shall submit a report to the China Banking Regulatory Commission or its agency. The commercial bank shall, at the latest, 10 days before it commences selling the financial management plans, submit the information set forth below to the China Banking Regulatory Commission or its agency in accordance with the reporting procedure for the relevant business:

(1) the customers to whom the financial management plan is to be sold, and the relevant analyses and explanation;

(2) the size of the financial management plan to be sold, an estimate of the fund costs and returns and an explanation of the relevant calculations;

(3) the descriptive materials to be given to the public and publicity materials for the financial management plan that is to be sold; and

(4) other materials required by the China Banking Regulatory Commission.

Article 53: The (sub-)branches and offices of Chinese-invested commercial banks may engage in relevant personal financial management businesses as authorized by their head office. The (sub-)branches and offices of foreign-invested banks may engage in relevant personal financial management businesses as authorized by their head office or regional headquarters, etc.

Before a (sub-)branch or office of a commercial bank engages in a personal financial management business, it shall make a report to the local agency of the China Banking Regulatory Commission in accordance with the relevant provisions on the strength of its authorization document from its head office (regional headquarters, etc.).

Article 54: A commercial bank's personal financial management business personnel shall satisfy the following qualification requirements:

(1) having a full understanding and knowledge of the laws, regulations, administrative rules and regulatory requirements, etc. relating to personal financial management business activities;

(2) complying with the professional ethical standards or code of conduct for personal financial management business personnel formulated by the regulatory department and the commercial bank;

(3) having a clear understanding of the features of the products he/she is promoting or of the products that are the subject of the consulting and advisory opinions that he/she is to give to customers, and knowledge and understanding of the market for the relevant products;

(4) having the commensurate educational level and work experience;

(5) having the business qualifications required by the relevant regulatory departments; and

(6) having other qualifications required by the China Banking Regulatory Commission.

Article 55: Based on the development and regulatory requirements of the personal financial management business, the China Banking Regulatory Commission will arrange and guide the vocational training and assessment of personal financial management business personnel.

The relevant requirements and assessment measures will be stipulated separately by the China Banking Regulatory Commission.

Article 56: Based on the actual development and regulatory requirements of the personal financial management business, the China Banking Regulatory Commission and its agencies may, according to their respective regulatory authority, arrange relevant investigation and inspection activities.

In respect of the matters set forth below, the China Banking Regulatory Commission and its agencies may conduct investigations by various methods:

(1) the professional competence and personal integrity of a commercial bank's personnel who provide product consulting, financial planning and investment advisory services and the protection that such services afford to investors;

(2) the business activities of a commercial bank that has accepted the entrustment and authorization of customers to manage their assets in accordance with investment plans and by the investment methods agreed in advance with the customers, the sufficiency and compliance of customer authorizations, the compliance of operational procedures and the separation between the duties of personnel who keep custody of the assets of customers and those who operate accounts; and

(3) the protection of customers in the course of the commercial bank's sale and management of financial management plans and control of the risks attaching to the related products.

Article 57: A commercial bank shall carry out a statistical analysis of its personal financial management business on a quarterly basis, and within the first month of the subsequent quarter submit its relevant statistical analysis report in triplicate to the China Banking Regulatory Commission.

Article 58: The quarterly statistical analysis reports on the personal financial management business of commercial banks shall, at minimum, contain the following information:

(1) a description of all the personal financial management businesses engaged in during the period in question and the related statistical data;

(2) a description of the financial management plans brought onto the market during the period in question, the related contracts, the internal legal opinions upon examination, the management model (including the accounting and tax treatment methods), sales forecasts and sales and investment details for the period in question;

(3) related risk monitoring and control information;

(4) information on the distribution of returns derived from, and termination of, financial management plans during the period in question;

(5) information on relevant legal actions; and

(6) other material matters.

Article 59: At the end of each financial year, a commercial bank shall prepare an annual personal financial management business report that shall comprehensively reflect the development of the personal financial management business during the year in question, information on the sales of financial management plans, investments, distribution of returns and the overall returns on the personal financial management business, etc., and also include the annual statements.

Annual reports and related statements (in triplicate) shall be submitted to the China Banking Regulatory Commission by the end of February of the following year.

Article 60: The statistical indicators for the personal financial management business of commercial banks, the method of compiling such statistics, the preparation of relevant statements, the disclosure of relevant information, statements and reports, and others will be formulated separately by the China Banking Regulatory Commission.

PART SIX: LEGAL LIABILITY

Article 61: If a commercial bank that engages in the personal financial management business is characterized by any of the circumstances set forth below, the banking regulatory authority may penalize the directors or senior management personnel directly in charge and other persons directly responsible in accordance with Article 47 of the PRC Banking Regulation Law and relevant provisions of 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 engages in a personal financial management business in violation of regulations, causing major financial losses to the bank or its customers;

(2) it fails to establish the relevant risk management systems or system of management, or, although it establishes the relevant systems, it fails to actually put in place the risk assessment, monitoring and control measures, causing the bank to incur major losses;

(3) it divulges or improperly uses customers' personal information and transaction information and records, resulting in serious consequences;

(4) it uses the personal financial management business to engage in money laundering, tax evasion or other such criminal activities; or

(5) it misappropriates individually managed customer assets.

Article 62: The banking regulatory authority shall impose penalties in accordance with the PRC Banking Regulation Law if a commercial bank that engages in the personal financial management business:

(1) sells, in violation of provisions, financial management plans or products that have not been approved;

(2) sells general savings deposit products as financial management plans and violates state interest rate control policies in order to seek, in a disguised form, to attract deposits through the offer of high interest rates;

(3) provides fraudulent cost-return analysis reports or risk-return forecast data;

(4) fails to reveal risks or disclose information in accordance with provisions; or

(5) fails to assess customers in accordance with provisions.

Article 63: If a commercial bank that engages in the personal financial management business commits other violations of laws or regulations, the banking regulatory authority shall impose punishment in accordance with relevant laws and regulations.

Article 64: If a commercial bank violates prudential business rules while engaging in the personal financial management business or uses the personal financial management business to engage in unfair competition, the banking regulatory authority shall order it to rectify the matter within a specified period of time in accordance with relevant laws and regulations. If the bank fails to rectify the matter within the specified period of time, the banking regulatory authority may, in accordance with relevant laws and regulations, take the following measures:

(1) suspend the commercial bank's sale of new financial management plans or products;

(2) propose that the commercial bank remove the person in charge of its personal financial management business department; or

(3) propose that the commercial bank remove the person in charge of the relevant risk management department or internal audit department.

Article 65: A commercial bank that engages in the personal financial management business shall bear liability in accordance with the relevant laws or contract if it is characterized by any of the circumstances set forth below, thereby causing customers to incur a financial loss:

(1) it fails to preserve customer assessment records and relevant information and thus is unable to demonstrate that the sale of financial management plans or products are in line with the principle of complying with the interests of customers;

(2) it fails to conduct operations in accordance with customer instructions or fails to preserve relevant supporting documentation; or

(3) it permits business personnel not qualified as financial management business personnel to provide financial management advisory services or to sell financial management plans or products to customers.

PART SEVEN: SUPPLEMENTARY PROVISIONS

Article 66: The term 'day' in these Measures means a business day and the term 'month' means a calendar month.

Article 67: The personal financial management business engaged in by rural cooperative banks, urban credit cooperatives, rural credit cooperatives and other such financial institutions in the banking sector shall be handled with reference to these Measures.

Article 68: The China Banking Regulatory Commission is in charge of interpreting these Measures.

Article 69: These Measures shall be effective as of
November 1 2005.