Guidelines for Managing the Risks Attaching to the Personal Financial Management Business of Commercial Banks

Article 3: A commercial bank shall implement comprehensive, all-encompassing management of the risks attaching to the personal financial management business. The management of risks attaching to the personal financial management business shall not only cover such major risks as the legal risk, operational risk, reputation risk, etc. to which it is exposed when providing personal financial management advisory services and comprehensive financial management services, but also the market risk, credit risk, operational risk and liquidity risk attaching to financial management plans or the relevant trading instruments included in the products as well as the other risks that a commercial bank is exposed to when carrying out the relevant investment operations and asset management.

Article 4: A commercial bank's management of the risks attaching to various types of personal financial management business shall additionally satisfy the basic requirements for the management of the risks attaching to personal financial management advisory services.

Article 5: A commercial bank shall have the technical support system, back office security capabilities and other necessary resource guarantees appropriate for the management and control for the risks attaching to the personal financial management business.

Article 6: A commercial bank shall formulate and implement internal supervision and independent review measures, engage in the personal financial management business in a compliant and orderly manner and duly protect the lawful rights and interests of customers.

Article 7: A commercial bank shall establish an analysis, review and reporting system for its personal financial management business and actively liaise with the regulatory authority with regard to its principal methods of managing the risks attaching to the personal financial management business, risk calculation methods and standards as well as other major issues involved in risk management.

Article 8: When a commercial bank accepts an entrustment from a customer to conduct investment operations and manage assets on his/her behalf, it shall execute a contract with
him/her and ensure that it obtains sufficient authorization from him/her. The commercial bank shall duly keep the relevant contracts and various authorization documents and shall reconfirm them with the customer at least once a year.

Article 9: A commercial bank shall manage its own assets and those of its customers separately and clearly define the authority of the relevant departments and working personnel in their management and adjustment of customer assets. Customer assets that may be placed in the custody of a third party shall be placed in the custody of such third party.

Article 10: A commercial bank shall preserve complete personal financial management business records and ensure that such records are used appropriately.

Unless otherwise specified in laws or regulations, or consented to in writing by the customer, a commercial bank may not provide to a third party the customer's relevant information or services and transaction records.

PART TWO: MANAGEMENT OF RISKS ATTACHING TO PERSONAL FINANCIAL MANAGEMENT ADVISORY SERVICES

Article 11: The board of directors and senior management of a commercial bank shall have a full understanding of the material impact of the legal risk, reputation risk, etc. that personal financial management advisory services may expose the bank to, closely pay attention to the actual implementation of the systems for the control of the operational risk, compliance risk, etc. attaching to personal financial management advisory services and ensure that the various management systems and risk control measures for the personal financial management advisory services reflect an understanding of the customer and comply with the principle of working for the greater interest of the customer.

Article 12: The senior management of a commercial bank shall be fully aware of the importance of the establishment of an internal supervision and review mechanism in reducing the legal risk, operational risk and reputation risk attaching to personal financial management advisory services, establish an internal supervision mechanism comprising at least two layers, namely internal investigations by the personal financial management business department and independent audits by the audit department, and require the internal audit department to provide independent risk assessment reports and regularly assemble the relevant personnel to analyze and assess the risks attaching to the personal financial management advisory services.

Article 13: The personal financial management business department of a commercial bank shall be staffed by the necessary personnel and shall conduct internal investigations of and supervise the personal integrity and competence of the bank's business personnel who provide personal financial management advisory services, the compliance of personal financial management advisory service operations, the quality of personal financial management advisory services, etc.

Article 14: The internal investigations and supervision by the personal financial management business department shall be conducted on the basis of an examination of the records, contracts and other materials relating to the personal financial management advisory services and shall focus on investigating whether there were any erroneous sales or improper sales.

The internal investigation and supervision personnel of the personal financial management business department shall adopt a variety of methods to investigate the quality of the personal financial management advisory services. When each type of financial management plan is being sold, the internal investigation and supervision personnel shall personally or through the entrustment of appropriate persons conduct investigations by posing as customers.

Article 15: The internal audit department of a commercial bank shall formulate internal audit standards for the business audits of personal financial management advisory services and ensure the independence of audit activities.

Article 16: A commercial bank that offers personal financial management advisory services shall, based on the particularities of different types of personal financial management advisory services and the financial position, risk awareness and risk bearing capacity of customers, carry out necessary customer segmentation and clarify for which customer group each type of personal financial management advisory service is appropriate so as to prevent harm to customers' interests due to erroneous sales.

Article 17: A commercial bank shall, based on its segmentation of customers and while taking into consideration the particularities of different types of personal financial management advisory services, determine the channels through which personal financial management advisory services will be offered to different customer groups.

Article 18: A commercial bank shall be fully aware of the risks to which different customer segments, different types of personal financial management advisory services and the different channels for personal financial management advisory services are exposed and formulate commensurate, directed business management systems, work standards and work procedures. The relevant systems, standards and procedures shall stress the management of key risks, be clear and explicit and have a relatively high degree of operability.

Article 19: A commercial bank shall, based on the relevant provisions, establish sound management systems for the assessment and recognition of the qualifications of personal financial management business personnel, their continuous training, follow-up assessments, etc. and ensure that the relevant business personnel have the necessary professional knowledge, industry experience and management expertise, fully understand the relevant laws, regulations and regulatory rules governing the business in which they are engaged, understand the special risks attaching to the products that they are promoting and observe professional ethics.

Article 20: A commercial bank shall clearly demarcate the scope of the work of personal financial management business personnel and that of general product sales and service personnel and forbid general product sales personnel from providing advisory opinions to customers on financial management and investment, or selling them financial management plans. If a customer, in the course of handling ordinary product business, requires the bank to provide
him/her relevant personal financial management advisory services, the general product sales and service person shall refer him/her to a member of the financial management business personnel.

If genuinely necessary, the general product sales and service person may assist the member of the financial management business personnel in providing personal financial management advisory services to the customer, but clear business management methods and rules for the management of authorizations must be formulated.

Article 21: The business personnel of a commercial bank who engage in providing such personal financial management advisory services as financial planning, provision of investment advice and product promotion, etc. and relevant assisting personnel shall understand the nature of the bank products that they sell and that of the products they sell on an agency basis, the risks and returns, and the development of the market, etc.

Article 22: A commercial bank that offers to customers financial plans, investment advice, and services to introduce investment products shall first inquire into and understand the customer's financial position, investment experience, investment objectives and his/her awareness of, and capacity to bear, risks, assess whether he is in a position to purchase the recommended products and make its assessment known to him/her, which they shall both sign.

Article 23: A commercial bank shall not take the initiative in recommending or selling investment products that bear a relatively large market risk, particularly derivative transaction related investment products, to a customer who has no related trading experience or whom it has assessed as being unsuitable to purchase such products.

If a customer, at his/her own initiative, asks to be informed about or to purchase the relevant products, the commercial bank shall explain to him/her in person the investment risks attaching to such products and give him/her basic information on managing such risks, and shall confirm in writing that it was the customer who asked to be informed and to purchase such products.

Article 24: If a customer assessment report concludes that the purchase of a certain product or plan by a certain customer is inappropriate but the customer nevertheless insists on purchasing the same, the commercial bank shall draw up a special document stating the bank's opinions, the customer's intent and other matters that need explanation, and the parties shall sign the same in confirmation.

Article 25: When explaining investment risks to a customer, a commercial bank shall use straightforward and easily understood language, giving necessary examples, and describe the worst case investment scenario and results.

Article 26: A member of the personal financial management business personnel shall submit his/her customer assessment reports to the person in charge of the personal financial management business department or the business head appointed by the person in charge of the personal financial management business department for review and approval.

The person carrying out the review shall focus on whether the financial management and investment advice is misleading to the customer, so as to avert a circumstance where certain business personnel, with a view to selling certain bank products or products for which the bank acts as an agent, will erroneously or improperly sell the same to customers.

Article 27: The assessment report for a customer investing a relatively large amount shall, in addition to being subject to the review and approval of the person in charge of the personal financial management business department, be subject to the review of the persons in charge of other relevant departments or the person in charge of the commercial bank's financial management business. Review authority shall be determined based on the particularities of the products and the realities of the commercial bank's risk management.

Article 28: A commercial bank shall establish a follow-up assessment system for its personal financial management advisory services, regularly reassess its customer assessment reports and investment advice recommendations and explain the relevant assessment results to its customers.

Article 29: All of the materials that could affect a customer's investment decision that are provided to customers by a commercial bank, the descriptions of the various investment products that the bank sells and the assessments and analysis of customers' investments by a commercial bank shall carry appropriate risk warnings. Risk warnings shall be sufficient, clear and accurate so as to ensure that customers can correctly understand the contents of the risk warnings.

Explicit risk warnings shall also be provided for other products that a commercial bank sells through its financial management services.

Article 30: When providing personal financial management advisory services, a commercial bank shall remind the customer of the risks. The risk reminders shall be designed with boxes for confirmation by, and the signature of, the customer. The box for the customer's confirmation shall contain the statement set forth below and shall require the signature of the customer after copying:

"I have read the foregoing risk reminder, fully understand and am clearly aware of the risks attaching to this product and am willing to bear the relevant risks."

Article 31: A commercial bank shall ensure that it allocates sufficient resources to support the personal financial management advisory services that it offers and provide customers with efficient service channels.

A commercial bank shall formulate relevant rules for accepting and dealing with customer complaints in a timely manner.

PART THREE: MANAGEMENT OF RISKS ATTACHING TO COMPREHENSIVE FINANCIAL MANAGEMENT SERVICES

Article 32: The board of directors and senior management of a commercial bank shall fully understand and be aware of the high risk nature of comprehensive financial management services, establish a sound internal management and supervision system for comprehensive financial management services, a system for the inspection and management of customer authorizations and a risk assessment and reporting system, and shall inspect the operation of such systems in a timely manner.

Article 33: A commercial bank shall regularly conduct reviews and tests of the independence, sufficiency and effectiveness of its internal risk control and auditing procedures. The commercial bank's internal supervision department shall provide to the board of directors and senior management independent reports assessing the management of the risks attaching to comprehensive financial management services.

Article 34: A commercial bank shall comprehensively analyze the potential effect on customers of the investment products that it sells and determine the sale baselines for the different investment products and financial management plans.

The baseline amount for financial management plans with guaranteed returns shall, for renminbi plans, be not less than Rmb50,000 and, for those in a foreign currency, not less than US$5,000 (or the equivalent in a foreign currency). The sale baseline amount for other financial management plans and investment products shall be no lower than that for financial management plans with guaranteed returns and shall be determined based on the risk awareness and risk bearing capacity of the potential group of customers.

Article 35: A commercial bank shall establish the necessary follow-up audit system for entrusted investments to ensure that the investment activities engaged in by the bank on behalf of its customers comply with the provisions agreed to with the customers in advance.

Without the written permission of the customer, a commercial bank may not change the investment orientation, scope or method for the customer's funds.

Article 36: The board of directors and senior management of a commercial bank shall prudently research and decide whether the bank will sell financial management plans and, if so, which plans it shall sell based on the bank's business strategy, risk management capabilities and manpower resources, etc.

Article 37: Before selling any financial management plan, a commercial bank shall conduct a comprehensive risk assessment of the financial management plan it intends to sell, formulate the control measures for the major risks and establish a hierarchical review and approval system.

Article 38: The board of directors or senior management of a commercial bank shall determine the overall degree of risk that the bank's financial management plans can bear based on the bank's financial management plan development strategy, capital strength and management capabilities and specify the degree of risk that each financial management plan can bear.

The bearable degree of risk shall be expressed as a quantified indicator that may be linked to the bank's total capital or to such other indicators as the revenues from the personal financial management business, etc.

Article 39: The board of directors or senior management of a commercial bank shall ensure that the management of risks attaching to financial management plans can be effected in accordance with the specified procedures and methods, clearly define the authority and responsibilities of the relevant departments and personnel with respect to the management of the risks attaching to financial management plans and establish an independent internal audit and supervision mechanism.

Article 40: The board of directors or senior management of a commercial bank shall formulate a clear and comprehensive set of rules for managing risk limits on the various risks to which financial management plans are exposed and establish a commensurate management system based on the nature, sales volume and investment complexity of the financial management plans and the investment products that they contain.

The risk limits on the trading instruments involved in a financial management plan shall be incorporated into the management of the overall risk limits on the corresponding trading instruments.

Article 41: A commercial bank shall utilize multiple indicators to manage market risk limits. Trading limits, stop-loss limits, mismatch limits, option limits, value-at-risk limits, etc. may be used as market risk limits. However, among the risk limit indicators used, at minimum, value-at-risk limits shall be used.

Article 42: In addition to specifying the overall limits on the market risks bearable by the bank, a commercial bank shall specify the risk limits for the different trading departments and trading personnel based on their risk management authority, and determine the risk limits for each financial management plan or product.

Article 43: Management of credit risk limits by a commercial bank shall include pre-settlement credit risk limits and settlement credit risk limits.

Pre-settlement credit risk limits may be calculated based on the credit status of the transaction counterparties and using the method of calculating credit limits in the traditional credit business. Settlement credit risk limits shall be calculated using the actual settlement method for the trading instruments involved in the financial management plan.

Article 44: A commercial bank may determine the management of liquidity risk limits based on actual business circumstances, but such limits should at minimum include maturity mismatch limits. Furthermore, the commercial bank shall determine commensurate limit indicators based on the effect that market risk and credit risk may have on its liquidity.

Article 45: The relevant departments of a commercial bank shall conduct trading within their specified limits and any transaction that exceeds a limit shall require advance examination and approval in accordance with the relevant internal management provisions. Any transaction that exceeds the trading limit without having been submitted for examination and approved in advance shall be recorded, investigated and handled.

Article 46: The assessment and calculation of relevant risks by a commercial bank shall be carried out using appropriate and effective methods in accordance with relevant provisions and the consistency of such risk assessments and calculations shall be ensured.

Article 47: A commercial bank shall clearly define the duties of the relevant business operation departments, and adopt sufficient separation measures so as to avoid the potential harm to customers caused by conflicts of interest.

The financial management plan risk analysis department and research department shall be separate from the financial management plan sales department and trading department so as to ensure the objectivity of risk assessment analyses, market research, etc.

Article 48: A commercial bank shall separate its trading personnel who are responsible for the trading instruments connected to the financial management plans or products from those responsible for the bank's own trading activities, and regularly inspect and compare the trading of the two types of trading personnel.

Article 49: The internal supervision department and audit department for financial management plans shall be independent from the financial management plan operation department, shall timely conduct supervisory inspections and audits of financial management plan operations and report directly to the board of directors and senior management.

Article 50: A commercial bank shall fully, clearly and accurately make customers aware of the risks attaching to comprehensive financial management services and financial management plans. The risk reminder for financial management plans with guaranteed returns and financial management plans with guaranteed principals and variable returns shall contain at least the following statement:

"Investment risks attach to this financial management plan. You are entitled only to the returns expressly specified in the contract. You should be fully aware of the investment risks and invest prudently."

Article 51: The risk reminder for financial management plans with non-guaranteed principals and variable returns shall contain at least the following statement:

"This financial management plan is a high risk investment product. Your principal may incur serious losses due to market fluctuations. You should be fully aware of the investment risks and invest prudently."

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

Article 52: If the personal financial management business engaged in by a commercial bank involves the sale on an agency basis of the investment products of another financial institution, an assessment of the creditworthiness, business and management capabilities, market investment capabilities and risk handling capabilities, etc. of the product provider shall be conducted and the demarcation of the rights and obligations of the parties, the definition of liability for the bearing of relevant risks and the transfer method shall be expressly specified.

Article 53: The commercial bank shall require the financial institution that provides products for sale on an agency basis to furnish detailed product descriptions, relevant market analysis reports and risk-return calculation reports.

Article 54: If a financial management product portfolio offered by a commercial bank includes products that it is selling on an agency basis, it shall conduct a full analysis of such products and carry out the necessary verification of the risk-return forecast data for the relevant products. The commercial bank shall rewrite the descriptive materials and publicity materials for the relevant products in a prudent manner based on the relevant materials furnished by the product provider and its analysis of the products.

Article 55: When the personal financial management business department of a commercial bank sells the bank's own products, it shall ask the product development department to provide the descriptive and publicity materials for the products.

If the personal financial management business department is of the opinion that such materials need to be rewritten, it shall make sure that the relevant rewritten materials are consistent with the original descriptive and publicity materials for the products.

Article 56: The descriptive and publicity materials for new investment products researched and developed by a commercial bank in line with the development needs of its financial management business shall be subject to the review and approval of the relevant departments in accordance with the relevant internal provisions.

Article 57: When preparing the descriptive and publicity materials for relevant products, a commercial bank shall provide a sufficient risk warning, the necessary explanatory examples and submit to the China Banking Regulatory Commission, in a timely manner, in accordance with relevant administrative provisions those materials that require submission.

Article 58: A commercial bank that researches and develops new investment products shall formulate the procedures and standards for the examination and approval of product development. Before the development of any new investment product is carried out, an analysis of the background of the product to be developed, its feasibility, the potential target customer group to whom it is to be sold, etc. shall be carried out and submitted to the board of directors or senior management for approval.

Article 59: A product development report shall be prepared for the development of new products, which shall be reviewed and signed by all the relevant departments. The product development report shall detail the definition, nature and characteristics of the new product, the target customers, sales method, the main risks and the method of calculating and controlling the same, the risk limits, the authority and responsibilities of the risk control department for managing the relevant risks, the accounting and the financial management methods therefor, follow-up services, contingency plan, etc.

Article 60: A commercial bank shall establish a system for the follow-up assessment of the risks attaching to new products in order to carry out regular assessments of the risks attaching to new products after such products have been placed on the market.

PART FIVE: SUPPLEMENTARY PROVISIONS

Article 61: The definition and classification of personal financial management businesses, scopes of application, etc. in these Guidelines are identical to those in the Tentative Measures for the Administration of the Personal Financial Management Business of Commercial Banks.

Article 62: Any use of the phrase 'not less than' after a figure is inclusive of the figure.

Article 63: The China Banking Regulatory Commission will be in charge of interpreting these Guidelines.

Article 64: These Guidelines shall be effective as of
November 1 2005.