China Banking Regulatory Commission, Circular on Further Preventing Risks Relevant to Business Transactions Between Banking Financial Institutions and Securities Companies

Issued: December 31 2006
Effective: As of date of issue

Main Contents: Banking financial institutions shall incorporate financing of securities companies into the unified credit granting management mechanism to establish a risk identification and assessment mechanism commensurate with the business products and scale (Article 2). They are prohibited from issuing loans secured by clients' transaction settlement funds to securities companies or any other organizations or individuals (Article 1). No enterprise or individual may misappropriate bank credit funds for use in the stock market directly or indirectly, nor may banking financial institutions issue loans to enterprises or individuals for stock trading. If it is discovered that loans are misappropriated to deal in shares, banking financial institutions shall adopt immediate and necessary measures to recall the loans. For enterprises or individuals that have violating acts, the China Banking Regulatory Commission or its agencies shall record the violation in the credit information management system, in addition to strict action in accordance with the law (Article 3). Banking financial institutions shall also effectively keep track of and check the application of loans and the use of funds to avoid misappropriation of loans (Article 5). Consumer loans shall be prevented from flowing into the stock market in disguise (Article 4).