Guidelines for the Consolidated Supervision of Banks (Trial Implementation)

Article 2: These Guidelines shall apply to commercial banks established in the People's Republic of China in accordance with the law and their subordinate organizations (hereinafter collectively referred to as “Banking Groups”). The term “subordinate organizations” means the domestic and foreign subsidiary banks, non-bank financial institutions, non-financial organizations and other organizations falling within the scope of consolidation in accordance herewith that are controlled by a bank.

Article 3: For the purposes of these Guidelines, the term “consolidated supervision” means, on the basis of the supervision of a single legal person, the comprehensive and ongoing supervision of the capital, finances and risks of a Banking Group to identify, weigh, monitor and evaluate its overall risk position.

Article 4: The banking regulatory authority shall carry out the consolidated supervision of Banking Groups in accordance herewith.

Article 5: The controlling shareholder of a commercial bank shall satisfy the prudential regulatory requirements and related requirements of the banking regulatory authority and shall regularly provide material information to the banking regulatory authority in accordance with relevant laws and regulations.

Article 6: Through the regulatory coordination mechanism and coordinated regulatory policies and measures established with the domestic securities, insurance and other such regulatory authorities, the banking regulatory authority shall bring about the sharing of regulatory information and, to the greatest extent possible, minimize regulatory overlap and regulatory gaps.

Article 7: Through strengthening coordination, cooperation and information sharing with relevant overseas regulatory authorities, the banking regulatory authority shall ensure full supervision over the offshore organizations of Banking Groups.

PART TWO: SCOPE OF CONSOLIDATED SUPERVISION

Article 8: The banking regulatory authority shall adhere to the principle of “substance over form”, treat control as the foundation and take into consideration the correlation of risks in determining the scope of consolidated supervision.

Article 9: The following investee organizations shall be included within the scope of consolidated supervision depending on whether they are controlled by the parent bank:

(1) an investee organization in which the commercial bank directly holds, or a subsidiary holds or the commercial bank and a subsidiary jointly hold more than 50% of the voting rights;

(2) if a commercial bank holds not more than 50% of the voting rights in an investee organization but any of the following circumstances applies, such investee organization shall be included within the scope of consolidated supervision:

(i) the commercial bank holds more than 50% of the voting rights in the organization through an agreement with another investor;

(ii) pursuant to the articles of association or an agreement, the commercial bank has the power to decide the organization's financial and business policies;

(iii) the commercial bank has the power to appoint and dismiss a majority of the members of the board of directors or other similar organ of authority of such organization; or

(iv) the commercial bank holds a majority of the voting rights on the investee organization's board of directors or other similar organ of authority;

(3) when determining whether an investee organization is controlled, potential voting right factors such as the investee organization's convertible bonds that can be converted at the time and the warrants that can be exercised at the time held by the parent bank and its subsidiaries shall be taken into consideration to determine whether the consolidation criteria mentioned above are satisfied; potential voting rights that can be realized in the period in question shall be counted towards the parent bank's voting rights in the investee organization; and

(4) another circumstance for which there is evidence indicating that the parent bank actually controls the investee organization.

The term “control” means that one company can decide the financial and business policies of another company and, on the basis thereof, benefit from the business activities of the other company.

Article 10: If an investee organization is not controlled by the parent bank but, based on the correlation of risks and the extent of its effect on the overall risks of the Banking Group, satisfies any of the following circumstances, such investee organization shall be included within the scope of consolidated supervision:

(1) it is an investee organization with a homogenous business and the scale of its assets accounts for a relatively small percentage of the scale of the assets of the entire Banking Group but the overall risk associated with such type of investee organization is sufficient to have a material effect on the financial position and risk level of the Banking Group; or

(2) the harm and losses caused by the compliance risks and reputation risks arising from the investee organization are sufficient to cause a material effect on the reputation of the Banking Group.

Article 11: If an investee organization is held for a short period of time by the parent bank and does not have a material risk effect on the Banking Group, including an investee organization that is to be sold within one financial year and the equity capital held therein is more than 50%, it may be excluded from the scope of consolidated supervision.

Article 12: A Banking Group shall report on its scope of consolidation and the details of its consolidated management to the banking regulatory authority.

Article 13: The banking regulatory authority shall have the right to determine and revise the scope of consolidated supervision and put forward regulatory requirements based on changes in a parent bank's equity structure, its risk types and risk position.

PART THREE: ELEMENTS OF CONSOLIDATED SUPERVISION

Section One: Consolidated Supervision of the Capital Adequacy Ratio

Article 14: The banking regulatory authority shall require a Banking Group, on a consolidated basis, to satisfy the requirements of the Measures for the Administration of the Capital Adequacy Ratios of Commercial Banks and other related provisions. Such requirements include the scope of consolidation, calculation of the capital adequacy ratio, monitoring inspection requirements and information disclosure provisions.

Article 15: In the course of consolidated supervision of capital adequacy ratios, appropriate methods for the treatment of the internal capital investments within a group and group capital investments in third parties shall be adopted. These treatment methods include consolidated netting treatment, capital deduction treatment, risk weighting treatment and proportional consolidation treatment. Specific requirements shall be handled in accordance with relevant provisions on the supervision of capital adequacy ratios.

Article 16: The banking regulatory authority shall apprise itself of whether cross shareholdings exist within a Banking Group between the parent bank and its subordinate organizations and between subordinate organizations and whether they mutually hold subordinated debt and other such eligible capital instruments and confirm that the same have been correctly treated in calculating the Banking Group's capital adequacy ratio.

Article 17: The banking regulatory authority shall apprise itself of whether a Banking Group has internally, particularly the parent bank, issued debt or used other such means to raise funds to invest in a Subordinate Organization, and pay close attention as to whether such a circumstance could have a negative effect on the soundness of the Banking Group.

Article 18: The banking regulatory authority shall require a parent bank and its subordinate organizations to deduct capital investments in parties outside the Banking Group when calculating the Banking Group's capital adequacy ratio or use another prudent method to treat the same.

Article 19: When a Banking Group includes the minority interests generated in consolidating statements in its regulatory capital, the banking regulatory authority shall pay attention to this portion of the minority interests, and give a detailed analysis on the soundness of the holders of the minority interests and the extent of the support of the Banking Group by such portion of the minority interests.

Article 20: When it is difficult for a Banking Group to accurately determine and weigh the requirements on its regulatory capital of the risk exposure of the non-bank financial institutions among its subordinate organizations, prudent treatment methods such as capital deduction shall be adopted. Additionally, the banking regulatory authority shall apprise itself of the risk position of such Subordinate Organization and its effect on the capital adequacy level of the Banking Group through the exchange of information with other regulatory authorities.

Article 21: A Banking Group shall deduct the capital investments of the parent bank in non-financial organizations among its subordinate organizations or adopt another prudent treatment method. The banking regulatory authority shall additionally analyze the assets and liabilities, leverage ratio, security provided for third parties, etc. of such subordinate organizations and assess their effect on the overall capital adequacy level of the Banking Group.

Article 22: The banking regulatory authority shall set forth appropriate regulatory requirements for Banking Groups that do not satisfy consolidated capital supervision criteria, including requiring such Banking Group to formulate a concrete capital adequacy ratio improvement plan, and place restrictions on the speed at which its risk capital increases and on its capital investments in third parties. Where necessary, the banking regulatory authority may increase the requirements in respect of the parent bank's capital adequacy ratio so as to ensure the soundness of the entire Banking Group.

Section Two: Consolidated Supervision of Large Exposures

Article 23: The banking regulatory authority shall require a Banking Group to manage risk concentrations and large exposures on a consolidated basis. Such requirements shall include the establishment of management policies and internal control systems for large exposures, monitoring of large exposures in a real-time manner, and establishment of a forewarning reporting system for large exposures and risk diversification measures that are consonant with the risk limits.

Article 24: The term “large exposure of a Banking Group” means that the risk concentration exposure of a Banking Group's consolidated asset portfolio to a single counterparty or a group of affiliated counterparties, an industry or a geographical region, or a specific type of product, etc. exceeds a certain percentage of the Banking Group's capital.

Large exposures do not only include a bank's on-balance sheet and off-balance sheet businesses, but also include the risk exposures arising from the business engaged in by securities companies, insurance companies and other non-bank financial institutions falling within a Banking Group's scope of consolidation.

Article 25: A Banking Group shall set group-wide large risk limits based on its capital and asset-liability size, carry out consolidated monitoring on an ongoing basis, ensure, through relevant reporting systems, that the group's management identifies the degree of risk concentration in its overall asset portfolio in a timely manner and, in accordance with relevant management systems, take risk diversification measures with respect to assets the risk concentration of which is relatively high.

Article 26: A Banking Group's management information system shall include an information collection and management system for all large exposures group-wide, particularly, the centralized monitoring of information on large exposures, including those of securities companies, insurance companies and other non-bank financial institutions among its subordinate organizations, shall gradually be implemented and improved so as to realize the centralized management of information on different dimensions such as customers, industries, regions and specific products in order to effectively summarize and identify the degree of concentration of the various risks in its entire asset portfolio, and, as required, submit consolidated data to the banking regulatory authority.

Article 27: When the consolidated large exposure of a Banking Group to a single customer or a single group customer approaches or reaches a relevant risk concentration regulatory indicator limit set by the banking regulatory authority, the Banking Group shall report the same to the banking regulatory authority and take the necessary risk diversification measures.

A Banking Group shall formulate relevant policies and procedures to identify, weigh, monitor and control group-wide credit risk exposure associated with the concentration of different types of products in one counterparty.

Article 28: A Banking Group's management shall effectively identify relevant information on the industries, sectors, geographical regions, etc. where group-wide large exposures are most concentrated and, while taking into account factors such as the cyclic fluctuations in the industry or regional economy, analyze and assess the negative effect that such risk concentrations could have on the Banking Group.

Article 29: A Banking Group shall analyze the effect that the risk concentration of certain specific types of products could have group-wide, monitor the credit risk exposure of structured financial products that have a credit amplification effect and that include leverage ratio, options, etc. that its subordinate organizations deal in and the credit risk exposure of specific products that, due to an interconnection of risk factors, give rise to linked effects.

Article 30: A Banking Group that operates multinationally shall gradually establish a country or regional risk assessment system, separate and analyze claims based on the borrowing country or region, set risk limits for different countries or regions based on conditions such as the bank's size and the particularities of its business, the economic strengths and stability of the borrowing countries or regions and the bank's risk distribution and business diversification, and maintain the independence of the country or regional risk limit management function. The banking regulatory authority shall pay attention to the reasonableness of a Banking Group's consolidated country or region risk limit management.

Article 31: The banking regulatory authority shall, through information exchanges with other regulatory authorities, apprise itself of the large credit risk concentration of the securities companies, insurance companies, and other non-bank financial institutions among the subordinate organizations of a Banking Group and the relevant regulatory authorities' assessments thereof and, on this basis, cause the Banking Group to consolidate the management of the risk exposures of its banks, and of its securities, insurance and other non-bank financial institutions to a single customer.

Article 32: The banking regulatory authority shall pay attention to the large exposures of the subordinate organizations other than financial institutions of a Banking Group and analyze and assess the effect that the exposure of such organizations could have on the Banking Group.

Article 33: The banking regulatory authority shall take necessary regulatory measures if there are deficiencies in a Banking Group's internal management of its large exposures or if its large exposure ratios exceed relevant provisions. Such measures shall include limiting the growth in the relevant business in accordance with the law, requiring the Banking Group to take necessary risk diversification measures, etc.

Section Three: Consolidated Supervision of Internal Transactions

Article 34: The banking regulatory authority shall supervise the internal transactions between a parent bank and its subordinate organizations and between subordinate organizations that take forms such as cross-shareholdings, extension of credit, provision of security, asset transfers, receivables and payables, service fees and agency transactions, and pay attention to the regulatory arbitrage arising from internal transactions and the negative effects that they may have on the sound operations of the Banking Group.

Article 35: The banking regulatory authority shall pay attention to risk transfers that arise through internal transactions, particularly paying attention to risk transfers between non-bank organizations and banks.

Article 36: The banking regulatory authority shall require a Banking Group to establish policies and procedures for the monitoring, reporting, control and treatment of internal transactions, require the board of directors of the parent bank to regularly examine the group's internal transactions and report the same to the banking regulatory authority in a timely manner.

Article 37: The conditions for the extension of credit or provision of security within the Banking Group may not be more favuorable than those offered to independent third parties. When a financial institution within a Banking Group extends credit to a non-financial organization within the group, the non-financial organization shall provide valid and sufficient security.

Article 38: The asset transfers within a Banking Group shall be based on market transaction prices.

Article 39: The banking regulatory authority shall analyze accounts receivable and accounts payable transactions within a Banking Group, identify whether there are actual underlying business transactions and assess their effect on the Banking Group's balance sheet, earnings and regulatory indicators.

Article 40: The banking regulatory authority shall pay attention to the provision of services that charge fees within a Banking Group and assess whether market prices are charged and their effect on the level of profitability.

Article 41: The banking regulatory authority shall apprise itself of the different types of financial services provided to a single customer by different organizations within a Banking Group and assess whether they constitute indirect internal transactions conducted through a customer and their effect on the soundness of the group.

Article 42: The banking regulatory authority shall require a Banking Group to fully disclose information on its internal transactions in its annual reports in accordance with relevant provisions in a timely manner, including quantitative data and qualitative descriptions of the substance, size and scope of the internal transactions, their effect on the group, etc.

Article 43: The banking regulatory authority shall analyze whether normal business standards are implemented in the transactions within a Banking Group and whether the interests of customers are harmed through cross-sales or the sharing of information.

Article 44: The banking regulatory authority shall propose to a Banking Group regulatory measures to improve corporate governance and internal controls, etc. so as to strengthen the management of internal transactions. Quantifiable internal transactions shall be netted off against one another or struck.

Article 45: The banking regulatory authority may, on the basis of a comprehensive assessment of the internal transactions of a Banking Group, require it to rectify the same within a specified period of time if they violate relevant provisions or expose the group to a material risk.

Section Four: Consolidated Supervision of Other Risks

Article 46: The banking regulatory authority shall require a Banking Group to take appropriate measures to assess the liquidity risks, market risks, operational risks, legal risks and reputation risks, etc. of its various types of subordinate organizations in China and abroad, comprehensively analyze their possible effect on the Banking Group and take pertinent measures to prevent localized and isolated risks from further expanding and constituting a threat to the security of the entire Banking Group.

Article 47: The banking regulatory authority shall require a Banking Group to manage liquidity risks on a consolidated basis. The consolidated management of liquidity shall take into account both the overall liquidity level of the Banking Group and the liquidity level of each Subordinate Organization and its effect on the Banking Group. With respect to subordinate organizations established abroad, the effect of factors such as capital controls, foreign exchange controls and differences in the level of development of financial markets, etc. on liquidity shall also be taken into consideration.

Article 48: The banking regulatory authority shall assess whether the liquidity management policies of a Banking Group are sufficient and effective and whether stress tests are reasonable, pay attention to and analyze the negative effect that the overall liability concentration of the Banking Group could have on its liquidity, and assess the adequacy and the practicality of the Banking Group's overall liquidity risk contingency plan.

Article 49: The banking regulatory authority shall pay attention to the effect that individual subordinate organizations have on the liquidity of the parent bank and the Banking Group, and analyze the arrangements for the parent bank to provide liquidity support to subordinate organizations so as to determine the risks such arrangements may pose to the parent bank's liquidity.

Article 50: The banking regulatory authority shall require a Banking Group to manage market risks on a consolidated basis. A Banking Group shall be fully aware of the differences in the laws that govern the parent bank and those that govern its branches and subordinate organizations abroad and the barriers to movement of funds posed by factors such as capital controls and foreign exchange controls and revise its risk management policies and procedures accordingly. In order to prevent the underestimation of market risks, a parent bank may not carry out netting treatment for its branches and subordinate organizations that are affected by barriers to movement of funds.

Article 51: The banking regulatory authority shall pay attention to the negative effect that the risks and losses generated by subordinate organizations may have on the reputation of the Banking Group and require the Banking Group to take appropriate measures to effectively control reputation risks.

Article 52: The banking regulatory authority shall exchange information with other regulatory authorities in a timely manner so as to apprise itself of the level of liquidity risk, market risk and other risks of the non-bank financial institutions in a Banking Group and their risk management situation as well as the regulatory assessments of the relevant risk positions of such subordinate organizations made by the relevant regulatory authorities.

PART FOUR: CONSOLIDATED SUPERVISION METHODS

Article 53: The consolidated supervision by the banking regulatory authority shall primarily focus on the overall situation of a Banking Group, pay attention to the transactions between the parent bank and its subordinate organizations and those between subordinate organizations and pay attention to the risks that may be posed by non-banking business and offshore business.

Article 54: Consolidated supervision includes both quantitative and qualitative methods.

Quantitative supervision mainly involves the identification, weighing, monitoring and analysis of a Banking Group's capital adequacy and its credit risks, liquidity risks, market risks, etc. thereby permitting the carrying out of a quantitative assessment of the risk position of the Banking Group on a consolidated basis.

Qualitative supervision mainly involves the examination and assessment of factors such as a Banking Group's corporate governance, internal controls and risk management.

Article 55: The banking regulatory authority shall fully consider a Banking Group's governance structure and its consolidated management capabilities when handling the Banking Group's market entry application for the establishment of a Subordinate Organization. If the corporate governance structure of a Banking Group is not conducive to the internal transmission of information and the implementation of consolidated supervision measures, the banking regulatory authority shall have the right not to approve its establishment of a Subordinate Organization.

Article 56: The banking regulatory authority shall comprehensively understand the overall framework and equity structure of a Banking Group and fully apprise itself of the Banking Group's global business activities through offsite monitoring and analysis, and, through the establishment of a sound risk assessment framework, comprehensively assess the risks that may be posed by the Banking Group's banking business and non-banking business.

The banking regulatory authority shall pay particular attention to discrepancies between the data of an individual legal person and the consolidated data of the Banking Group, and identify the source, size and risk level of internal transactions.

Article 57: The banking regulatory authority shall carry out onsite inspections of Banking Groups in accordance with the law or, by entrustment of another regulatory authority through the regulatory coordination mechanism, bilateral regulatory memorandum, etc. conduct onsite inspections of non-bank financial institutions in China and abroad.

The banking regulatory authority shall formulate a plan for the onsite inspection of the offshore organizations of banks each year and, depending on the actual circumstances, apprise itself of the risk positions of such offshore organizations through extended inspections, liaison or joint inspections with other regulatory authorities, etc.

Article 58: The banking regulatory authority shall establish and enhance a risk assessment system for Banking Groups, comprehensively consider the results of the rankings of banks and their subordinate organizations and their consolidated profitability, capital adequacy, overall financial position and management capabilities, and regularly carry out risk assessments and forewarnings of Banking Groups.

Article 59: If a Banking Group violates consolidated prudent supervision standards with respect to the capital adequacy ratio, large exposures, risk exposures of internal transactions, etc. the banking regulatory authority shall require it to immediately take remedial measures and, in accordance with provisions, take the appropriate regulatory measures against it.

Article 60: The banking regulatory authority shall pay close attention to the material effect that the controlling shareholder of a Banking Group and the subordinate organizations in the group have on the Banking Group's financial position and risk position.

Where the safety and stability of a Banking Group are affected, the banking regulatory authority shall require, in accordance with the law, that risk isolation measures promptly be taken between the bank and its controlling shareholder, subordinate organizations and other affiliated parties, including limiting distributions of dividends to the controlling shareholder or the conduct of share buybacks and restriction of asset transfers.

Article 61: The banking regulatory authority shall, based on consolidated supervision circumstances, arrange for a Banking Group and its external auditor to participate in a consolidated tripartite meeting to discuss issues discovered in the course of supervision and external audits and exchange opinions on matters that are of concern in consolidated supervision.

Article 62: The banking regulatory authority shall dedicate efforts to coordinate with domestic and foreign banking, insurance, securities and other such regulatory authorities for the joint promotion of regulatory principles, regulatory policies and regulatory standards and to share regulatory information.

The banking regulatory authority shall, based on the regulatory coordination mechanism and arrangements, maintain good communications with other regulatory authorities in China and abroad through regular regulatory meetings with them and other such means, discuss major urgent issues, coordinate on the scope and methods of carrying out onsite inspections, etc.

The banking regulatory authority may execute agreements to exchange regulatory information with the securities, insurance and other such regulatory authorities and share regulatory information, including inspection reports, risk assessment reports and day-to-day regulatory information, etc. through an effective electronic information platform.

PART FIVE: CROSS-BORDER CONSOLIDATED SUPERVISION

Article 63: Based on consolidated supervision requirements, the banking regulatory authority shall effect cross-border supervision of the offshore organizations of a Banking Group in accordance with the law.

Article 64: The establishment or acquisition of an offshore organization by a Banking Group, the upgrading, closing down, merger or reorganization of offshore organizations, increases or reductions in their capital or operating capital, adjustments of their equity structures or share capital arrangements, equity transfers, etc. shall require the examination and approval of the banking regulatory authority in accordance with relevant provisions. The Banking Group shall submit an application to the banking regulatory authority in advance and only after obtaining such approval may the Banking Group then submit the relevant applications to the other domestic regulatory authorities and the regulatory authorities of the host country.

Article 65: The banking regulatory authority shall assess the regulatory environment of the host country on a regular or irregular basis. If the supervision by the regulatory authorities of the host country is deficient, the banking regulatory authority will, based on the relevant provisions of the cross-border regulatory cooperation framework, take the following regulatory measures in respect of relevant Banking Groups:

(1) market entry restriction measures, such as prohibiting or restricting banks and their subordinate organizations from establishing organizations in such countries or regions, restricting their scopes of business, etc. in accordance with the law;

(2) taking of special measures to make up the deficiencies, such as onsite inspections abroad or requiring the parent bank or external auditor to provide additional information; and

(3) where necessary, with the approval of the regulatory authorities of the host country, the banking regulatory authority may require, in accordance with the law, that the parent bank close down its relevant offshore subordinate organizations.

Article 66: The banking regulatory authority shall regularly obtain relevant information on the offshore subordinate organizations of a Banking Group and determine whether the administrative regulations of the host country present barriers to the transmission of information. The banking regulatory authority may, depending on the circumstances, prohibit or restrict a Banking Group and its subordinate organizations from establishing organizations and engaging in business in such country or region.

Article 67: The banking regulatory authority may engage in regulatory cooperation with relevant foreign banking regulatory authorities through the execution of bilateral regulatory memorandums or other means, and make arrangements for cross-border regulation.

(1) The banking regulatory authority shall, based on the risk position of the offshore organizations of a Banking Group, visit the countries and regions where the offshore organizations are located on an irregular basis and exchange regulatory opinions with the regulatory authorities of the host country.

(2) Prior to carrying out an onsite inspection abroad, the banking regulatory authority shall inform the regulatory authorities of the host country concerning its inspection plan, the objectives of the inspection, the details of the inspection, etc. After completion of the onsite inspection abroad, the banking regulatory authority may inform the regulatory authorities of the host country concerning the results of the inspection and the basic conclusions thereof.

(3) The banking regulatory authority, as the regulatory authority of the home country, may, before taking major regulatory measures against an offshore organization such as liquidating it or closing it down, ordering the replacement of its senior management personnel, revoking the qualifications of its senior management personnel for their positions, etc. liaise with the regulatory authorities of the host country.

(4) The banking regulatory authority, as the regulatory authority of the home country, may, depending on the circumstances, inform the regulatory authorities of relevant host countries of changes in major regulatory measures.

(5) When the banking regulatory authority exchanges regulatory information with relevant foreign regulatory authorities, it shall comply with relevant laws and regulations and the bilateral memorandums.

PART SIX: CONSOLIDATED MANAGEMENT OF BANKING GROUPS

Article 68: A Banking Group shall establish and enhance a consolidated management organizational structure, establish a clear reporting route and sound information management system and clarify consolidated management duties, policies, procedures and systems.

Article 69: The board of directors of the parent bank shall bear ultimate responsibility for consolidated management, be responsible for formulating the overall strategic policy of the Banking Group's consolidated management and be responsible for approving and monitoring the formulation and implementation of the specific consolidated management implementation plan, and the establishment of a regular examination and assessment mechanism.

Article 70: The senior management of the parent bank shall be responsible for the specific implementation work associated with consolidated management, including implementing the board's strategic policy for, and decisions on, consolidated management, formulating consolidated management rules and regulations, monitoring and assessing the adequacy and effectiveness of the consolidated management system and establishing and enhancing the internal organizational structure so as to ensure that the various consolidated management duties are effectively implemented.

Article 71: Prudent risk isolation measures shall be taken between the parent bank and its subordinate organizations and between subordinate organizations, and a sound firewall system shall be established.

Article 72: A parent bank shall prepare consolidated accounting statements in accordance with accounting standards and relevant provisions, and treat on a consolidated basis accounting information that reflects its financial position, business results, cash flow, changes in equity structure, risk position, etc.

Article 73: A parent bank and its subordinate organizations shall, based on their organizational framework, business scale and degree of complexity, establish a comprehensive risk management system, effectively identify, weigh, monitor and control credit risks, market risks, liquidity risks and other such risks, and shall additionally identify and manage various cross-industry risks in a timely manner and improve capital allocation efficiency.

Article 74: A parent bank shall establish and enhance a management information system compliant with consolidated management requirements that can timely, accurately and comprehensively obtain relevant information on subordinate organizations and collect product, departmental, regional and group-wide risk management information, thereby permitting comprehensive assessment and management of the Banking Group's overall risk position.

A parent bank shall ensure that its non-bank subordinate organizations are subject to consolidated management and, particularly with respect to offshore non-banking business, it shall obtain management information through a sound management information system, internal audits, information exchanges with foreign regulatory authorities, etc. and assess the risk position of such business and its effect on the Banking Group.

Article 75: A parent bank shall ensure that its subordinate organizations have sound information management systems that provide effective system support and information transmission so that it can effectively manage its subordinate organizations.

A parent bank shall establish a system for the reporting of material matters by its subordinate organizations. A Subordinate Organization shall, in a timely manner, report to the parent bank matters such as serious losses, large bad debts, instances of embezzlement or fraud involving large amounts or causing material losses and major regulatory actions taken against it by other regulatory authorities, including major regulatory measures taken against an offshore organization by the regulatory authorities of the host country.

Article 76: With respect to a Banking Group operating in a country or region with low information transparency or that operates through a complicated structure, the board of directors and senior management of the parent bank shall strengthen identification, weighing, monitoring and control of material risks and regularly assess the reasonableness of the relevant business and structure.

Article 77: A parent bank and its subordinate organizations shall establish an internal audit mechanism commensurate with their size, nature and business scope. The internal auditing of a Banking Group shall examine and verify consolidated management information, and material audit results shall be reported to the banking regulatory authority via the parent bank.

Article 78: In principle, a Banking Group shall engage the same accounting firm to conduct the external audits of its subordinate organizations. If the audits genuinely need to be conducted by different accounting firms, the Banking Group shall ensure, to the extent possible, the consistency of the external audit standards and the comparability of the audit information.

Article 79: A parent bank shall submit consolidated management information to the regulatory authorities of its home country in accordance with regulatory provisions. The parent bank shall have appropriate personnel who are responsible for the submission of timely, accurate and complete consolidated supervision information to the banking regulatory authority. Consolidated supervision information mainly includes the following:

(1) detailed information on the organizational structure of the Banking Group, including the names of, shareholding percentages in and principal business types of its subordinate organizations in China and abroad, and major changes in equity structure, scope of consolidation and organizational structure;

(2) the Banking Group's consolidated regulatory statements and indicators and relevant risk analysis reports; and

(3) affiliated transactions and internal transactions, regulatory measures taken by other regulatory authorities and other such material matters.

The parent bank shall submit the annual audit report to the banking regulatory authority within four months of the end of a financial year.

PART SEVEN: SUPPLEMENTARY PROVISIONS

Article 80: The consolidated supervision of other types of institutions whose establishment is approved by the banking regulatory authority and of the groups which they constitute with their subordinate organizations shall, mutatis mutandis, be handled in accordance with these Guidelines.

Article 81: In these Guidelines, the term “more than” does not include the number itself and the term “not more than” includes the number itself.

Article 82: The banking regulatory authority is responsible for the interpretation of these Guidelines.

Article 83: These Guidelines shall be effective as of the date of issuance.