Implementing Rules for the PRC Regulations for the Administration of Foreign-Invested Banks (2nd Amendment)

 

(Promulgated by the China Banking and Insurance Regulatory Commission on, and effective as of, December 18, 2019.)

 

Order of the CBIRC [2019] No.6

 

Part One: General Provisions

 

Article  1:These Rules have been formulated pursuant to the PRC Banking Regulation Law, the PRC Commercial Banking Law and the PRC Regulations for the Administration of Foreign-invested Banks (the Regulations).

 

Article  2: For the purposes of the Regulations, the term "State Council's banking regulatory authority" means the China Banking and Insurance Regulatory Commission (the CBIRC), and the term "banking regulatory authorities" means the CBIRC and its offices.

 

Part Two: Establishment and Registration

 

 

Article  3: For the purposes of the Regulations and these Rules, the term "prudential conditions" shall, at minimum, comprise the following:

 

(1) having a good industry reputation and public image;

 

(2) having good results as a going concern and good asset quality;

 

(3) management having good professional qualifications and management capabilities;

 

(4) having a sound risk management system that can effectively control various risks;

 

(5) having sound internal control systems and an effective information management system;

 

(6) preparing financial accounting reports based on prudential accounting principles, and the accounting firm issuing an unqualified opinion on the financial accounting reports;

 

(7) having no record of a major violation of laws or regulations, and no major case arising from internal management problems;

 

(8) having an effective human resources management system with high quality professionals;

 

(9) having the experience and capabilities to manage and support the activities of the institutions in China;

 

(10) having effective capital constraint and capital replenishment mechanisms;

 

(11) having a sound corporate governance structure;

 

(12) other prudential conditions as specified by laws, administrative regulations and CBIRC provisions.

 

Items (9), (10) and (11) of this Article shall apply only to wholly foreign-owned banks and their shareholders, Sino-foreign equity joint venture banks and their shareholders, and foreign banks.

 

Article  4: For the purposes of Article 11 of the Regulations, the term "major shareholder" means a commercial bank that will hold at least 50% of the total capital or total shares of the proposed Sino-foreign equity joint venture bank or that, although it will not hold at least 50% of the total capital or total shares thereof, according to the articles of association of the proposed Sino-foreign equity joint venture bank, it is characterized by the following circumstances:

 

(1) it will hold at least half of the voting rights in the proposed Sino-foreign equity joint venture bank;

 

(2) it will have the power to control the financial and operational policies of the proposed Sino-foreign equity joint venture bank;

 

(3) it will have the power to appoint and dismiss the majority of the members of the board of directors or similar authority body of the proposed Sino-foreign equity joint venture bank; or

 

(4) it will have at least 50% of the voting rights on the board of directors or similar authority body of the proposed Sino-foreign equity joint venture bank.

 

A major shareholder of a proposed Sino-foreign equity joint venture bank shall include the proposed Sino-foreign equity joint venture bank in its consolidated statements.

 

Article  5: An entity may not serve as a shareholder of a proposed wholly foreign-owned bank or Sino-foreign equity joint venture bank if:

 

(1) its corporate governance structure and mechanisms have obvious flaws;

 

(2) its equity relationships are complex or lack transparency;

 

(3) it has many affiliates, and affiliated transactions are frequent or anomalous;

 

(4) its core business is not salient or its scope of business involves an overly large number of industries;

 

(5) the impact of the economic environment on the volatility of its cash flow is relatively large;

 

(6) its asset-to-liability ratio or financial leverage ratio is greater than the average industry level;

 

(7) it would acquire the equity interest with funds that are not in compliance with laws, administrative regulations or regulatory provisions;

 

(8) it would nominally hold equity in a wholly foreign-owned bank or Sino-foreign equity joint venture bank on behalf of a third party; or

 

(9) it is characterized by another circumstance that would have a material adverse impact on the proposed bank.

 

Article  6: When a foreign bank that has established a wholly foreign-owned bank or Sino-foreign equity joint venture bank in China establishes a foreign bank's branch, it shall satisfy the corresponding conditions set forth in the Regulations and these Rules and its existing wholly foreign-owned bank or Sino-foreign equity joint venture bank in China shall additionally satisfy prudential conditions specified by the CBIRC.

 

When a foreign bank that has established a foreign bank's branch in China establishes a wholly foreign-owned bank or Sino-foreign equity joint venture bank, it shall satisfy the corresponding conditions set forth in the Regulations and these Rules and its existing foreign bank's branch in China shall additionally satisfy prudential conditions specified by the CBIRC.

 

Article  7: When a foreign bank wishes to establish an additional branch in China, it shall satisfy the conditions specified in Articles 9 and 12 of the Regulations and its existing branch(es) in China shall additionally satisfy prudential conditions specified by the CBIRC.

 

When a foreign bank wishes to establish an additional representative office in China, it shall satisfy the conditions specified in Article 9 of the Regulations and its existing branch(es) in China shall additionally not have a record of any major violations of laws or regulations.

 

Article  8: The operating capital allocated by a foreign bank to its branches in China shall be calculated together.  When a foreign bank is to establish a new branch in China, if the operating capital calculated together satisfies the minimum amount and regulatory indicator requirements, it may authorize its branches in China to allocate, in accordance with regulations, the operating capital to the new branch.

 

Article  9: A wholly foreign-owned bank or Sino-foreign equity joint venture bank that wishes to establish a branch shall satisfy prudential conditions specified by the CBIRC.

 

Article 10: When establishing a foreign-invested banking institution of a business nature, the applicant shall collect an application for commencement of business from the CBIRC office of the place where the institution is to be established within 15 days from the date of receipt of the notice approving the preparation for establishment, and commence the preparatory work.

 

If the applicant fails to collect the application for the commencement of business during the specified period of time, the CBIRC and its office will refuse to accept applications from the applicant for the establishment of an institution of a business nature in the same city in China for a period of one year from the date of approval of the preparation for establishment.

 

Article 11: When establishing a foreign-invested banking institution of a business nature, the applicant shall complete the following tasks during the preparatory period:

 

(1) established a sound corporate governance structure and submitted a description of the corporate governance structure to the CBIRC office of the place where the institution is to be established (applicable only to wholly foreign-owned banks and Sino-foreign equity joint venture banks);

 

(2) established internal control systems, including the internal organizational structure, and the control systems and operating rules for authorizations and credit extension, credit facilities management, monetary transactions, accounting and the computer information management system, and submitted details of the internal control systems and operating rules to the CBIRC office of the place where the institution is to be established;

 

(3) have an appropriate number of business personnel who meet business development requirements and have received relevant training on policies, regulations and vocational knowledge, etc. in order to satisfy requirements in respect of the effective monitoring of the principal business risks, the hierarchical examination, approval, and checking of business, and the division of work and checks and balances among key positions, etc.;

 

(4) printed of important business vouchers and receipts to be used externally and submitted specimens thereof to the CBIRC office of the place where the institution is to be established;

 

(5) have in place security facilities approved by the relevant departments and submitted relevant description documents to the CBIRC office of the place where the institution is to be established; and

 

(6) engaged an accounting firm lawfully established in China to conduct a pre-opening audit of the institution's internal control systems, accounting system, computer system, etc. and submitted the audit report to the CBIRC office of the place where the institution is to be established.

 

Article 12: Once the preparatory tasks for the establishment of the proposed foreign-invested banking institution of a business nature are completed, the person in charge of the preparatory committee shall submit an application for a pre-opening acceptance check to the CBIRC office of the place where the institution is to be established. The CBIRC office shall conduct the acceptance check within 10 days. If the institution passes the acceptance check, it shall be issued an acceptance opinion. If it fails the acceptance check, the CBIRC office shall notify the applicant in writing and the applicant may apply for a re-check with the CBIRC office after 10 days from the date of receipt of the notice.

 

Article 13: Once the acceptance check has passed and the preparatory work completed, the applicant shall submit the application documentation to commence business to the CBIRC or the CBIRC office of the place where the institution is to be established in accordance with rules and regulations for the administrative permissions of foreign-invested banks.

 

Article 14: Once a foreign-invested banking institution of a business nature has received approval to commence business, it shall collect its finance permit in accordance with relevant provisions.

 

Article 15: A foreign-invested banking institution of a business nature shall commence operations within the specified period of time. If it fails to do so, its approval document for commencing operations shall lapse, and the authority that rendered the decision on commencing operations shall cancel its permission to commence operations, recover its finance permit and announce the same.  The authority that rendered the decision on commencing operations shall not accept applications from the applicant for the establishment of another institution of a business nature in the same city for one year from the date on which the approval document lapsed.

 

Article 16: Before it commences business, the foreign-invested banking institution of a business nature shall report the date for the commencement of its business in writing to the CBIRC office of the place where it is located. Before the foreign-invested banking institution of a business nature commences business, it shall publish an announcement.

 

Article 17: If a foreign bank wishes to convert its branch(es) in China into a wholly foreign-owned bank in which its head office is the sole investor, it shall satisfy the conditions of the Regulations and these Rules for the establishment of a wholly foreign-owned bank and shall have the capacity to operate in China over the long term and to effectively manage the proposed wholly foreign-owned bank.

 

Article 18: If a foreign bank wishes to convert its branch(es) in China into a wholly foreign-owned bank in which its head office is the sole investor, subject to the approval of the CBIRC, the operating capital of the foreign bank's former branch(es) may, after consolidation and verification, be converted into the registered capital of the wholly foreign-owned bank, or, alternatively, be returned to their head office.

 

Article 19: A foreign bank that converts its branch(es) in China into a wholly foreign-owned bank in which its head office is the sole investor shall, during the preparatory period for the proposed wholly foreign-owned bank and after completion of the registration procedures, publish an announcement.

 

Article 20: Once the representative office of a foreign bank has completed registration procedures, it shall publish an announcement.

 

The representative office of a foreign bank shall move into permanent office premises within six months from the date of approval of its establishment by the CBIRC office of the place where it is located. If it fails to move into permanent office premises to operate within six months, the approval decision of the establishment of the representative office shall become null and void.

 

Article 21: Once the representative office of a foreign bank has moved into permanent office premises, it shall submit the following materials to the CBIRC office of the place where it is located:

 

(1) a form for the registration of the basic particulars of the representative office;

 

(2) a photocopy of the registration certificate of the resident representative office of a foreign enterprise;

 

(3) details of its internal control systems, including its duty arrangements, internal division of labor and internal reporting system, etc.;

 

(4) a photocopy of the lease contract or title certificate for the office premises;

 

(5) information on the office facilities equipped and on the lease of data communication lines from the telecommunications department;

 

(6) specimens of its official stamp and letterhead paper, and of the business cards of its working personnel; and

 

(7) other materials as required by the CBIRC.

 

Article 22: The post-merger or post-division registered capital or operating capital and scope of business of a foreign-invested banking institution of a business nature shall be subject to approval anew by the CBIRC.

 

Article 23: A foreign-invested banking institution of a business nature that is to suspend business for at least three days and not more than six months shall report the same to the CBIRC or the CBIRC office of the place where it is located in a timely manner, stating the duration of, and the reason for, the suspension of business and explaining the arrangement for the period of suspension. Where a foreign-invested banking institution of a business nature is to temporarily suspend business, it shall announce the same outside its place of business, explaining the arrangement for the period of suspension. The CBIRC office of the place where it is located shall, in a timely manner, submit the details on the temporary suspension of business by the foreign-invested banking institution of a business nature in its jurisdiction level by level up to the CBIRC.

 

Article 24: Once the period of suspension of business expires or the reason for the suspension of business is eliminated, the institution that suspended business shall resume its business. The foreign-invested banking institution of a business nature shall submit a report to the CBIRC or the CBIRC office of the place where it is located within five days after resuming business. If the institution's place of business was constructed anew, the foreign-invested banking institution of a business nature may only resume business once it has submitted to the CBIRC or the CBIRC office of the place where it is located a photocopy of the letter of intent on the lease or on the purchase contract for the place of business and the description of passing security and fire safety.

 

If, under special circumstances, the period of suspension of business needs to be extended, matters shall be handled anew in accordance with Article 23 hereof.

 

Article 25: If a foreign-invested banking institution of a business nature is characterized by any of the circumstances specified in Article 27 of the Regulations and needs to amend the particulars recorded on its finance permit, it shall carry out amendment procedures in accordance with relevant provisions for the administration of finance permits.

 

If a capital verification is required, the foreign-invested banking institution of a business nature shall submit the capital verification certificate issued by an accounting firm lawfully established in China to the CBIRC or the CBIRC office of the place where the institution is located. If an acceptance check is required, the CBIRC office of the place where the foreign-invested banking institution of a business nature is located shall conduct the acceptance check.

 

The foreign-invested banking institution of a business nature shall carry out procedures for the amendment of registration with, and collect its new business license from, the administration for market regulation on the strength of the approval document from the CBIRC or the CBIRC office of the place where the institution is located.

 

If the foreign-invested banking institution of a business nature is characterized by any of the circumstances specified in Items (1) to (3) of Article 27 of the Regulations, it shall publish an announcement. The announcement shall be made within 30 days from the effective date of the business license.

 

Article 26: After a representative office of a foreign bank has changed its name, changed its office premises or another such change has occurred, it shall publish an announcement.

 

Part Three: Scope of Business

 

Article 27: "Underwriting government bonds" as mentioned in Item (4) of the first paragraph of Article 29 and Item (4) of the first paragraph of Article 31 of the Regulations includes underwriting of bonds issued by foreign governments in China.

 

Article 28: "Dealing in government bonds and financial bonds, and dealing in other negotiable securities, other than stocks, denominated in foreign currencies" as mentioned in Item (5) of the first paragraph of Article 29 and Item (5) of the first paragraph of Article 31 of the Regulations include but are not limited to the following foreign exchange investment business: Chinese and foreign government bonds, bonds of Chinese financial institutions and bonds of Chinese non-financial institutions issued outside China.

 

Article 29: For the purposes of Item (13) of the first paragraph of Article 29 and Item (12) of the first paragraph of Article 31 of the Regulations, the phrase "provision of credit investigation and consulting services" means credit investigation and consulting services relating to banking business.

 

Article 30: The reporting system shall apply to the following business engaged in by foreign-invested banking institutions of a business nature:

 

(1) custody, deposit and safekeeping;

 

(2) consulting services, such as financial advice;

 

(3) offshore wealth management for customers; and

 

(4) other business that the CBIRC recognizes as being subject to the reporting system.

 

A foreign-invested banking institution of a business nature shall report to the CBIRC or the CBIRC office of the place where the institution is located within five days after commencing any of the business specified in the first paragraph, submitting written materials on matters such as the plan for launch of business, its risk control system, operational rules and system development.

 

Where a foreign-invested banking institution of a business nature engaging in any of the business specified in the first paragraph is required, in accordance with the law, to secure the permission of another department, it shall handle matters in accordance with such provisions.

 

Article 31: A foreign-invested banking institution of a business nature may lawfully carry out domestic-foreign business coordination with its parent group, leverage its global service advantages and provide comprehensive financial services for activities of its customers such as offshore debt offerings, listings, acquisitions and financing.

 

A foreign-invested banking institution of a business nature shall clarify its duties in the provision of business coordination services within its parent group and the profit distribution mechanism relating thereto, and, by the end of the first quarter of each year, report to the CBIRC or the CBIRC office of the place where the institution is located on the business coordination with its parent group during the previous year.

 

Article 32: A foreign bank's branch that engages in the foreign exchange business specified in Article 31 of the Regulations shall have operating capital of not less than Rmb200 million or the equivalent in a freely convertible currency.

 

Article 33: A foreign bank's branch that engages in the foreign exchange business and renminbi business specified in Article 31 of the Regulations shall have operating capital of not less than Rmb300 million or the equivalent in a freely convertible currency, and not less than Rmb100 million thereof shall be operating capital denominated in renminbi and not less than the equivalent of Rmb200 million in a freely convertible currency thereof shall be operating capital denominated in foreign exchange.

 

The operating capital of a branch of a wholly foreign-owned bank or Sino-foreign equity joint venture bank shall be consistent with the scale of its business and fully allocated.

 

Article 34: When carrying out deposit business, a foreign bank's branch shall state to the customer whether deposits with the bank are covered by deposit insurance.

 

Article 35: A foreign bank's branch that has been converted into a wholly foreign-owned bank in which its head office is the sole investor may succeed to all of the business that the foreign bank's former branch was approved to engage in.

 

Article 36: A wholly foreign-owned bank or Sino-foreign equity joint venture bank shall authorize its (sub-)branches to engage in business falling within its approved scope of business.

 

A foreign bank's branch shall authorize its sub-branches to engage in business falling within its approved scope of business.

 

Article 37: Where a foreign bank has established multiple branches in China, if its managing branch has received approval to engage in derivative trading business, such branch may perform its management duties and, provided that it assesses and ensures that other branches in China that propose to engage in the derivative trading business satisfy the conditions to do so, authorize them to engage in such business.  Furthermore, it shall report the same to the CBIRC office of the place where the managing branch is located.

 

A branch that is authorized by the managing branch to engage in derivative trading business shall satisfy the provisions for the engagement in derivative trading business by banking financial institutions, report to the CBIRC office of the place where it is located and may proceed to engage in such business only after it has provided the letter of authorization issued by the managing branch and the materials required to engage in derivative trading business.

 

Article 38: A foreign-invested banking institution of a business nature that is to engage in renminbi business falling within the business scope specified in Article 29 or 31 of the Regulations shall carry out preparations and complete the following work within the preparatory period:

 

(1) have a sufficient number of business personnel that satisfy its business development requirements;

 

(2) printed important business vouchers and receipts to be used externally;

 

(3) have in place security facilities approved by the relevant departments;

 

(4) established internal control systems and operating rules for the renminbi business; and

 

(5) if it needs to increase its registered capital or operating capital when engaging in renminbi business, appointed an accounting firm lawfully established in China to carry out a capital verification and submitted the capital verification certificate to the CBIRC office of the place where it is located.

 

Article 39: A proposed foreign-invested banking institution of a business nature may carry out preparations for engaging in renminbi business simultaneously with the preparations for commencement of business, and an explanation of the preparations for renminbi business shall be submitted simultaneously with the application for commencement of operations.

 

Where a foreign-invested banking institution of a business nature proposes to engage in renminbi business after it has opened for business, it shall, after completing its preparations for the renminbi business, submit an explanation of the preparations for renminbi business to the CBIRC office of the place where it is located and carry out matters for the amendment of its business license in accordance with the procedure.

 

Article 40: Branches of a wholly foreign-owned bank or Sino-foreign equity joint venture bank shall, as authorized, engage in renminbi business within the scope of business of their head office. Before commencing such business, such a branch shall carry out the preparatory work and submit to the CBIRC office of the place where it is located the authorization letter from its head office to engage in renminbi business.

 

Article 41: If a foreign-invested banking institution of a business nature has a major corporate governance defect, such as non-compliant shareholder qualifications, or has committed a major violation of laws or regulations prior to engaging in renminbi business, it may not engage in such business until it has completed rectification and the same is approved by the CBIRC office of the place where it is located.

 

Article 42: When a foreign-invested banking institution of a business nature or a (sub-) branch thereof is to deal in a new product falling within its scope of business, it shall report the same in writing to the CBIRC or the CBIRC office of the place where it is located within five days after commencing to deal in such product. Such report shall include a description of the new product, the characteristics of the risks therein, the internal control systems and operating rules therefor, etc.

 

Article 43: Foreign-invested banking institutions of a business nature may engage in interbank business in accordance with relevant provisions.

 

Part Four: Administration of Professional Qualifications

 

Article 44: A director, member of the senior management personnel or chief representative of a foreign-invested bank may not perform his/her duties until his/her qualifications to serve in such position have been approved by the CBIRC or the CBIRC office of the place where it is located.

 

Article 45: The proposed person may not serve as a director, member of the senior management personnel or chief representative of a foreign-invested bank if:

 

(1) he/she has a criminal record involving a deliberate act or gross negligence;

 

(2) he/she has committed an ethics violation, giving rise to adverse effects;

 

(3) he/she bears personal liability or direct leadership liability for the illegal business activities or material loss of an institution for which he/she previously served, and the circumstances thereof were serious;

 

(4) he/she is serving or has served as a director or member of the senior management personnel of an institution that has gone into receivership, been closed down, declared bankrupt or had its business license revoked, unless he/she can show that he/she does not bear personal liability for the previous institution for which he/she served having gone into receivership, been closed down, declared bankrupt or had its business license revoked;

 

(5) he/she breached professional ethics, violated personal integrity or committed a serious dereliction of duty resulting in a material loss or an adverse effect;

 

(6) he/she directed or participated in the un-cooperation with lawful regulation, or the investigation of a case involving, an institution in which he/she served;

 

(7) he/she has had his/her qualifications to serve as a director or member of the senior management personnel cancelled for life, or he/she has been penalized by the regulator or another financial administration department at least two times in the aggregate;

 

(8) he/she or his/her spouse is burdened by a relatively large debt and is insolvent including but not limited to an overdue loan with the foreign-invested bank;

 

(9) another circumstance applies to him/her that gives rise to a clear conflict of interest between another position held by him/her and his/her proposed position or that would clearly reduce the time and energy he/she has to perform his/her duties;

 

(10) he/she does not satisfy the conditions for the qualifications for the position as specified herein but he/she uses illegitimate means to secure approval for qualifications for the position;

 

(11) laws, administrative regulations or departmental rules specify that he/she may not serve as a director, member of the senior management personnel or chief representative of a financial institution; or

 

(12) he/she is characterized by another circumstance as determined by the CBIRC.

 

Article 46: Where a director, member of the senior management personnel or chief representative of a foreign-invested bank shall have his/her qualifications to serve in such position approved, matters shall be handled in accordance with the rules and regulations on administrative permissions of foreign-invested banks.

 

Article 47: If a proposed person has served as a director, member of the senior management personnel or chief representative of a banking financial institution in China, the CBIRC or the CBIRC office of the place where it is located may, as required, before approving his/her qualifications to serve in the proposed position, seek the opinion of the regulator of the institution in which the proposed person previously served.

 

The regulator of the institution in which the proposed person previously served shall provide feedback in a timely manner.

 

Article 48: After the foreign-invested bank has submitted the professional qualification approval application materials, the CBIRC or the CBIRC office of the place where it is located may interview the proposed person before he/she takes up his/her position.

 

Article 49: Where the chairman of the board or bank president of a foreign-invested banking institution of a business nature directly subject to oversight by the CBIRC is to be absent from his/her position continuously for at least one month, he/she shall report the same to the CBIRC in writing.  Where the chairman of the board, bank president, branch manager or sub-branch manager of another foreign-invested banking institution of a business nature or the chief representative of the representative office of a foreign bank is to be absent from his/her position continuously for at least one month, he/she shall report the same to the CBIRC office of the place where it is located in writing. When the foreign-invested bank submits the aforementioned report, it shall designate someone to exercise his/her functions and powers on his/her behalf for a period not to exceed six months.  The foreign-invested bank shall select and appoint within six months someone that meets the qualification conditions for the position to officially take up the position.

 

Article 50: If a director, member of the senior management personnel or chief representative of a foreign-invested bank is characterized by any of the following circumstances, the CBIRC or its office may, depending on the circumstances, revoke his/her qualifications to serve in his/her position for a fixed period of time up to a lifetime ban:

 

(1) he/she has his/her criminal liability pursued in accordance with the law;

 

(2) he/she refuses, interferes with, obstructs or seriously affects the regulation carried out in accordance with the law by the CBIRC or its office;

 

(3) the institution in which he/she serves suffers a material property loss or a major financial crime occurs due to a lack of soundness in its internal management and control systems or lax implementation or supervision thereof;

 

(4) the institution in which he/she serves goes into receivership, is merged or is declared bankrupt due to operating in serious violation of laws or regulations, unsound internal controls or long-term incompetent operation and management;

 

(5) the institution in which he/she serves incurs material losses due to long-term incompetent operation and management;

 

(6) the CBIRC or its office discovers that an incumbent director, member of the senior management personnel or chief representative of a foreign-invested bank had committed a violation of laws or regulations before taking up his/her position or other acts that make him/her ineligible to serve in his/her position; or

 

(7) he/she is characterized by another circumstance as determined by the CBIRC.

 

Part Five: Regulation

 

Article 51: A foreign-invested banking institution of a business nature shall establish internal control systems and operating rules appropriate to the development of its business and shall submit the amendments made to such internal control systems and operating rules to the CBIRC or the CBIRC office of the place where it is located by the end of March each year.

 

Article 52: A wholly foreign-owned bank or Sino-foreign equity joint venture bank shall establish an independent risk management department, compliance department and internal audit department.

 

A foreign bank's branch shall designate a dedicated department or person to be responsible for compliance work.

 

Article 53: Once a foreign-invested banking institution of a business nature completes an internal audit, it shall timely submit the internal audit report to the CBIRC or the CBIRC office of the place where it is located. The CBIRC or the CBIRC office of the place where it is located may adopt appropriate means to communicate with the internal audit personnel of the foreign-invested banking institution of a business nature.

 

Article 54: A foreign-invested banking institution of a business nature shall establish a system for classifying loan risks and submit the correspondence between its loan risk classification criteria and the classification standards specified by the CBIRC to the CBIRC or the CBIRC office of the place where it is located.

 

Article 55: For the purposes of Article 40 of the Regulations, the phrase "provisions on the administration of asset-liability ratios" means the provisions of Article 39 of the PRC Commercial Banking Law.

 

The provisions of the system of indicators for banking regulatory statements shall apply to the method of calculating the asset-liability ratio of wholly foreign-owned banks and Sino-foreign equity joint venture banks.

 

Article 56: A wholly foreign-owned bank or Sino-foreign equity joint venture bank shall establish a system for the management of affiliated transactions. Affiliated transactions must comply with commercial principles and the transaction terms may not be more favorable than the terms of transactions conducted with non-affiliated parties.

 

The CBIRC and its offices shall determine affiliated parties and affiliated transactions in accordance with relevant measures for the administration of the affiliated transactions of commercial banks.

 

Article 57: A foreign-invested banking institution of a business nature shall formulate policies and management systems for the outsourcing of business, including the decision making procedure for the outsourcing of business, the evaluation and management of contractors, measures and contingency plans to control the confidentiality and security of bank information, etc.

 

When a foreign-invested banking institution of a business nature carries out outsourcing activities, it shall regularly submit reports assessing such activities to the CBIRC or the CBIRC office of the place where it is located.

 

If, in the course of carrying out outsourcing activities, a foreign-invested banking institution of a business nature encounters an event that has a material impact on its business operations, the security of customers' information, its reputation, etc., it shall report the same to the CBIRC or the CBIRC office of the place where it is located in a timely manner.

 

Article 58: For the purposes of Article 44 of the Regulations, the phrase "a foreign bank's branch shall hold a certain percentage of interest-bearing assets in accordance with provisions" means that a foreign bank's branch shall hold CBIRC designated interest-bearing assets equal to not less than 5% of its public liabilities. Once the balance of CBIRC designated interest-bearing assets held by a foreign bank's branch equals 30% of its operating capital, it may cease increasing the same, unless otherwise required by the CBIRC or its office based on the risk position of the foreign bank's branch.

 

For the purposes of the first paragraph, the term "CBIRC designated interest-bearing assets" includes sovereign bonds issued by the Ministry of Finance of China, notes issued by the People's Bank of China, financial bonds issued by Chinese policy banks and development banks, term interbank deposits of at least one month with designated institutions as well as other assets designated by the CBIRC. The aforementioned assets do not include assets that are encumbered by a pledge or in respect of which other means of disposal that affect the right to control the same have been taken.

 

For the purposes of the first paragraph, the term "public liabilities" means a foreign bank's branch's deposits, interbank deposits (excluding those from offshore financial institutions), interbank borrowings (excluding those from offshore financial institutions) as well as other liabilities designated by the CBIRC.

 

For the purposes of the second paragraph, the term "designated institution" means a non-affiliated Chinese-invested commercial bank, wholly foreign-owned bank or Sino-foreign equity joint venture bank established in China, the operations of which are stable and which has significant capabilities. The interest-bearing assets of a foreign bank's branch existing in the form of term interbank deposits shall be deposited with at most three designated institutions.

 

A foreign bank's branch shall daily calculate and maintain the specified percentage of interest-bearing assets, which shall be assessed on a consolidated basis for all the branches in China of the foreign bank.

 

The managing branch of branches of a foreign bank shall monthly report to the CBIRC office of the place where it is located on the holding of CBIRC designated interest-bearing assets held by the branches in China.  The report shall include the banks with which term interbank deposits are deposited, the amounts and terms thereof and the interest rates thereon, the amount, form and maturity dates of other interest-bearing assets.

 

Article 59: For the purposes of Article 45 of the Regulations, the phrase "the total of operating capital plus reserves, etc." means the total of operating capital, retained profits and general reserve for loan losses; the term "risk assets" means both on and off balance sheet risk-weighted assets calculated in accordance with relevant provisions on risk-weighted assets.

 

The percentage specified in Article 45 of the Regulations shall be calculated on a consolidated basis for all the branches in China of a foreign bank and the balance shall be assessed at the end of each quarter. The managing branch of branches of the foreign bank shall report to the CBIRC office of the place where it is located on a quarterly basis.

 

Article 60: The current assets of a foreign bank's branch shall include cash, gold, deposits with the People's Bank of China, deposits with other banks, placements with other banks maturing within one month, loans to other banks maturing within one month, net assets of transactions with affiliated banks and subsidiaries overseas maturing within one month, interest receivable and other receivables due within one month, loans maturing within one month, bond investments maturing within one month, other bond investments on secondary markets in China and abroad that can be realized at any time and other assets that can be realized within one month. The portion of the foregoing assets that is deemed unrecoverable shall be deducted from the current assets. The portion of the interest bearing assets used to satisfy the minimum regulatory requirements specified in Article 58 hereof shall not be counted as part of current assets.

 

A foreign bank's branch's current liabilities shall include current deposits, term deposits maturing within one month, deposits from other banks, placements from other banks maturing within one month, loans from other banks maturing within one month, net liabilities of transactions with affiliated banks and subsidiaries overseas maturing within one month, interest payable and other payables maturing within one month and other liabilities maturing within one month. Frozen deposits shall not be counted as part of current liabilities.

 

A foreign bank's branch shall calculate its liquidity percentage each day and maintain the same in line with Article 46 of the Regulations. The same shall be assessed on a consolidated basis for all the branches in China of the foreign bank. The managing branch of branches of the foreign bank shall report to the CBIRC office of the place where it is located on a monthly basis.

 

Article 61: The "balance of renminbi and foreign currency assets in China" and "the balance of renminbi and foreign currency liabilities in China" mentioned in Article 47 of the Regulations shall be calculated as follows:

 

balance of renminbi and foreign currency assets in China = total renminbi and foreign currency assets – transactions with affiliated banks overseas (assets) – transactions with subsidiary institutions overseas (assets) – overseas loans – deposits overseas with other banks – placements overseas with other banks – purchased overseas reverse repos – overseas investments – other overseas assets

 

The following investments shall not be included among overseas investments: purchases of bonds issued overseas by the Chinese government, Chinese financial institutions and Chinese non-financial institutions.

 

balance of renminbi and foreign currency liabilities in China = total renminbi and foreign currency liabilities – transactions with affiliated banks overseas (liabilities) – transactions with subsidiary institutions overseas (liabilities) – overseas deposits – deposits overseas from other banks – placements overseas from other banks – sold overseas repos – other overseas liabilities.

 

The provisions of Article 47 of the Regulations shall be assessed by consolidating the branches in China of a foreign bank.

 

Article 62: A foreign-invested banking institution of a business nature may not falsely report, over report or under report its assets, liabilities or owner's equity.

 

Article 63: If two or more foreign bank's branches are established in China, one branch among them shall be designated as the managing branch by the head office of the foreign bank or its authorized regional headquarters. The managing branch shall be centrally responsible for management of the business in China and the submission of the consolidated financial information and collated information of all the branches in China.

 

The foreign bank or its authorized regional headquarters shall designate the managing branch's manager as being responsible for management of the business in China and designate its compliance officer as being responsible for the compliance work relating to the business in China.

 

Article 64: A foreign-invested banking institution of a business nature shall submit information on large cross-border fund movements and asset transfers to the CBIRC or the CBIRC office of the place where it is located at the end of each quarter in accordance with the provisions of the CBIRC.

 

Article 65: If the head office or an affiliated bank of a foreign-invested banking institution of a business nature transfers credit assets to it, the foreign-invested banking institution shall report the same to the CBIRC or the CBIRC office of the place where it is located within five days after the transfer, submitting written materials on the amounts, terms and types of, and the security provided for, the credit assets that have been transferred to it.

 

Article 66: If a foreign bank's branch is characterized by any of the circumstances set forth below, it shall report the same to the CBIRC office of the place where the branch or the managing branch is located:

 

(1) if the total of its retained profits and net gains and losses for the year are negative and the total of the absolute value of such negative number and the as yet insufficiently allocated portion of the loan loss reserve exceeds 30% of its operating capital, it shall report the same at the end of each quarter;

 

(2) if the balance of the credit extended to all of its large customers exceeds eight times its operating capital, it shall report the same at the end of each quarter; the term "large customer" means a customer to which the balance of the credit extended exceeds 10% of the foreign bank's branch's operating capital; this indicator shall be calculated by consolidating the quarter end balances of the branches in China of the foreign bank;

 

(3) if the balance of the assets from the foreign bank's branch's transactions with affiliated banks and subsidiaries overseas exceeds the total of the balance of liabilities from its transactions with affiliated banks and subsidiaries overseas and its operating capital, the same shall be reported at the end of each month; this indicator shall be calculated by consolidating the quarter end balances of the branches in China of the foreign bank; or

 

(4) it is characterized by another circumstance as determined by the CBIRC.

 

Article 67: The special regulatory measures that the CBIRC and its offices take against foreign-invested banking institutions of a business nature shall include the following:

 

(1) meeting the relevant person in charge for a warning talk;

 

(2) ordering it to submit a written report on the relevant issue within a specified period of time;

 

(3) placing restrictions on the flow of funds out of China;

 

(4) ordering it to suspend certain business or temporarily refusing to accept applications from it to engage in new business;

 

(5) ordering it to issue an undertaking;

 

(6) setting forth special requirements in respect of the relevant risk regulation indicator;

 

(7) requiring it to maintain a certain percentage of assets approved by the CBIRC;

 

(8) ordering it to supplement its capital or operating capital within a specified period of time;

 

(9) ordering it to replace a director or directors or a member or members of its senior management personnel within a specified period of time;

 

(10) temporarily refusing to accept applications from it to add establishments;

 

(11) placing restrictions on profit distributions and the remittance of profits abroad;

 

(12) assigning special regulatory personnel to monitor and give guidance on its day-to-day operations and management;

 

(13) increasing the frequency at which reports and statements for regulatory purposes need to be submitted; and

 

(14) other special regulatory measures available to the CBIRC.

 

Article 68: Where a foreign bank has established both a wholly foreign-owned bank (or Sino-foreign equity joint venture bank) and foreign bank branches in China, it shall make clear their respective functional positioning and governance structures, avoid conflicts of interest, establish management, business, personnel and information risk isolation mechanisms so as to ensure that their respective institution names, products and places of business are kept separate and implement autonomous management and autonomous operation thereof.

 

Article 69: A foreign-invested banking institution of a business nature shall report the following material matters to the CBIRC or the CBIRC office of the place where it is located in a timely manner:

 

(1) a major problem in its financial position or business activities;

 

(2) a material revision of its business strategy;

 

(3 if, for a reason other than force majeure, it is to be closed for business for less than two days, other than on statutory holidays, it shall report the same in writing to the CBIRC or the CBIRC office of the place where it is located;

 

(4) a major resolution of the board of directors of the wholly foreign-owned bank or Sino-foreign equity joint venture bank;

 

(5) a change in the articles of association, registered capital or registered address of the head office of the foreign bank's branch or a shareholder of the wholly foreign-owned bank or Sino-foreign equity joint venture bank;

 

(6) the merger, division or other such material restructuring of the head office of the foreign bank's branch or a shareholder of the wholly foreign-owned bank or Sino-foreign equity joint venture bank or a change in its chairperson of the board of directors or manager (or chief executive officer or general manager);

 

(7) a major problem in the financial position or business activities of the head office of the foreign bank's branch or of a shareholder of the wholly foreign-owned bank or Sino-foreign equity joint venture bank;

 

(8) the involvement in a major case of the head office of the foreign bank's branch or of a shareholder of the wholly foreign-owned bank or Sino-foreign equity joint venture bank;

 

(9) a major regulatory measure taken against the head office of the foreign bank's branch or a foreign shareholder of the wholly foreign-owned bank or Sino-foreign equity joint venture bank by the financial regulator of its domicile country or region or against another overseas (sub-)branch or office by the finance regulator of the place where it is located;

 

(10) a material change in the finance regulatory regulations or finance regulatory system of the domicile country of the head office of the foreign bank's branch or of a foreign shareholder of the wholly foreign-owned bank or Sino-foreign equity joint venture bank; and

 

(11) other matters that the CBIRC requires be reported.

 

Article 70: The representative office of a foreign bank shall promptly submit a report to the CBIRC office of the place where it is located if any of the following material matters occurs in respect of the foreign bank that it represents:

 

(1) its articles of association, registered capital or registered address changes;

 

(2) the merger, division or other such material restructuring thereof or a change in its chairperson of the board of directors or manager (or chief executive officer or general manager);

 

(3) a major problem in its financial position or business activities;

 

(4) its involvement in a major case;

 

(5) major regulatory measures taken against it by the financial regulator of its domicile country or region; or

 

(6) other matters that have a material impact on the operations of the foreign bank.

 

Article 71: If a person who is not a formal employee of an establishment in China of a foreign-invested bank works at such establishment for more than 20 days in succession or works an aggregate of more than 30 days in a 90 day period, the foreign-invested bank shall report the same to the CBIRC or the CBIRC office of the place where it is located.

 

Article 72: A wholly foreign-owned bank, Sino-foreign equity joint venture bank or foreign bank with at least two branches in China shall, after the end of each financial year, engage an accounting firm lawfully established in China to carry out a consolidated or combined audit of all of its establishments of a business nature in China and, within four months after the end of the financial year, submit an audit report and the written management recommendation to the CBIRC or the CBIRC office of the place where the head office of the wholly foreign-owned bank or Sino-foreign equity joint venture bank or the managing branch is located.

 

A foreign bank's branch shall, after the end of each financial year, engage an accounting firm lawfully established in China to carry out an audit and, within four months after the end of the financial year, submit an audit report and the written management recommendation to the CBIRC office of the place where it is located.

 

Article 73: One month before a foreign-invested banking institution of a business nature engages an accounting firm lawfully established in China to carry out an annual audit or another type of audit, it shall submit the basic particulars of the accounting firm and those of the registered accountants that will participate in the audit to the CBIRC or the CBIRC office of the place where it is located.

 

Article 74: The annual audit of a wholly foreign-owned bank or Sino-foreign equity joint venture bank shall include information on the following: its capital adequacy, asset quality, corporate governance, internal controls, profitability, liquidity, market risk management, etc.

 

The annual audit of a foreign bank's branch shall include the following: financial reports, information on risk management, operational controls, compliant operations, asset quality, etc.

 

Article 75: As required, the CBIRC or its office may designate an accounting firm to audit the business position, financial position, risk position, internal control systems and the implementation thereof, etc. of a foreign-invested banking institution of a business nature.

 

Article 76: The CBIRC or its office may require a foreign-invested banking institution of a business nature to replace an accounting firm whose professional skills or independence do not satisfy regulatory requirements.

 

Article 77: A wholly foreign-owned bank or Sino-foreign equity joint venture bank shall submit its annual report and those of its shareholders to the CBIRC or the CBIRC office of the place where its head office is located within six months after the end of a financial year.

 

A foreign bank's branch or representative office of a foreign bank shall submit the annual report of its head office to the CBIRC office of the place where it is located within six months after the end of its head office's financial year.

 

Article 78: The representative office of a foreign bank shall, by the end of February each year, submit to the CBIRC office of the place where it is located in the format required by the CBIRC a work report for the preceding year and its work plan for the current year.

 

Article 79: The representative office of a foreign bank shall have independent office premises, office facilities and full time working personnel.

 

Article 80: The representative office of a foreign bank shall have a reasonable number of working personnel and the positions of such working personnel shall conform with the work duties of a representative office.

 

Article 81: The representative office of a foreign bank shall keep accounting books that truthfully reflect its financial receipts and expenditures, and its costs, expenses and expenditures shall be in conformity with the work duties of a representative office.

 

The representative office of a foreign bank may not use the account of another enterprise, organization or that of an individual.

 

Article 82: The representative office of a foreign bank may not use a business processing system in its computer system that is not in conformity with the duties of a representative office.

 

Article 83: The materials, other than annual reports, whose submission is required by these Rules, shall, if written in a foreign language, be accompanied by a Chinese translation.  The internal control systems, business operating rules and the specimens of the business vouchers of a foreign-invested banking institution of a business nature shall be accompanied by a Chinese translation; other relevant documents in business files and management files shall also be accompanied with Chinese translations if the regulatory personnel deems the same necessary.  Under special circumstances, the CBIRC or its office may require relevant Chinese translations to be notarized by an organization approved by the domicile country or region of the head office of the foreign bank's branch or the foreign shareholder of the wholly foreign-owned bank or Sino-foreign equity joint venture bank and authenticated by Chinese embassy or consulate in such country.

 

Article 84: Foreign-invested banks shall abide by relevant laws and regulations on anti-money laundering and anti-terrorist financing.

 

Part Six: Termination and Liquidation

 

Article 85: For the purposes of Article 58 of the Regulations, the phrase "to terminate its business activities of its own accord" shall include the following circumstances:

 

(1) the term of operation specified in the articles of association of the wholly foreign-owned bank or Sino-foreign equity joint venture bank expires or other grounds for dissolution arise;

 

(2) the shareholders' meeting of the wholly foreign-owned bank or Sino-foreign equity joint venture bank decides to dissolve it;

 

(3) the wholly foreign-owned bank or Sino-foreign equity joint venture bank merges or is divided and needs to be dissolved; or

 

(4) the foreign bank, wholly foreign-owned bank or Sino-foreign equity joint venture bank closes a branch in China.

 

Article 86: The wholly foreign-owned bank or Sino-foreign equity joint venture bank whose dissolution has been approved by the CBIRC or the branch in China of the foreign bank, wholly foreign-owned bank or Sino-foreign equity joint venture bank whose closure has been approved by the CBIRC shall halt its business operations from the date on which the decision of the CBIRC enters into effect, return its finance permit and, within 15 days, establish a liquidation committee.

 

Article 87: The members of the liquidation committee shall include the manager (or general manager), the chief accountant, (a) certified public accountant(s) in China and other persons designated by the CBIRC. The liquidation committee of a wholly foreign-owned bank or Sino-foreign equity joint venture bank shall also include representatives of the shareholders and the chairperson of the board of directors.  The names of the members of the liquidation committee shall be submitted to the CBIRC or the local CBIRC office for its consent.

 

Article 88: The liquidation committee shall notify the administration for market regulation, tax authority, human resources and social security department and other such departments in writing.

 

Article 89: Other matters relating to the dissolution of a wholly foreign-owned bank or Sino-foreign equity joint venture bank of its own accord, or to the closure of a branch in China of a foreign bank, wholly foreign-owned bank or Sino-foreign equity joint venture bank shall be handled in accordance with the relevant provisions of the PRC Company Law.

 

Article 90: The CBIRC or its offices shall be responsible for monitoring the dissolution and liquidation process of the foreign-invested banking institution of a business nature and its (sub-)branches that are being dissolved or closed down. Material matters and the results of the liquidation shall be reported to the CBIRC by level.

 

Article 91: The liquidation committee shall, within 30 days from the date of its establishment, engage an accounting firm lawfully established in China to conduct an audit and, within 60 days from the date of engagement, submit the audit report to the CBIRC or the local CBIRC office.

 

Article 92: Foreign exchange related matters requiring examination/check and approval during the liquidation process shall be subject to the approval of the State Administration of Foreign Exchange and its branches.

 

Article 93: The liquidation committee, in the course of discharging the debts, shall, after paying liquidation expenses and paying wages and labor insurance premiums owing to the staff and workers, pay the principal of and interest on individuals' savings accounts on a priority basis.

 

Article 94: The liquidation committee shall submit to the CBIRC or the local CBIRC office a report on the discharge of debts, the disposal of assets, the recovery of loans, the closing of accounts, etc. by the 10th of each month.

 

Article 95: Once the liquidation of a foreign bank branch is completed, it shall report the same to the local CBIRC office five days before setting aside the interest-bearing assets, and submit written materials such as a report on the completion of the liquidation and proof of cancellation of tax registration.

 

Article 96: Once the liquidation is complete, the liquidation committee shall prepare a liquidation report, submit it to the CBIRC or the local CBIRC office for confirmation, submit it to the administration for market regulation when applying for cancellation of business registration and publish an announcement.  The liquidation committee shall submit the contents of the announcement in writing to the CBIRC or local CBIRC office three days prior to the announcement date.

 

Article 97: After the liquidation, the accounting files and business information shall be handled in accordance with relevant provisions.

 

Article 98: The CBIRC and its office will not, for a period of two years following the date of conclusion of the liquidation of a foreign bank's branch, accept an establishment application from the foreign bank for an establishment of a business nature in the same city.

 

Article 99: If a wholly foreign-owned bank or Sino-foreign equity joint venture bank is operating in violation of laws or regulations, is operated or managed incompetently or is characterized by other such circumstances and failing to close it down would materially jeopardize the order in the finance industry or harm the public interest, the CBIRC shall close it down in accordance with the law.

 

If the CBIRC orders the closure of a foreign bank's branch, matters shall be handled in accordance with the relevant provisions of the PRC Company Law.

 

Article 100: Where a wholly foreign-owned bank or Sino-foreign equity joint venture bank voluntarily or upon the demand of its creditors files for bankruptcy due to its failure to pay debts that have fallen due, or it is liquidated due to dissolution and, after the inventory of property and preparation of the balance sheet and property list, the liquidation committee discovers that the property of the wholly foreign-owned bank or Sino-foreign equity joint venture bank is insufficient to discharge its debts and must file for bankruptcy, it shall, subject to the approval of the CBIRC, promptly apply to the people's court for a declaration of bankruptcy.  Once the people's court renders a ruling declaring the wholly foreign-owned bank or Sino-foreign equity joint venture bank bankrupt, the liquidation committee shall transfer the liquidation matters to the people's court.

 

Article 101: When a foreign bank converts its branches in China into a wholly foreign-owned bank in which its head office is the sole investor, the foreign bank's branches shall return their finance permits and carry out de-registration procedures with the administrations for market regulation in accordance with the law once the wholly foreign-owned bank commences business.

 

Article 102: A representative office that has received approval to close down shall, within 15 days after completing de-registration procedures in accordance with the law, publish an announcement and submit the contents of the announcement to the CBIRC office of the place where it is located.

 

Part Seven: Supplementary Provisions

 

Article 103: The term "day" herein means a working day.

 

Article 104: The CBIRC shall bear regulatory entity liability in respect of the foreign-invested banks that it directly oversees, and guide its offices in the work of overseeing foreign-invested banks.

 

Article 105: If a foreign-invested bank violates these Rules, the CBIRC will penalize it in accordance with the Regulations and other relevant provisions.