2024 Annual Review of Banking and Finance Laws in China

The year 2024 marked a pivotal phase for China’s banking and financial sector, as the Chinese regulators sought to balance economic recovery with systemic risk containment. Amid a sluggish real estate market, geopolitical tensions, and global monetary tightening, the Chinese regulators, including the People's Bank of China ("PBOC") and the National Financial Regulatory Administration ("NFRA"), had prioritized financial stability, and continued to steadily advance the reform of the financial regulatory framework.


1.         Amended "Three Measures" and Syndicated Loan Measures Released

In February 2024, the NFRA issued the amended Measures for the Administration of Fixed-Asset Loans (固定资产贷款管理办法), Measures for the Administration of Working Capital Loans (流动资金贷款管理办法) and Measures for the Administration of Personal Loan (个人贷款管理办法) (collectively, the "Three New Measures"), replacing the original interim measures and guidelines applicable to these loans that have been implemented for over a decade. The Three New Measures streamlined and optimized the regulatory requirements applicable to the loan business of PRC banking financial institutions, particularly with an increased threshold and flexibilities for entrusted payment of loan proceeds, and the specific requirements on loan tenor, extensions, and repayment arrangements for different types of loans.

Later in October 2024, the NFRA released the Measures for the Administration of Syndicated Loan Business (银团贷款业务管理办法, the "Syndicated Loan Measures"), aiming to align domestic syndication practices with international standards and enhance interbank cooperation. The Syndicated Loan Measures expressly allow a syndicated loan to be divided into tranches based on different tenors, interest rates and other commercial terms, provided that there may be no more than three tranches, and no more than one tranche with one single lender under a syndicated loan transaction. All tranches of a syndicated loan must be administered by the same agent bank. It was also specified that for each function involved under a syndicated loan, only one agent bank may be appointed, and the disbursement and collection of the loan must be made through the agent bank.

“Notably, the Syndicated Loan Measures have relaxed the restrictions on the partial transfer of participation by a lender under a syndicated loan”

Notably, the Syndicated Loan Measures have relaxed the restrictions on the partial transfer of participation by a lender under a syndicated loan. Subject to the right of first refusal of the other lenders under the syndicated loan transaction, a lender may transfer all or part of its participation in the loan to another bank or such other institution as may be recognized by the NFRA, provided that the principal and interest of loan must be transferred proportionately. The transfer must be effected through and registered with the Banking Credit Asset Registration and Transfer Center (银登中心, "Yindeng" ) under the Rules for the Transfer of Syndicated Loans (Trial Implementation) (银团贷款转让交易业务规则 (试行)) and procedures of Yindeng. The Syndicated Loan Measures also relaxed the percentage thresholds of the loan portion that a mandated lead arranger must retain, or allot to the other syndicate members respectively, and clarified that such threshold requirements should not be circumvented by way of loan transfer.

On the fee arrangements, the Syndicated Loan Measures no longer specify strict rules on the frequency and method of charging fees in syndicated lending, shifting to a principle-based and negative list management approach.

The Syndicated Loan Measures are likely to further enhance and facilitate the development of the China syndicated loan market, particularly with respect to the secondary loan transfer market which had been inactive in the past years. Since the publication by the NFRA of the consultation paper in March 2024, the Syndicated Loan Measures have drawn extensive discussions in the loan market. There are still a number of practical issues pending further clarification by the regulators, particularly around the application of the Syndicated Loan Measures towards the origination, administration, and transfer of cross-border syndicated loan transactions (i.e. syndicated loan transactions involving onshore lenders and overseas lenders), given the spike in such transactions in the recent two years following the promulgation of Order No. 27.

“This was the first specific regulation on commercial property loans in China”

2.         New Rules on Commercial Property Loan

In January 2024, to address the growing financing demands of the real estate industry, the PBOC and NFRA jointly issued the Circular on Effectively Administering Commercial Property Loans (关于做好经营性物业贷款管理的通知, the "Commercial Property Loan Circular"). This was the first specific regulation on commercial property loans in China. A commercial property loan refers to a loan granted to the owner of an established commercial property and secured by a mortgage over such property, for purposes relating to the relevant property, including the maintenance, renovation and refinancing of the property (excluding the acquisition of land use right or the construction of new projects).

The Commercial Property Loan Circular requires that, in principle, the amount of a commercial property loan must not exceed 70% of the appraised value of the relevant property, and the loan tenor must not exceed 10 years (and in any event not exceeding 15 years). The maturity date of such loan must be at least five years earlier than the expiration date of the title certificate of the relevant property. The Commercial Property Loan Circular also sets forth the requirements on the control over cash flow and such other measures to be taken by the banks in monitoring and mitigating the relevant risks applicable to commercial property loans.

3.         Financial Institutions and Compliance

In 2024, as part of its systemic reform of the regulatory framework, the NFRA released a series of amended and new regulations concerning the administration and regulatory compliance of financial institutions, including the Measures on the Compliance Management of Financial Institutions (金融机构合规管理办法), Measures for the Administration of Consumer Financing Companies (消费金融公司管理办法), Measures for the Regulatory Rating of Consumer Financing Companies (消费金融公司监管评级办法), Measures for the Administration of Financial Leasing Companies (金融租赁公司管理办法), the Measures for the Regulatory Rating of Financial Leasing Companies (金融租赁公司监管评级办法), Encouraged List and Negative List for the Business Development of and the Positive List for the Business of Project Companies of Financial Leasing Companies (金融租赁公司业务发展鼓励清单、负面清单和项目公司业务正面清单), etc.

These rules generally reflected the unified approach of the NFRA towards the administration of financial institutions, as in the previous regulations issued in 2023 concerning group financial companies and auto loan companies, and further tightened and specified the regulatory requirements and guidelines in terms of, among other things, the shareholding structure and corporate governance, related transactions, risk management, information disclosure and consumer protection of financial institutions. Particularly with respect to financial leasing companies, the new rules also provided for further flexibility and clarity in respect of the financing activities and the leasing business of financial leasing companies, including cross-border business through professional subsidiaries and project companies.

The NFRA also issued the Measures for the Data Security Management of Banking and Insurance Institutions (银行保险机构数据安全管理办法) in December 2024, setting out the detailed requirements for financial institutions in respect of data classification, data security and protection, as well as emergency response plans and reporting etc.

4.         Implementation Rules for Payment Regulation

Following the promulgation of the Regulations on the Supervision and Management of Non-Bank Payment Institutions (非银行支付机构监督管理条例, the "Payment Regulation") in 2023, PBOC released the Implementation Rules for the Regulations on the Supervision and Management of Non-Bank Payment Institutions (非银行支付机构监督管理条例实施细则, the "Implementation Rules"). The Implementation Rules set out detailed requirements and procedures for the incorporation, corporate changes, and termination of payment institutions. These rules also elaborate on specific regulatory requirements under the Payment Regulation, such as financial parameters, emergency response plans, record keeping and reporting obligations. The Implementation Rules provide for a specific transition period for existing payment institutions to comply with the requirements under the new rules.

5.         Derivatives

The Measures for the Administration of Margin for Non-Centrally Cleared Derivatives Transactions by Financial Institutions (金融机构非集中清算衍生品交易保证金管理办法, the "Margin Measures") issued in December 2024 signified an important step taken by the NFRA towards aligning the regulatory framework of the China derivatives market with the global standards. The Margin Measures are broadly consistent with the Margin Requirements for Non-centrally Cleared Derivatives published by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions, aiming to improve the transparency of derivatives transactions, and reduce the systemic risks.

“Other than physically settled foreign exchange forwards/swaps and gold forwards/swaps, all non-centrally cleared derivatives transactions are subject to new margin requirements”

The Margin Measures apply to non-centrally cleared derivatives transactions under which at least one of the counterparties is a NFRA-regulated financial institution or product. These measures established a comprehensive framework in respect of the initial margin and the variation margin in derivatives transactions, consistent with the requirements under the relevant global standards. Other than physically settled foreign exchange forwards/swaps and gold forwards/swaps, all non-centrally cleared derivatives transactions are subject to new margin requirements. Transactions without counterparty credit risks are also exempted from the margin requirements.

PRC financial institutions are required to establish and improve their margin management systems and strengthen compliance management to meet the new regulatory requirements.

“In light of the present economic and geopolitical challenges, stability, resiliency and prudential regulation are likely to remain the main themes for Chinese regulators in 2025”

6.         Outlook for 2025

In light of the present economic and geopolitical challenges, stability, resiliency and prudential regulation are likely to remain the main themes for Chinese regulators in 2025. Apart from further measures to be taken by regulators in order to tackle risks relating to sectors such as real estate, local government debts and mid/small scale financial institutions, it also remains to be seen whether the long-awaited PRC Financial Stability Law (中华人民共和国金融稳定法), which is currently under second round review, will be formally promulgated this year.

With respect to the commercial lending sector, along with the issuance of the Syndicated Loan Measures, market participants will welcome further clarifications and detailed rules from the regulators (including the NFRA and the State Administration of Foreign Exchange) as to how these rules should be applied towards the various structures of cross-border syndicated loan transactions, including the loan transfers thereunder. It is anticipated that there will be a gradual alignment of the related existing regulatory and foreign exchange rules with the Syndicated Loan Measures and general market practice.

Simon Leung, Partner Baker McKenzie

Terry Xu, Senior Counsel FenXun Partners