CBI member, Norton Rose Fulbright have published a helpful guide to the China Banking & Insurance Regulatory Commission (CBIRC) Regulations on Foreign Invested Banks, which have just been released for public consultation.
The latest draft includes amendments to the (Doc.1) Detailed Rules for the Implementation of the Regulation on the Administration of Foreign-Funded Banks. The aforementioned draft sits within a wider set of draft amendments, known as the (Doc.2) Regulation on the Administration of Foreign-Funded Banks.
Published a few days before the (Doc.1) Detailed Rules for the Implementation…, together they form the (Doc.3) Draft Foreign Investment Enterprise Bank Rules (Draft FIE Bank Rules).
Complicated introduction aside, the Draft FIE Bank Rules are significant because the document is the first ever offering from the CBIRC to clearly set out how the principles of “national treatment” and “same market entry and administrative standards” are managed through legislation within the banking sector.
A commonly-cited market access issue within the financial services sector for foreign companies is the fact that Chinese regulators are reluctant to provide clear, published and publicly available definitions on how different established ‘principles’ should be managed practically.
Norton Rose Fulbright have released a useful and short guide covering the Draft FIE Bank Rules and where they see significant movements that are of note to the foreign banks who have already opened wholly-owned subsidiary banks and/or branches in China.
This set of regulations will take on more significance, as more foreign banks announce, and take steps to, own their joint ventures – partnerships with which they may have already established branches.
Norton Rose Fulbright’s Key Points:
- A foreign bank is allowed to hold in China (a) wholly-owned subsidiary bank(s) and branch(es) at the same time, or (b) joint venture bank(s) and branch(es) in parallel at the same time. This is in line with the “one control or two participations” principle applied to domestically-funded commercial banks, i.e. one bank is only allowed to control one domestically-funded bank or participate into no more than two domestically-funded banks in the same nature.
- FIE Banks (i.e. wholly-owned subsidiary banks and joint venture banks) and foreign banks’ Chinese branches, in synergy with their parent banks, are allowed to provide comprehensive financial services to their Chinese clients to support them to issue bonds, launch IPO, conduct M&A and seek financing overseas. This seems to suggest that FIE Banks and foreign banks’ Chinese branches, together with their parent foreign banks, can provide investment banking services to Chinese clients for their overseas transactions without any specific licence or permit from CBIRC. Meanwhile, foreign banks who hold both FIE Banks and branches in China are required to ensure:
- Their Chinese branches shall always meet the prudential conditions set out by CBIRC.
- The FIE Banks and Chinese branches have distinguished functions and corporate governance, separate management, business, staff and information risk segregation mechanisms.
- Any business conducted between the FIE Banks and/or branches with their foreign parent banks shall comply with the business principles and shall not be subject to the terms and conditions which are more favourable than those offered to non-connected parties.
- Their Chinese branches can only conduct wholesale business, i.e. business with entities, not individuals, if a FIE bank is set up in China.In addition to these 6 main points, the Draft FIE Bank Rules also cover: amendments to reporting RMB requirements for conducting derivative business, approval requirements for conducting business in RMB, various thresholds for regulatory asset/debt ratios, as well as the procedures behind the review and inspection requirements of foreign banks operating within China. As noted by Norton Rose Fulbright, although the implementation of the new rules, if published (which would be a major step in itself), is still subject to rest, at least these Draft FIE Bank Rules demonstrate the commitment made by the Chinese government to further open the banking sector to foreign investment. Furthermore, it demonstrates that the CBIRC is trying to improve the consistency of the regulatory environment, whilst developing it in a more transparent way.
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