Financial Services Focus Group Quarterly Update - Q1 2015

Published on 2015-06-15

The first quarter of 2015 saw many regulations issued by financial regulators, including the China Securities Regulatory Commission (CSRC), the China Banking Regulatory Commission (CBRC) and the State Administration of Foreign Exchange (SAFE).

The first quarter of 2015 saw many regulations issued by financial regulators, including the China Securities Regulatory Commission (CSRC), the China Banking Regulatory Commission (CBRC) and the State Administration of Foreign Exchange (SAFE). 

One of the unique features of China financing is that inter-company loans must be conducted through entrustment arrangements with banks.  The CBRC is looking to fine tune the entrustment loan regime and on January 16, 2015 it sought comments on the proposed Administrative Measures for Entrusted Loans Undertaken by Commercial Banks.  Among other things, the Measures require banks to ensure that certain types of funds are not disbursed using entrustment loans, including  funds derived from bank loans, funds raised tough bond issuance or derived from other financing arrangements. 

On March 15, 2015, the CBRC also sought comments on the Draft Implementing Rules for the Regulations on the Administration of Foreign-funded Banks.  The Regulations on the Administration of Foreign Invested Banks were issued on December 20, 2014 and the main provisions in the draft Implementing Rules include:

  • Requirements that foreign-funded banks must have no less than RMB300 million of working capital, at least RMB100 million of which must be retained in RMB, in order to conduct RMB business.
  • Removing the requirement for two years of profits prior to applying for approval for a RMB banking license
  • Permitting foreign-funded banks to apply to conduct RMB business one year after establishment in China, as opposed to the previous 3 years.
  • Abolition of requirement for asset-debt ratios to calculated on the basis of consolidated RMB and foreign currencies.
  • Credit transfers to foreign-funded banks by parent or affiliated banks no longer subject to regulatory approval, which is replaced by recordal requirement.

Meanwhile the CSRC continues to open up domestic channels for investment in financial instruments.  On January 9, 2015, the CSRC issued Administrative Measures for the Pilot Programme for Stock Option Trading, which provides for trading of options by exchanges, securities deposit and clearing institutions.  Securities companies are permitted to engage in brokerage, proprietary account transactions and market making with regard to stock options. Future companies are permitted to engage in brokerage and securities spot brokerage relating to covered calls and the exercise of stock options. The Measures also provide protections for investors and dispute settlement procedures.

On January 15, the CSRC issued the Administrative Measures for Issuance and Trading of Corporate Bond.  The Measures provide that all legal-person entities established under the Company Law are qualified to issue corporate bonds, including private companies.  One chapter in the Measures regulates bond issuance by unlisted companies.  In addition to providing for trading of publicly issued bonds on relevant exchanges or the NEEQ, the Measures provide that corporate bonds which are not publicly issued may be transferred on exchanges, the NEEQ, via the inter-agency offer and service system for privately raised products, or using the OTC market.

SAFE is involved in many initiatives to streamline management of foreign exchange transactions.  On February 13, 2015, SAFE issued the Circular on Further Simplifying and Improving Direct Investment-related Foreign Exchange Administration Policies. Certain provisions in the Circular will help facilitate FDI into China. For example, the requirement for registration of foreign capital contributions or non-monetary contributions by foreign investors in order to acquire equity in Chines companies is cancelled. Additionally, SAFE will no longer be involved in verification and approvals of foreign exchange for both FDI and outbound investment, instead these functions will be carried out by the relevant banks. 

In relation to regulating cross-border foreign currency payments by payment agencies, on January 20, 2015, SAFE issued the Circular on the Pilot Operation of Cross-Border Foreign Currency Payments to be Conducted by Payment Agencies. Only payment agencies qualified and approved for listing on the List of Enterprises for Foreign Exchange Receipts and Payments under Trade are permitted to conduct cross-border payment activities.  Payment agencies are charged with monitoring compliance with relevant regulations by their customers, including checking customer information and the background to relevant trades in goods and services.  Additionally, payment agencies are only permitted to operate using foreign exchange reserve accounts opened with banks.