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China issues rules on foreign-funded banks

(China Daily)
Updated: 2006-11-17 06:47

Regulations of the People's Republic of China on the Administration of
Foreign-funded Banks

Chapter I General Provisions

Article 1 These regulations are formulated for the purposes of meeting
the needs of opening up to the outside world and economic development,
strengthening and improving the supervision of foreign-funded banks, and
promoting the safe and sound operation of the banking industry.

Article 2 The term "foreign-funded bank" in these regulations means any
of the following institutions approved to be established within the
territory of the People's Republic of China in accordance with relevant
laws and regulations of the People's Republic of China:

(1)a wholly foreign-funded bank funded by a foreign bank on its own or
jointly with any other foreign financial institution;

(2)a Chinese-foreign joint venture bank jointly funded by a foreign
financial institution with a Chinese company or enterprise;

(3)a branch of a foreign bank

(4)a representative office of a foreign bank.

The institutions listed in subparagraphs (1) to (3) of the preceding
paragraph are hereinafter referred to collectively as operational
foreign-funded banks.

Article 3 The term "foreign financial institution" in these regulations
means a financial institution that is registered outside the territory of
the People's Republic of China and is approved or licensed by the
financial regulatory authority of its home country or region.

The term "foreign bank" in these regulations means a commercial bank that
is registered outside the territory of the People's Republic of China and
is approved or licensed by the financial regulatory authority of its home
country or region.

Article 4 A foreign-funded bank shall abide by the laws and regulations
of the People's Republic of China, and shall not harm the national,
social and public interests of the People's Republic of China.

The legitimate activities and lawful rights and interests of a
foreign-funded bank shall be protected by the laws of the People's
Republic of China.

Article 5 The banking regulatory agency of the State Council and its
local offices (hereinafter referred collectively to as the banking
regulatory agency) shall be responsible for the supervision of
foreign-funded banks and their business activities. Where other
supervisory departments or institutions that supervise foreign-funded
banks and their business activities are specified in laws or regulations,
such provisions shall prevail.

Article 6 The encouraging and guiding measures formulated by the banking
regulatory agency of the State Council on the basis of the regional
economic development strategy and other related policies of the State
shall be implemented after submission to and approval by the State
Council.

Chapter II Establishment and Registration

Article 7 Establishment of a foreign-funded bank and its branch shall be
subject to examination and approval by the banking regulatory agency.

Article 8 The minimum registered capital for a wholly foreign-funded bank
or a Chinese-foreign joint venture bank shall be 1 billion yuan (US$126.6
million) or an equivalent amount in convertible currencies. The
registered capital shall be paid-in capital.

Where a wholly foreign-funded bank or a Chinese-foreign joint venture
bank establishes a branch within the territory of the People's Republic
of China, the branch shall receive from its parent bank a non-callable
allocation of not less than 100 million yuan (US$12.7 million) or an
equivalent amount in convertible currencies as its operating capital. The
total amount of operating capital allocated from a wholly foreign-funded
bank or a Chinese-foreign joint venture bank to all its branches shall be
no more than 60 per cent of the parent bank's aggregate capital.

A foreign bank branch shall receive from its parent bank a non-callable
allocation of not less than 200 million yuan (US$23.3 million) or an
equivalent amount in convertible currencies as its operating capital.

The banking regulatory agency of the State Council may, by taking into
account the business scope of an operational foreign-funded bank and the
need of prudential supervision, increase the minimum requirement on the
above-mentioned registered capital or operating capital, and determine
the RMB-denominated proportion of capital.

Article 9 The shareholder of a proposed wholly foreign-funded bank or a
Chinese-foreign joint venture bank, and the foreign bank applying for
establishing a branch or a representative office, shall satisfy the
following requirements:

(1) having persistent profit earning capacity, good reputation, and no
record of material violation of laws or regulations;

(2) the shareholder of a proposed wholly foreign-funded bank, the foreign
shareholder of a proposed Chinese-foreign joint venture bank, and the
foreign bank applying for establishing a branch or a representative
office, shall have experience in international financial activities;

(3) having in place effective anti-money laundering systems;

(4) the shareholder of a proposed wholly foreign-funded bank, the foreign
shareholder of a proposed Chinese-foreign joint venture bank, and the
foreign bank applying for establishing a branch or a representative
office shall be subject to effective supervision by the financial
supervisory authority of its home country or region, and the application
shall have been approved by the financial supervisory authority of its
home country or region; and

(5) other prudential requirements prescribed by the banking regulatory
agency of the State Council.

The home country or region of the shareholder of a proposed wholly
foreign-funded bank, the foreign shareholder of a proposed
Chinese-foreign joint venture bank, or the foreign bank applying for
establishing a branch or a representative office shall maintain a sound
financial regulatory system, and the financial supervisory authority of
such country or region has well established a supervisory co-operation
mechanism with the banking regulatory agency of the State Council.

Article 10 The shareholder of a proposed wholly foreign-funded bank shall
be a financial institution and satisfy the requirements provided in
article 9 of these regulations. In addition, the sole shareholder or the
controlling shareholder of a proposed wholly foreign-funded bank shall
satisfy the following requirements:

(1) being a commercial bank;

(2) having maintained a representative office within the territory of the
People's Republic of China for over two years;

(3) having the total assets of not less than US$10 billion at the end of
the year prior to the submission of the application; and

(4) having the capital adequacy ratio that meets the requirements
prescribed by the financial supervisory authority of its home country or
region and the banking regulatory agency of the State Council.

Article 11 The shareholder of a proposed Chinese-foreign joint venture
bank shall satisfy the requirements provided in article 9 of these
regulations. In addition, the foreign shareholder and the sole Chinese
shareholder or the major Chinese shareholder shall be a financial
institution, and the sole foreign shareholder or the major foreign
shareholder shall also satisfy the following requirements:

(1) being a commercial bank;

(2) having maintained a representative office within the territory of the
People's Republic of China;

(3) having total assets of not less than US$10 billion at the end of the
year prior to the submission of the application; and

(4) having a capital adequacy ratio that meets the requirements
prescribed by the financial supervisory authority of its home country or
region and the banking regulatory agency of the State Council.

Article 12 A foreign bank that applies for establishing a branch shall
satisfy the following requirements in addition to those provided in
article 9 of these regulations:

(1) having total assets of not less than US$20 billion at the end of the
year prior to the submission of the application;

(2) having a capital adequacy ratio that meets the requirements
prescribed by the financial supervisory authority of its home country or
region and the banking regulatory agency of the State Council; and

(3) having maintained a representative office within the territory of the
People's Republic of China for over two years where the foreign bank
applies for establishing its first branch.

Article 13 A foreign bank that has already established an operational
foreign-funded bank within the territory of the People's Republic of
China shall not establish a new representative office if it has already
maintained a representative office, with the exception of establishment
of a representative office in the areas covered by the regional
development strategy or other related policies of the State.

If a representative office is changed with approval into an operational
foreign-funded bank, the foreign bank shall go through the procedures for
cancellation of registration of the original representative office in
accordance with law.

Article 14 Where applying for establishing an operational foreign-funded
bank, the applicant shall first apply for the preparation of the bank and
submit the following application documents to the banking regulatory
agency in the place where the proposed bank is to be established:

(1) an application letter, including the name, location, registered
capital or operating capital, the business scope of the proposed bank;

(2) a feasibility study report;

(3) the draft articles of association of the proposed wholly
foreign-funded bank or Chinese-foreign joint venture bank;

(4) the business contract signed by all shareholders of the proposed
wholly foreign-funded bank or Chinese-foreign joint venture bank;

(5) articles of association of the shareholder of the proposed wholly
foreign-funded bank or Chinese-foreign joint venture bank or of the
foreign bank applying to establish a branch;

(6) the organizational chart, name-list of major shareholders, overseas
establishments and associated enterprises of the shareholder of the
proposed wholly foreign-funded bank or Chinese-foreign joint venture bank
or of the foreign bank applying to establish a branch and its parent
group;

(7) annual reports for the most recent three years of the shareholder of
the proposed wholly foreign-funded bank or Chinese-foreign joint venture
bank, or of the foreign bank applying to establish a branch;

(8) anti-money laundering systems adopted by the shareholder of the
proposed wholly foreign-funded bank or Chinese-foreign joint venture
bank, or by the foreign bank applying to establish a branch;

(9) photocopies of the business licence or the financial services permit,
and the written opinions on the application issued by the financial
regulatory authority of the home country or region of the shareholder of
the proposed wholly foreign-funded bank, or of the foreign shareholder of
the proposed Chinese-foreign joint venture bank, or of the foreign bank
applying to establish a branch; and

(10) other documents specified by the banking regulatory agency of the
State Council.

The banking regulatory agency in the place where the proposed bank is to
be established shall submit the application documents together with its
examination opinion to the banking regulatory agency of the State Council
in due time.

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