In order to strengthen and improve the administration of foreign-funded banks and to promote the steady and sound operation of the banking sector, the China Banking Regulatory Commission formulated Detailed Rules for the Implementation of the Regulation of the People’s Republic of China on the Administration of Foreign-funded Banks (the “Rules”) in accordance with the Banking Supervision Law of the People’s Republic of China, the Law of the People’s Republic of China on Commercial Banks and the Regulation of the People’s Republic of China on the Administration of Foreign-funded Banks ( the “Regulation”). The Rules came into force on December 11, 2006.
The Rules provide the qualifications of a shareholder of a wholly foreign-funded bank to be established or a Sino-foreign joint venture bank; interpret the phrases and terms “the end of the year prior to the establishment application”, “feasibility study report” and “key persons-in-charge”, etc., as mentioned in the Regulation; provide conditions, application procedures, and examination and approval time limits for foreign-funded banks when establishing institutions and engaging in business including RMB business. The Rules also give appropriate incentives for those foreignfunded banks which change their branches within China into wholly foreign-funded banks solely invested by their headquarters. For example, a wholly foreign-funded bank, which is changed from a branch of a foreign bank and which is solely invested by its headquarters, may engage in RMB businesses, and maintain one branch engaging in the wholesale business of foreign exchange simultaneously. Moreover, in order to maintain the steady and sustainable operation of foreignfunded banks, the Rules grant grace periods for those wholly foreign-funded banks and Sinoforeign joint venture banks when completing certain regulatory requirements.
The Rules make further provisions on the business scope of foreign-funded banks, listing the contents of foreign exchange investment businesses, credit standing investigation and consultation service, etc. It is also provided that, where any branch of a foreign bank intends to engage in the foreign exchange businesses and RMB businesses, it shall have an operating capital which is not less than 300 million yuan or an equivalent value in a freely convertible currency, of which the RMB operating capital shall not be less than 100 million. The Rules also provide the application procedures and documents and preparatory formation tasks for those foreign-funded banks which initially apply for engaging in RMB businesses and enlarge their service scope of RMB businesses.
The Rules consummate prudent regulation and risk supervision for foreign-funded banks, list the contents of prudent conditions as mentioned in the Regulation, promote establishing a loan risk classification system, an asset-liability ratio governing system, an affiliated transaction management system, and a business out-sourcing management system, etc., define the terms “interest-generating assets”, “the total amount of the operating capital and the reserves”, “current assets of a branch of a foreign bank” as mentioned in the Regulation, provide the calculating method for the balance of the domestic assets in local and foreign currencies and the balance of domestic liabilities in local and foreign currencies of a branch of a foreign bank, the special regulatory measures taken by the CBRC and its dispatched institution against a business institution of a foreign-funded bank, and the important matters a business institution of a foreign-funded bank shall timely report to the local institution dispatched by the CBRC. The Rules also provide that, where a foreign bank has established two or more branches within China, the headquarters or the authorized regional headquarters of the foreign bank shall designate one of these branches as the managing bank to manage the businesses within China as a whole and to submit the consolidated financial information and comprehensive information of all branches within China. A wholly foreignfunded bank, Sino-foreign joint venture bank, or a foreign bank which has established two or more branches within China shall, by the end of each fiscal year, hire a qualified accounting firm lawfully established within China to audit all its business institutions within China on a consolidated basis.