In order to further regulate the derivative business of banking institutions and promote the healthy development of derivatives markets, the China Banking Regulatory Commission issued the Notice on Further Strengthening the Risk Management of the Trading of Derivative Products Between Banking Financial Institutions and Institutional Clients (the “Derivative Risk Notice”). Under the Derivative Risk Notice, banks are required to comply with more stringent risk management requirements in their derivative business with institutional clients.
Pursuant to the Derivative Risk Notice, banking institutions are required to establish a sound suitability assessment system to ensure that product suitability is evaluated on a transaction-by-transaction basis for each client by taking into account the type of derivative products involved and the category of client. Banking institutions are required to review the classification of derivative products and institutional clients at least once a year.
Banking institutions qualified for derivative transaction may handle derivatives transactions with institutional clients if such clients meet related requirements, and should prefer basic and simple derivatives that such anking institution is competent to price and assign a valuation.
The Derivative Risk Notice also states that banking financial institutions should market derivative products by itself and should neither market derivative products jointly with salesmen hired by offshore institutions nor enter into “back-to-back” transactions with offshore institutions designated by institutional clients.
- Notice on Further Strengthening the Risk Management of the Trading of Derivative Products Between
- Banking Financial Institutions and Institutional Clients
- Issuing Authority: China Banking Regulatory Commission
- Date of Issuance: July 31, 2009 / Effective Date: July 31, 2009