Decision of the State Council to amend the Administrative Regulations on Foreign Invested Insurance Companies and the Administrative Regulations on Foreign-invested Banks(国务院关于修改《中华人民共和国外资保险公司管理 条例》和《中华人民共和国外资银行管理条例》的决定)
As the market continues to monitor the ebbs and flows of the US-China trade negotiations, the Chinese government continues to implement its reform commitments at a fast pace. As foreshadowed in a press conference by Chairman Guo Shuqing of the China Banking and Insurance Regulatory Commission (“CBIRC”) in May, the State Council published, on 15 October, amendments to key pieces of legislation which are aimed to further improve the operating environment for foreign banks and insurance companies in China (or “PRC”). This reform package comes shortly after the decision of the China Securities Regulatory Commission, on 12 October, to bring forward the timetable for full foreign ownership of securities, mutual fund management and futures brokerage companies to 2020. Truly, 2019 is shaping up to be a ground-breaking year for financial reform in China.
Dual PRC presences: Foreign banks may simultaneously establish and maintain branches and wholly foreign-owned banks or Sino-foreign joint venture banks in the PRC (“Local Banks”).
Financial tests relaxed:
- Foreign shareholders of: (i) Local Banks are no longer required to have minimum total assets of USD10 billion; (ii) bank branches in the PRC are no longer required to have minimum total assets of USD20 billion.
- The PRC partner of a joint venture bank no longer needs to be a financial institution.
Business restrictions relaxed:
- The permitted business scope has been harmonised with local Chinese banks’, to include (i) issuance, settlement and underwriting of PRC treasury bonds and (ii) payment settlement.
- Local Banks/ foreign bank branches which satisfy CBIRC’s prudential requirements no longer need a separate approval from the CBIRC and one-year track record to conduct RMB business.
- Branches of foreign banks can accept fixed term RMB deposits from individuals at a minimum of RMB500,000 rather than 1m.
Foreign bank branches’ capital requirements relaxed:
- Foreign bank branches no longer need to hold at least 30% of their working capital in interestbearing assets (with the new requirements, expected to give more flexibility, to be specified in further CBIRC rules).
- The minimum 8% ratio of the RMB portion of total working capital and reserves against RMBdenominated risk assets no longer applies where the parent bank has continuously met the capital adequacy requirements of CBIRC and its home jurisdiction.
See the table on the right for an at-a-glance view.
- The foreign shareholder of an insurance company in the PRC no longer needs to have (i) a 30-year operating track record and (ii) a representative office in the PRC in the previous two years.
- As announced by Chairman Guo Shuqing in May, revision of the 2007 rules applying similar requirements to foreign insurance brokers in the PRC, is expected soon.
- In addition to foreign insurance companies, foreign insurance groups and overseas financial institutions will be permitted to invest in foreign-invested insurance companies in the PRC. Detailed guidance will be released by the CBIRC, including new criteria to be met by foreign insurance groups (expected to be on equal footing with those applicable to Chinese domestic insurance groups).
- In July, CBIRC announced that the 25% cap on foreign shareholding in insurance asset management companies would be removed in the future. We also await the issuance of new rules in this area, including new criteria to be met by both foreign and Chinese investors.
To sum up, these reforms incentivise foreign banks and insurance companies/financial institutions to target a broader range of market segments on equal footing with PRC players, using less capital and in less time than was previously the case.