Private banking and wealth managementRegulation
What are the main sources of law and regulation relevant for private banking?
The following are the main sources of law and regulation relevant for private banking in China:
- the General Principles of the Civil Law;
- the Property Law;
- the Contract Law;
- the Partnership Law;
- the Business Law;
- the Securities Law;
- the Insurance Law;
- the Trust Law;
- the Marriage Law;
- the Law of Succession;
- the Law on Commercial Banks;
- the Law of the PRC on Supervision over the Banking Industry;
- the Interim Administrative Measures for Commercial Banks to Provide Overseas Financial Management Services;
- the Interim Measures for the Administration of Commercial Banks’ Personal Financial Management Services;
- the Measures for Pilot Assets Management for Specific Clients by Fund Management Companies;
- the Measures on the Administration and Due Diligence Procedures for Non-Residents’ Financial Accounts Information Relating to Tax Matter;
- the Measure for Punishment of Illegal Financial Acts;
- the Guiding Opinions on Regulating Asset Management Business of Financial Institutions; and
- the Notice of the China Banking Regulatory Commission on Promulgation of the Administrative Measures on Trust Registration.
What are the main government, regulatory or self-regulatory bodies relevant for private banking and wealth management?
The banking and insurance industries are supervised by the China Banking and Insurance Regulatory Commission (CBIRC). The securities industry is supervised by the China Securities Regulatory Commission.
Foreign currency and tax issues are regulated by State Administration of Exchange Control (SAEC) and the State Administration of Taxation (SAT), respectively.Private wealth services
How are private wealth services commonly provided in your jurisdiction?
In mainland China, financial institutions such as banks, trust companies, securities, funds, futures, insurance asset management institutions and financial asset investment companies usually provide personal asset management services entrusted by investors in the form of private banking, asset management and contract funds. Multi-family offices are not yet as developed.Definition of private banking
What is the definition of private banking or similar business in your jurisdiction?
According to the Notice of Interim Measures for the Administration of Commercial Banks’ Personal Financial Management Services, private banking is a kind of comprehensive entrusted investment service in which a commercial bank establishes an agreement with a client that stipulates that the client entrusts the commercial bank with investing and managing the client’s wealth, on their behalf, according to the investment plan, investment scope and methods of investment provided in the agreement.Licensing requirements
What are the main licensing requirements for a private bank?
There are no relevant laws or regulations about licensing requirements.Licensing conditions
What are the main ongoing conditions of a licence for a private bank?
There are no relevant laws or regulations about ongoing conditions of a licence.Organisational forms
What are the most common forms of organisation of a private bank?
Bank departments are the most common form.
LicencesObtaining a licence
How long does it take to obtain a licence for a private bank?
There are no relevant laws or regulations about the timescale for obtaining a licence for a private bank, as no licence is required to operate a private bank in China.Licence withdrawal
What are the processes and conditions for closure or withdrawal of licences?
There are no relevant laws or regulations about the processes and conditions for closure or withdrawal of licences.Wealth management licensing
Is wealth management subject to supervision or licensing?
There are no special laws or regulations on wealth management.Requirements
What are the main licensing requirements for wealth management?
There are no relevant laws or regulations on wealth management.
What are the main ongoing conditions of a wealth management licence?
There are no relevant laws or regulations about ongoing conditions of wealth management licences.
Anti-money laundering and financial crime preventionRequirements
What are the main anti-money laundering and financial crime prevention requirements for private banking and wealth management in your jurisdiction?
Financial institutions must report to the People’s Bank of China on the following aspects:
- an overall summary of the conditions of the work of the anti-money laundering department;
- conditions of the mechanisms in place;
- the degree to which they are fulfilling anti-money laundering obligations;
- the department’s anti-money laundering results; and
- other situations, questions and suggestions relating to anti-money laundering.
If a financial institution has overseas branches, its headquarters must report to People’s Bank of China or the anti-money laundering authority of the place where the branch is located, on behalf of the branch.
A financial institution shall, according to the Law of the PRC on Anti-money Laundering, establish and improve its internal control system of anti-money laundering, set up a clients’ identity identification system and not provide any service to or have trade with any client who cannot clarify his or her identity or establish any anonymous or pseudonymous account therefor. A financial institution shall establish a special institution of anti-money laundering or designate an internal department to take charge of anti-money laundering.
Where any single transaction handled by a financial institution or the accumulated transaction within a prescribed time limit goes beyond the prescribed sum or where any doubtful transaction is found, it shall be reported to the Anti-Money Laundering Information Centre immediately.
A financial institution shall, according to the requirements for anti-money laundering prevention and supervision, conduct anti-money laundering training and publicity.Politically exposed persons
What is the definition of a politically exposed person (PEP) in local law? Are there increased due diligence requirements for establishing a private banking relationship for a PEP?
There is no definition of a PEP.Documentation requirements
What is the minimum identification documentation required for account opening? Describe the customary level of due diligence and information required to establish a private banking relationship in your jurisdiction.
Apart from checking identity documents, such as identification cards, passports or other documents that can certify the identification of a person, financial institutions can use one or more of the following methods to verify the identification of clients:
- requiring clients to provide other identification documents;
- rechecking the clients;
- investigating the clients on the spot;
- verifying the clients’ identification through the Public Security Bureau or Administration of Industry and Commerce; or
- another legal method.
Are tax offences predicate offences for money laundering? What is the definition and scope of the main predicate offences?
Tax offences are not predicate offences for money laundering. The predicate offences for money laundering include crimes related to drugs, gangs, terrorism, smuggling, bribery, financial violations and fraud..Compliance verification
What is the minimum compliance verification required from financial intermediaries in connection to tax compliance of their clients?
In accordance with the Measures on the Administration and Due Diligence Procedures for Non-Residents’ Financial Accounts Information Relating to Tax Matters, for new accounts opened from 1 January 2017, financial institutions are required to identify the tax residency status of the account holder by obtaining a signed standard statement on tax residency status and verifying the reasonableness of the statement. If the account holder is identified as a non-resident individual, the financial institution will collect and report all necessary information.Liability
What is the liability for failing to comply with money laundering or financial crime rules?
According to the Anti-Money Laundering Law, if financial institutions do not, as the laws and regulations stipulate, set up internal regulation for anti-money laundering, set up departments or designate a special department to take responsibility for anti-money laundering or training of its employees in anti-money laundering procedures, they would be ordered to make amends, and in serious cases, the person who is directly in charge would be given disciplinary punishment by the anti-laundering authority.
Financial institutions may be ordered to make amends, or be fined, with the person who is responsible being directly fined, given a disciplinary punishment or discharged, if any of the following circumstances occur:
- they do not, as the laws and regulation stipulate, verify the identities of clients;
- they do not, as the laws and regulation stipulate, keep the identification material and transaction records of clients;
- they do not, as the laws and regulation stipulate, report on transactions involving large sums of money and dubious transactions;
- they have any transactions with a client whose identity is unclear, or establish an anonymous or pseudonymous account for a client;
- they violate the laws and regulations concerning confidentiality;
- they reject or block any investigations concerning anti-money laundering; or
- they do not provide all relevant documents for investigation.
Client categorisation and protectionTypes of client
Does your jurisdiction’s legal and regulatory framework distinguish between types of client for private banking purposes?
According to the relevant laws, a private banking client is one who has a net worth of at least 6 million yuan.
A high net worth individual (HNWI) is a person who satisfies one of the following conditions:
- a person who purchases a financial product for no less than 1 million yuan;
- the individual or family net worth is more than 1 million yuan and they can provide the relevant certification when purchasing a finance product; or
- the individual’s income is more than 200,000 yuan each year for the last three years, or the family income is more than 300,000 yuan each year for the last three years.
However, in practice, the above requirements may be adjusted by different financial institutions.Client categorisation
What are the consequences of client categorisation?
First, for HNWIs who have relevant experience in investment, and in a high risk-bearing capacity, commercial banks can satisfy their needs for investment through providing a private banking service. Contrary to finance products for the general investor, private banking products may invest in stock transacted in secondary markets and relevant security investment funds, new stocks and equity of non-listed companies and non-public placement securities or non-public transaction securities of listed companies.
Secondly, compared to a common principal-protected financing product, commercial banks have no obligation to report to the CBIRC when the principal-protected financing product is customised for private banking clients.Consumer protection
Is there consumer protection or similar legislation in your jurisdiction relevant to private banking and wealth management?
Currently, the following legislation with respect to consumer protection for private banking is in place:
- the Law of the PRC on Supervision over the Banking Industry;
- the Measure for Punishment of Illegal Financial Acts;
- the Interim Measures for the Administration of Commercial Banks’ Personal Financial Management Services;
- Guiding Opinions on Regulating Asset Management Business of Financial Institutions;
- the Contract Law;
- the Trust Law; and
- the Insurance Law.
Exchange controls and withdrawalsExchange controls and restrictions
Describe any exchange controls or restrictions on the movement of funds.
A commercial bank shall, when intending to provide overseas financial management services, apply to the CBIRC for approval.
A person cannot purchase foreign currency exceeding US$50,000 per year. There is no limitation on the kind of foreign currency withdrawn, but not all banks have all kinds of foreign currency.Withdrawal restrictions
Are there restrictions on cash withdrawals imposed by law or regulation? Do banks customarily impose restrictions on account withdrawals?
No laws or regulations restrict the withdrawal of yuan in China , but due to foreign exchange controls, mean a person cannot withdraw cash in foreign currency of more than US$50,000 a year. In addition, since 1 January 2016, a person cannot withdraw cash exceeding the amount equivalent of 100,000 yuan in overseas countries on a cumulative basis each year under the same bank account.
Since 1 July 2017, a financial institution shall report large-sum transactions for cash deposit, cash withdrawal, foreign exchange settlement and sales in cash, exchange of foreign currencies in cash, cash remittance, payment of cash bills and other forms of cash receipts and payments whose transaction value reaches or exceeds 50,000 yuan or foreign currency equivalent of US$10,000 on a per-transaction or cumulative basis on a given day.
Are there any restrictions on other withdrawals from an account in your jurisdiction?
When using a cash cheque to withdraw money, the maximum amount is 50,000 yuan. If the amount exceeds 50,000 yuan, it must be reported to the bank in advance, with the aim of preventing money laundering.
Describe the private banking confidentiality obligations.
The Law on Commercial Banks provides that commercial banks establish regulations concerning information management and confidentiality, and prevent the client’s information from being used improperly. The Measures for the Administration of Bank Card Business stipulate that a card-issuing bank shall be responsible for keeping secret the credit information of the cardholders. In addition, the Measures for the Administration of Renminbi Bank Settlement Accounts stipulates that banks shall ensure the confidentiality of information about depositors’ bank settlement accounts. Banks shall have the right to decline any inquiries by institutions or individuals on deposits and other relevant information on bank settlement accounts for institutions or individuals, unless stipulated otherwise by the laws and administrative regulations. However, these rules are abstract and are not specific, which makes them hard to implement. Some important issues have not been solved. For example, banks may disclose clients’ information in a lawsuit in order to protect the public interest. In the current situation, HNWIs may have reservations when handing over assets to financial institutions. In addition, some financial institutions have not recognised the importance of information protection, do not take measures to protect the clients’ information and have little knowledge of the relevant laws and regulations.Scope
What information and documents are within the scope of confidentiality?
It varies depending on the specific agreement but usually includes personal information and asset information.Expectations and limitations
What are the exceptions and limitations to the duty of confidentiality?
There are laws for financial institutions detailing their responsibility to protect information, but many exceptions are provided for the needs of the judicial and law enforcement departments, including the public security authority, procuratorate, courts, security bureau, customs, tax authorities and the People’s Bank of China. In practice, many of the aforementioned departments and other special organisations may also obtain clients’ information from financial institutions.Breach
What is the liability for breach of confidentiality?
First, there is civil liability, including liability for breach of contract and infringement liability. The Contract Law stipulates that if a party fails to perform its obligations under a contract, or its performance fails to satisfy the terms of the contract, it shall bear the liabilities for breach of contract such as to continue to perform its obligations, to take remedial measures, or to compensate for losses. Thus, if a bank violates the confidentiality agreement and infringes the private rights of clients, the bank must bear the responsibility for stopping the infringement, compensating the loss, extending a formal apology, eliminating the adverse effects and restoring reputation.
Second, there is administrative liability, which includes two aspects. The first is for financial institutions, including confiscation of illegal gains, fines, suspending operation for rectification and revocation of the business licence. The second aspect relates to the person who has direct liability, including fines, removal from the office held and of qualifications, and prohibiting them from future work in financial institutions.
Third, there is criminal liability. According to Amendment (VII) of the Criminal Law, whoever sells or provides any citizen’s personal information in violation of the relevant provisions of the state shall, in serious circumstances, be sentenced to imprisonment of not more than three years or criminal detention, in addition to a fine, or be given a fine only; in especially serious circumstances, the person may be sentenced to imprisonment of not less than three years but not more than seven years in addition to a fine.
What is the general framework dealing with cross-border private banking services into your jurisdiction?
Because of the restrictions on foreign currency, there are actually no cross-border private banking services. If private banking clients need cross-border services, the foreign currency would reach the limit of the amount permitted by the SAEC.Licensing requirements
Are there any licensing requirements for cross-border private banking services into your jurisdiction?
There are no relevant laws or regulations about licensing requirements for cross-border private banking services.Regulation
What forms of cross-border services are regulated and how?
Not applicable.Employee travel
May employees of foreign private banking institutions travel to meet clients and prospective clients in your jurisdiction? Are there any licensing or registration requirements?
Meeting clients is permitted, but they must register in China to provide material service.Exchanging documents
May foreign private banking institutions send documents to clients and prospective clients in your jurisdiction? Are there any licensing or registration requirements?
Foreign banking institutions are not allowed to do business without approval to establish a branch in China. Generally speaking, it is not prohibited to send documents to clients or prospective clients.
Tax disclosure and reportingTaxpayer requirements
What are the main requirements on individual taxpayers in your jurisdiction to disclose or establish tax-compliant status of private banking accounts to the authorities in your jurisdiction? Does the requirement differ for domestic and foreign private banking accounts?
A taxpayer shall file tax returns and pay tax to the competent tax authority in accordance with the relevant provisions under any of the following circumstances:
- its annual income exceeds 120,000 yuan;
- its income of wage or salary is derived from two or more sources inside China;
- its income is derived from sources outside China;
- its taxable income is derived without withholding agents; or
- other circumstances specified by the State Council.
A taxpayer with an annual income exceeding 120,000 yuan shall, within three months after the end of the year, file tax returns with and pay tax to the competent tax authority.Reporting requirements
Are there any reporting requirements imposed on the private banks or financial intermediaries in your jurisdiction in respect to their domestic and international clients?
When an individual opens an account, the financial institution shall obtain the tax resident status declaration documents signed by the account holder to identify whether the account holder is a non-resident individual. Where the account holder is identified as a non-resident individual, the financial institution shall collect and record the information required and report to SAT by 31 May of each year as required.Client consent on reporting
Is client consent required to permit reporting by the private bank or financial intermediary? Can such consent be revoked? What is the consequence of consent not being given or being revoked?
Client consent is not required. Some financial institutions may withhold and remit tax.
What is the most common legal structure for holding private assets in your jurisdiction? Describe the benefits, risks and costs of the most common structures.Held by company
- cost: the cost of establishing and running the company;
- advantage: has limited liability; and
- risk: inheritance issues can occur when the shareholders pass away;
- cost: no cost;
- advantage: the policy can be pledged to ensure financial liquidity; and
- risk: the policy holder cannot control the arrangement of the beneficiaries at his or her full discretion;
- cost: the cost for establishing and running the trust;
- advantage: separate from the risk of settlor, trustee and beneficiary; and
- risk: the settlor cannot control the trust at his or her full discretion;
- cost: fund management fees;
- advantage: higher interest; and
- risk: information asymmetry.
What is the customary level of know-your-customer (KYC) and other information required to establish a private banking relationship where assets are held in the name of a legal structure?
Private banking institutions will investigate the client’s asset scale, job and income. In addition, the institution will estimate the risk-bearing capacity and introduce appropriate financial products to clients according to the investigation and estimation.
For the purpose of Guiding Opinions on Regulating Asset Management Business of Financial Institutions, when issuing and selling asset management products, financial institutions shall adhere to the business philosophy of ‘knowing your products’ and ‘knowing your customers’, strengthen investor appropriateness management, and sell asset management products appropriate to investors’ risk identification capabilities and risk-bearing capacities. It is prohibited to carry out fraudulent behaviours or to mislead investors to purchase asset management products that do not match their risk-bearing capacities. Financial institutions may not, by splitting asset management products, sell asset management products to investors whose risk identification capabilities and risk-bearing capacities are lower than the product risk levels. Financial institutions shall strengthen education on investors, continuously raise investors’ financial knowledge level and awareness of risks, and break rigid payment.Controlling person
What is the definition of controlling person in your jurisdiction?
For the purpose of the Measures on the Administration and Due Diligence Procedures for Non-Residents’ Financial Accounts Information Relating to Tax Matters, a controlling person refers to an individual who controls an institution. The controller of a company shall be determined pursuant to the following rules:
- an individual who, directly or indirectly, holds over 25 per cent of the company’s equities or voting rights;
- an individual who controls the company via personnel or financial arrangements or other means; or
- a senior management person of the company.
The controller of a partnership enterprise shall refer to an individual who owns over 25 per cent of the rights and interests in the partnership.
The controller of a trust shall refer to the settlor, trustee or beneficiary of the trust, or any other individual who exercises ultimate and effective control of the trust.
The controller of a fund shall refer to an individual who owns over 25 per cent of the equity units of the fund or any other individual who controls the fund.Obstacles
Are there any regulatory or tax obstacles to the use of structures to hold private assets?
If a trust holds private assets, it must transfer the ownership of property to the name of the trust company. There are transfer taxes if the settlor puts trust assets which need title transfer. If private assets are held by a fund, its investment scope is limited to securities.
Contract provisionsTypes of contract
Describe the various types of private banking and wealth management contracts and their main features.
There are many different types of private banking contract, so it is difficult to describe them one by one. However, all are governed by Chinese laws and regulations.Liability standard
What is the liability standard provided for by law? Can it be varied by contract and what is the customary negotiated liability standard in your jurisdiction?
This is governed by the Contract Law of the People’s Republic of China. The doctrine of liability fixation consists of the fault principle and the criterion of strict liability. The criterion of strict liability is that the party who breaks the contract bears the liability even if the party had no intention of breaking the contract. The fault principle indicates that the degree to which there was fault determines the extent to which one party is liable.Mandatory legal provisions
Are any mandatory provisions imposed by law or regulation in private banking or wealth management contracts? Are there any mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation?
In accordance with Guiding Opinions on Regulating Asset Management Business of Financial Institutions (Guiding Opinions), financial institutions shall not promise to guarantee principal or income in developing asset management business. In the case of difficulties in redemption, financial institutions shall not redeem with advance funds in any form, nor shall they carry out balance sheet asset management business. This is just a general principle, and the implementation regulations for the Guiding Opinions have not yet been promulgated.Limitation period
What is the applicable limitation period for claims under a private banking or wealth management contract? Can the limitation period be varied contractually? How can the limitation period be tolled or waived?
The limitation period cannot be varied contractually. According to the relevant laws, in most cases, the time limitation of action regarding applications to a people’s court for protection of civil rights is three years. A limitation of action begins when the entitled person knows or should know that his or her rights have been infringed upon. The people’s court will not protect a person’s rights if 20 years have passed since the infringement. However, under special circumstances, the people’s court may extend the limitation of action.
A limitation of action shall be suspended during the last six months of the limitation if the plaintiff cannot exercise his or her right of claim because of force majeure or any other obstacles. The limitation shall resume on the day when the grounds for the suspension are eliminated.
A limitation of action shall be discontinued if a suit is brought, or if one party makes a claim for, or agrees to, the fulfilment of obligations. A new limitation shall begin from the time of the discontinuance.
What are the local competent authorities for dispute resolution in the private banking industry?
The party can complain to the CBIRC or the People’s Bank of China. They also can bring a lawsuit to a people’s court to protect their rights.Disclosure
Are private banking disputes subject to disclosure to the local regulator? Can a client lodge a complaint with the local regulator? How are complaints investigated?
According to the relevant laws and regulations, the commercial bank must report to the CBIRC or the resident agencies of the commission, if any of the following situations arise:
- if mass social unrest, protest or riots or major complaints occur;
- if they divert their clients’ funds or assets; or
- if the counterparty or another related party has a serious credit crisis, which may lead to a significant loss to the financial product.
Depending on the type of complaint, clients can appeal to the CBIRC or the People’s Bank of China..
The information in this chapter is accurate as at July 2018.
UPDATE & TRENDSRecent developments
Describe the most relevant recent developments affecting private banking in your jurisdiction. What are the trends in this industry for the coming years? How is fintech affecting private banking and wealth management services in your jurisdictions?No updates at this time.