In an effort to facilitate the sound development of the financial guarantee business, the General Office of the State Council issued a circular to further define the tasks and responsibilities associated with supervising the business on February 3, 2009. The Circular clarifies the allocation of responsibility between central and local governments for regulating and monitoring financial guarantee institutions.
Currently, there is no overarching law or regulation at the central government level that governs the financial guarantee industry, nor is there a specific government authority in charge of monitoring financial guarantee institutions. As a result, such institutions vary greatly with respect to their market share, competitive power and credibility. Furthermore, cutthroat competition is endemic in the financial guarantee industry, and engenders a fast-paced, high-risk business environment.
To integrate the central government in the supervision of the financial guarantee business, the Circular stipulates that the State Council establish an Inter-Ministry Joint Meeting for Supervising the Financial Guarantee Business (the Joint Meeting). The Joint Meeting will be led by the China Banking Regulatory Commission (CBRC), and will include the National Development and Reform Commission, the Ministry of Industry and Information of Technology, the Ministry of Finance, the People’s Bank of China, the State Administration for Industry and Commerce, and a few other departments. The Joint Meeting will focus on macro issues, including:
- Studying and making policies to promote the development of the financial guarantee business;
- Establishing a system to supervise and administrate financial guarantee institutions;
- Coordinating with relevant government authorities on significant issues involved in the supervision of the financial guarantee business; and
- Directing local governments on the supervision of the financial guarantee business.
The Circular urges the members of the Joint Meeting to promptly issue a set of rules specifying the establishment requirements, business standards, supervision mechanisms and legal liabilities of financial guarantee institutions.
In addition to the Joint Meeting, the Circular leaves the bulk of supervisory duties to local governments. For instance, the Circular requires the provincial-level governments to formulate their own rules and policies to promote the financial guarantee business on the local level, help small and medium enterprises obtain loans and guarantees, and control the risks that financial guarantee institutions currently face.
In addition, on January 29, 2009, the State Council amended a previous decision on the administrative examination and approval system for various laws and regulations to give examination and approval authority over financial guarantee institutions to local governments. Specifically, the Amendment provides that the government authorities delegated by the provinciallevel governments are responsible for examining and approving the establishment and modification of all financial guarantee institutions within their jurisdiction. The Circular reiterates the Amendment’s provision, and adds that the government authorities that approve the establishment of a financial guarantee institution are also responsible for administrating and supervising such institution, regardless of whether the institution’s business operates across provincial lines or on an otherwise large scale.
The Circular serves as a guideline only, and more detailed rules and regulations are expected in the near future.