By Chen Yun (Robert), Wang Rong and Chai Beibei King & Wood Mallesons’ Finance & Capital Markets group
On February 13, 2018, the China Banking Regulatory Commission (the “CBRC”) promulgated the Decision on Amending the CBRC’s Implementation Measures for the Administrative Licensing Matters of Foreign-Invested Banks (CBRC Order 2018 No. 3, the “Order No.3”). Following a series of regulations and policies relating to opening-up of the banking industry issued in 2017 (the “2017 Regulations and Policies”), the Order No.3 is considered to be a further step of great significance for the purpose of implementing the general principles of further expanding opening-up, improving the levels of opening-up of the banking industry and streamlining administration and delegating more powers to lower-level authorities continuously.
Timeline of Regulations and Policies
There have been several regulations and policies published for the opening-up of the banking industry since 2017:
The following major administrative licensing requirements for foreign-invested banks are further simplified and relaxed by the Order No.3:
1. based on the 2017 Regulations and Policies, specifying the details of and implementing the relevant measures for opening-up:
- from the investors’ perspective, setting out in detail the administrative licensing requirements, procedures and application materials for the establishment of or investment in the PRC incorporated banks by the locally incorporated foreign-invested banks as investors;
- removing the CBRC approval requirement for the custody services provided to the securities invested funds by the locally incorporated foreign-invested banks, and substituting it by a reporting requirement; and
- removing the CBRC approval requirement for the custody services provided to the overseas wealth management products issued by banks for and on behalf of customers by the foreign-invested banks (including the locally incorporated foreign-invested banks and foreign bank PRC branches), and substituting it by a reporting requirement.
2. in addition to the 2017 Regulations and Policies, expanding the opened areas:
- removing the CBRC approval requirement for the overseas wealth management products issued for and on behalf of customers by the foreign-invested banks, and substituting it by a reporting requirement;
- removing the CBRC approval requirement for the withdrawal of interest-earning assets by the closed foreign bank PRC branches after obtaining the approval for closure and the full repayment of all obligations, and substituting it by a reporting requirement; and
- putting forward, for the first time, the possibility that the locally incorporated foreign-invested banks may establish or invest in the CBRC regulated non-banking financial institutions.
3. matching the market access standards for foreign-invested banks with domestic-funded banks to the most extent:
- as far as a sub-branch is concerned, consolidating the procedures for the approval for the preparatory work and the approval for the business commencement into one approval for the business commencement;
- optimizing the conditions for the raising and issuance of debt and capital supplement instruments by locally incorporated foreign-invested banks; and
- further simplifying the qualification verification procedures for the post-taking of senior management personnel and adjusting the prior verification requirement to a filing requirement in respect of a candidate whose qualification has been verified before for a new position in the same or another foreign-invested bank with the same category and nature, which is a lateral move or a downgraded move, provided that such candidate has not been suspended to take a position for a consecutive one year or more.
Competition and Opportunities
The foreign-invested banks have been used to conducting business operation on a legal and compliance basis with a robust and prudent risk appetite since their entry into the PRC market, which has been promoting the compliance-based development of the financial market. However, they are also facing the competition against the domestic-funded banks with an aggressive risk appetite, and as a result, the foreign-invested banks remain a relatively slow growth and small market share. The expansion of opening-up and relaxation of the market access are expected to provide further opportunities for the foreign-invested banks to develop their PRC businesses, build and strengthen a compliance culture in the banking industry and push the further compliance-based development of the financial market.