Banking Institutions in Shanghai:
To further implement the Notice of the State Council on Issuing the Framework Plan for the China (Shanghai) Pilot Free Trade Zone (State Publication [2013] No. 38) and the Notice of the China Banking Regulatory Commission on Issues Concerning Banking Supervision in the China (Shanghai) Pilot Free Trade Zone (Banking Regulatory Publication [2013] No. 40), and to promote the innovation and stable development of banking industry in the China (Shanghai) Pilot Free Trade Zone (hereinafter referred to as "the PFTZ"), as approved by CBRC, the institutional arrangements of banking supervision in the PFTZ are hereby issued to you as follows:
I. Overall Supervision Requirements
Shanghai banking institutions dealing with the PFTZ-related business shall comply with the prudent supervision requirements of CBRC, except those provided otherwise. More prudent management standards shall apply to the risk management area, including liquidity risk, market risk, counterparty credit risk, country risk, compliance risk and financial consumer protection.
To facilitate investment and trade, CBRC encourages and supports banking institutions in Shanghai to introduce innovative services, especially services that meet the financial demands of their clients in the PFTZ in conducting cross-border trade, investment and financing; and supports them to provide diversified risk management services by leveraging domestic and overseas markets.
II. Risk Evaluation Requirements
Shanghai Banking institutions dealing with the PFTZ-related business shall conduct pre-establishment and continuous risk self-evaluation for such business. Specific evaluation requirements are listed in Annex 1, Guidelines on the Risk Evaluation of Banking Services in the PFTZ (Interim). Self-evaluation shall focus on the effectiveness and adaptability of the risk management procedures and ability for the PFTZ-related business.
The pre-establishment self-evaluation report shall be submitted by the legal entity of banking institutions dealing with the PFTZ-related business or their entrusted supervisory institution to CBRC Shanghai Bureau in written form within 10 working days after the official launch of the business. For banking institutions whose legal entity was registered in Shanghai, the report shall be submitted by their headquarters. Banking institutions that have established business in the PFTZ before the issuance of this Notice shall submit their self-evaluation report before June 10, 2014. After the establishment, they shall submit the self-evaluation report of the last year to CBRC Shanghai Bureau before the end of March every year. In case major risks are discovered in evaluation, the relevant institutions shall take prompt measures to ensure that the institutional arrangements of risk management are constantly adapted to their business in the PFTZ and in the meantime, report the related risks to CBRC Shanghai Bureau.
The risk management of new products under the PFTZ-related business shall be subject to daily supervision procedures. Where necessary, CBRC Shanghai Bureau shall assess and oversee the self-evaluation of banking institutions with a view to enhance intermediary and post-establishment supervision. In case any institutions fail to pass the assessment, CBRC Shanghai Bureau shall take regulatory measures according to law, including such coercive measures as ordering the suspension of business.
III. Special Monitoring and Reporting System
CBRC Shanghai Bureau shall establish relevantly independent statistical and monitoring system for banking institutions in the PFTZ, and regularly collect data and supervision information from two dimensions: business and institutions. Specific reporting requirements are listed in Annex 2: Monitoring and Reporting System for Banking Institutions in the China (Shanghai) Pilot Free Trade Zone (Interim). In view of the innovative and experimental nature of the PFTZ-related work, a two-month trial period is introduced. Within the period, CBRC Shanghai Bureau will not assess the reporting problems caused by misunderstanding of the statistical standards. After the period, the Bureau shall take necessary supervision measures against non-compliant institutions or individuals.
The Bureau shall regularly monitor and analyze the situation and risk management of banking services in the PFTZ, focusing on the efficiency of the support provided by banking institutions to the real economy and the prediction of possible regional and systematic risks, so as to offer important evidence for institutional arrangements. The Bureau shall improve the special monitoring and reporting system based on the development of the business and policies in the PFTZ.
IV. Supervision Requirements for Banking Institutions in the PFTZ
1. Business Scope. Banking institutions in the PFTZ may focus on their business in the PFTZ and cross-border business. Apart from such main business, they may also conduct domestic business outside the PFTZ. The headquarters of Chinese-funded commercial banks which have acquired the offshore business qualification may authorize its PFTZ-based branches to conduct offshore business.
2. The Planning of Branch Network. The pre-establishment approval is not needed for the annual plans of Chinese-funded national commercial banks, policy banks and Shanghai-based banks on establishing new branches or upgrading the existing ones in the PFTZ, and such actions will not be subject to the overall annual plans of the above banks for their branch network in Shanghai.
3. The Access of Banking Institutions and their Executives to the PFTZ. The post-establishment reporting system shall apply to the access of banking institutions below the branch level (branches not included) and their executives to the PFTZ. Details are listed in Annex 3: Detailed Rules on the Simplification of the Access of Banking Institutions and their Executives to the China (Shanghai) Pilot Free Trade Zone (Interim).
4. Risk Control of Banking Institutions and Business in the PFTZ. CBRC Shanghai Bureau shall ensure the effective risk control of the banking business in the PFTZ by emphasizing the concept of legal-person-led risk control and the consolidated risk management. Meanwhile, it shall enhance the routine on-site inspection and off-site supervision, focusing on counterparty credit risk, compliance risk, operation risk and financial consumer protection. It shall strengthen the supervision of staff behavior and prevent major risks.
V. Functional Layout of and Resource Support for Banking Business in the PFTZ
Launching business in the PFTZ by banking institutions is a strategically required development of cross-border financial services and progress in financial innovation. It also provides an opportunity for banking institutions to accumulate replicable experience in the operation and management of banking business. To this end, banking institutions shall optimize their financial services to meet the clients’ demand of coordinating their business inside and outside of the PFTZ as well as their domestic and overseas business. They shall also develop strategies for sound operation and innovative development.
1. Banking institutions in Shanghai shall differentiate the function and focus of their PFTZ-based branches and other branches outside the PFTZ in dealing with the PFTZ-related business, and develop an innovative development model with unique features for such business, so as to effectively support the real economy in the PFTZ.
2. Shanghai banking institutions dealing with the PFTZ-related business shall actively seek support from their head offices or headquarters for exploration and innovation in their PFTZ-related business. The support shall include but not limited to:
(1) Adjusting performance assessment indicators for PFTZ-based branches;
(2) Not setting separate loan-to-deposit ratio for such branches in their initial period of operation;
(3) Establishing independent system of liquidity risk management and offering necessary financial support for those accounts that balance the liquidity by itself;
(4) Delegating more authority to corresponding supervisory institutions in charge of the PFTZ-related business while implementing the unified management policies of the headquarters, conducting capital transaction business independently on the condition that risks are controllable and squaring positions independently in the PFTZ or on the overseas markets; and
(5) Coordinating the operation of the branches inside and outside of the PFTZ as well as domestic and overseas branches concerning their PFTZ-related business, enhancing resource sharing and jointly supporting the innovative development and risk management of the PFTZ-related business.
Annex 1: Guidelines on the Risk Evaluation of Banking Services in the China (Shanghai) Pilot Free Trade Zone (Interim)
Annex 2: Monitoring and Reporting System for Banking Institutions in the China (Shanghai) Pilot Free Trade Zone (Interim)
Annex 3: Detailed Rules on the Simplification of the Access of Banking Institutions and their Executives to the China (Shanghai) Pilot Free Trade Zone (Interim)
The Shanghai Bureau of China Banking Regulatory Commission
May 12, 2014
附件1：
Annex 1:
Guidelines on the Risk Evaluation of Banking Services in the China (Shanghai) Pilot Free Trade Zone
(Interim)
To implement the important strategic plan of developing the China (Shanghai) Pilot Free Trade Zone (hereinafter referred to as "the PFTZ") made by the CPC Central Committee and the State Council of China, encourage banking institutions to introduce financial innovations to effectively facilitate the real economy on the condition that risks are controllable, in accordance with the Notice of the China Banking Regulatory Commission on Issues Concerning Banking Supervision in the China (Shanghai) Pilot Free Trade Zone, and as approved by CBRC, the Guidelines on the Risk Evaluation of Banking Services in the PFTZ(Interim) (referred to hereafter as the “Guideline”) is hereby issued.
I. General Provisions
1. Before conducting business in the PFTZ, banking institutions shall observe the prudent supervision rules of CBRC and the specific requirements set forth herein, and ensure constant compliance with these rules and requirements.
2. The Guideline applies to commercial banks dealing with the PFTZ-related business in Shanghai, and serves as a reference for policy banks and other financial institutions established with the approval of CBRC.
3. For the purpose of the Guideline, the PFTZ-related business refers to the various financial services provided by commercial banks in Shanghai (including the PFTZ, the same below) to clients in the PFTZ (including residents and non-residents).
4. CBRC Shanghai Bureau exercises constant supervision over the PFTZ-related business and conduct risk evaluation in accordance with the Guideline.
II. Basic Requirements
5. The board of directors shall assume the ultimate responsibility for the risk management of the PFTZ-related business, examine and approve the development strategy and risk preference designed by the senior management for such business in line with the overall risk tolerance capability and operation strategy of the bank, and ensure that the senior management effectively manage and control the risks in the PFTZ-related business.
6. Commercial banks dealing with the PFTZ-related business in Shanghai shall seek full support from their headquarters for such business, and ensure that such business is incorporated in the overall policy process, risk management and information system.
7. Commercial banks shall delegate adequate authority to the PFTZ-related business, ensuring both risk control and innovation.
8. The head office of commercial banks shall coordinate the innovation and risk management of the PFTZ-related business through a specialized supervisory institution, so as to ensure that their management policies are implemented consistently and that the risk information is promptly reported.
9. Commercial banks shall have in place a comprehensive risk management system covering liquidity risks, market risks, counterparty credit risks, country risks, legal and compliance risks, risks of consumer protection in financial services, and other risks mentioned in the Guideline, and develop risk management rules and requirements appropriate to their activities in the PFTZ in accordance with the specific management regulations on identifying, measuring (evaluating), monitoring and controlling credit, operational and other risks, in order to ensure comprehensive risk management throughout all business practices.
10. Commercial banks shall have in place an ex-ante risk assessment mechanism for their activities in the PFTZ, which defines clearly assessment responsibilities of the risk management, internal control and compliance management departments and requires the department heads to confirm every assessment result by signing, so as to ensure a sound knowledge of relevant risks and sufficient capability to manage and control such risks.
11. Commercial banks shall have in place a continuous assessment mechanism for their business practices in the PFTZ to assess regularly the effectiveness and appropriateness of their policy process, risk management, information system and personnel allocation and make timely improvements, in order to ensure that their management capability keeps up with the business developments in the PFTZ.
12. Commercial banks shall have in place a risk-hedging mechanism for their business practices in the PFTZ to identify hedging objectives, strategies, approaches, tools and procedures and assess regularly the effectiveness of risk hedging activities.
13. Commercial banks shall fully incorporate their business practices in the PFTZ in measuring their regulatory capital, loan loss reserves and leverage ratio and ensure that all prudential regulation indicators are in line with relevant regulatory requirements.
14. Commercial banks shall have in place a risk reporting system for their activities in the PFTZ which identifies the reporting duties of mandated reporters and ensures timely and accurate reports on risk exposures, risk management (including risk limits management), stress testing results and significant sudden risk changes to the board of directors, the senior management and the supervisory institution for PFTZ-related matters. The board of directors and the senior management shall hear these reports at least on a quarterly basis.
15. Commercial banks shall employ for their business practices in the PFTZ qualified senior managers, risk managers, compliance managers, internal auditors and traders with specialized skills, work experiences and a sound knowledge of laws and regulations, trading rules and risk profiles in overseas markets.
16. Commercial banks shall have in place a management information system in support of their business operations and risk management activities in the PFTZ. The system shall be at least capable of:
(1) Supporting the internal control throughout all business operations in the PFTZ;
(2) Measuring risks and evaluating financial instruments;
(3) Calculating accurately at a specified frequency the regulatory indicators and risk monitoring indicators to meet the requirements for internal and regulatory reporting, and adjusting as necessary the frequency of calculation and reporting;
(4) According to the regulatory and internal management requirements, monitoring limits management at opportune times and establishing a precautionary mechanism to prevent any limits breach and meet the requirements for limits management;
(5) Ensuring that their head offices and supervisory institutions for the PFTZ-related business have timely and complete access to the accurate information of risk management and take control measures as appropriate before certain transactions are called off;
(6) Assisting in identifying inappropriate clients or transactions and providing real-time monitoring and control over abnormal cross-border fund flows;
(7) Supporting stress testing under different scenarios.
17. Commercial banks shall properly set performance evaluation methods and indicators for their activities in the PFTZ. The design of performance evaluation shall take into full account the requirements of transforming development modes and shall avoid the practice of focusing on speed only without emphasis on quality or risks.
18. Commercial banks shall conduct at least once a year internal auditing for their business practices in the PFTZ to review and assess the appropriateness of their risk management policies and the effectiveness of their internal control, and deliver the auditing results to CBRC Shanghai Bureau.
III. Liquidity Risk
19. Commercial banks shall integrate the self-regulation account as specified by relevant rules in their overall liquidity risk management system based on the nature and complexity of their business practices in the PFTZ, and make relatively independent institutional arrangements for liquidity risk management to offer full identification, accurate measurement, continuous monitoring and proper control of: the liquidity risks within this account, the liquidity risks of the products and business lines under this account, as well as the interaction and conversion between the liquidity risks within this account and the banks’ overall liquidity risks.
20. Commercial banks shall explicate their policies regarding liquidity risk management of the aforementioned account, including but not limited to:
(1) Overall liquidity risk management system;
(2) Identification, measurement and monitoring of liquidity risks, including the calculation and analysis of cash flows;
(3) Liquidity risk limits management;
(4) Liquidity risk reporting system;
(5) Financing management;
(6) Intraday liquidity risk management;
(7) High quality liquid assets management;
(8) Methods of managing liquidity risks of major currencies and cross-border liquidity risks;
(9) Stress tests;
(10) Emergency response plans;
(11) Continuous monitoring and analysis of the potential factors that influence liquidity risks and the impacts on liquidity risks by other risks.
21. Commercial banks shall, according to the characteristics of their business practices in the PFTZ and the relevant regulatory requirements, have in place an indicator system of liquidity risk limits for the aforementioned account and set monitoring frequencies appropriate to different limits.
22. Commercial banks shall conduct regular stress tests on liquidity risks within the aforementioned account based on the principle of prudential regulation while taking into full account the inherent correlation between liquidity risks and other risks.
23. Commercial banks shall develop their liquidity risk emergency response plans based on the stress testing results of liquidity risks, which needs to cover the triggering conditions and operational procedures for the headquarters to give liquidity support to the aforementioned account and fully assess the impacts of potential policy constraints on such liquidity support.
IV. Market Risk
24. Commercial banks shall, based on their overall market risk management policies and the actual financial market situation in the PFTZ, develop market risk management policies appropriate to their business practices in the PFTZ, covering the interest rate risk, exchange rate risk, commodity price risk, stock market risk and other risks.
25. Commercial banks shall demonstrate the capability of risk measurement appropriate to the nature and complexity of their business practices in the PFTZ which shall undergo continuous authoritative verification.
26. Commercial banks shall have in place relatively independent systems of market risk limits and market risk reporting for their business practices in the PFTZ to provide continuous monitoring and control and establish the processing procedures in case of limits breach.
27. Commercial banks shall have in place an interest rate risk management mechanism for bank accounts in relation to their business practices in the PFTZ and, based on the characteristics of cross-border transactions as well as sound analysis and prediction of the special pricing mechanism of liberalized interest rates in the PFTZ, try to determine a practical yield curve.
28. Commercial banks shall take into full consideration in measuring interest rate risk for bank accounts in relation to their business practices in the PFTZ the characteristics of re-pricing risk, basis risk, yielding curve risk and optionality risk and the correlation between the interest rate risk for bank accounts in relation to their business practices in the PFTZ and the banks’ overall interest rate risk.
29. Commercial banks shall conduct stress testing, in view of the present situation of their business practices in the PFTZ, related business development strategies, total changes and structural changes in assets and liabilities, and characteristics of interest rate risk, and use the testing results in developing emergency response plans, designing policy processes and setting risk limits.
30. Commercial banks shall develop exchange rate risk management policies for their business practices in the PFTZ and establish the trading mechanism and procedures to square off foreign exchange open positions (including those arising from the free conversion between RMB and foreign currencies) under the accounts for which open positions are not allowed by relevant regulations.
31. Commercial banks shall have in place effective governance structure, evaluation tools and control procedures to ensure objective, accurate and consistent results from multiple financial evaluation instruments, and demonstrate the capability of evaluation appropriate to the complexity of their business practices in the PFTZ.
V. Counterparty Credit Risk
32. Commercial banks shall identify their management strategies, policy process, risk preferences and overall limits in terms of counterparty credit risk and obtain approvals from the board of directors. Counterparty credit risk preferences and overall limits shall be set at a level appropriate to the banks’ risk tolerance and capital adequacy.
33. Commercial banks shall develop proper counterparty credit risk management policies to satisfy the particular needs of development strategies for their business practices in the PFTZ, including but not limited to:
(1) Definition of counterparty credit risk and its difference from general credit risks;
(2) Organizational structure, terms of reference and responsibilities in counterparty credit risk management;
(3) Procedures to identify, measure, monitor and control counterparty credit risk;
(4) Drawing policies and capital requirements for counterparty credit risk reserves;
(5) Stress tests and emergency response plans for counterparty credit risk;
(6) Reporting and information systems in counterparty credit risk management.
34. Commercial banks shall develop specific procedures to identify, measure, monitor and control counterparty credit risk, including but not limited to:
(1) Counterparty access control, including risk assessment, internal rating and internal approval procedures;
(2) Central counterparty identification standards and management requirements;
(3) Procedures of follow-up counterparty risk assessment;
(4) Counterparty credit risk measurement methods, models and standards;
(5) Counterparty credit risk control and mitigation strategies;
(6) Management requirements for large exposures and concentration risk in business activities;
(7) Limits system, independent monitoring and monitoring frequency of counterparty credit risk as well as processing procedures in case of limits breach for all business practices in the PFTZ.
35. Commercial banks shall develop counterparty due diligence standards and procedures for their business practices in the PFTZ, which entails analysis of counterparties’ trading strategies, market position, off-balance-sheet transactions, risk management strategies and risk tolerance, in addition to their financial data.
36. Commercial banks shall have in place an internal assessment or rating system of counterparty risk to complement external rating results.
37. Headquarters of commercial banks shall have in place a counterparty approval and management system for all business activities and disallow any transaction without approval concerning counterparty credit risk.
38. During transactions with approved counterparties, commercial banks shall collect counterparty risk information on an ongoing basis and conduct regular risk assessment focusing on the impacts of major market changes on counterparty risk. They should identify the criteria for collecting overseas counterparty risk information and the methods and procedures of continuous assessment, taking into full account possible difficulties in information collection.
39. Commercial banks shall adopt counterparty credit risk measurement methods appropriate to the complexity of their business activities in the PFTZ. Their measurement models needs to cover all business practices and products from which counterparty credit risk may arise and measure accurately counterparties’ default risk, potential exposure degrees and credit value adjustments, taking into full consideration the impacts of liquidity risk, market risk and operational risk on counterparty credit risk while keeping a conservative approach to the measurement. These models shall be verified on an ongoing basis to ensure the accuracy of measurement results.
40. Commercial banks shall have in place different limits systems for their business practices in the PFTZ according to the categories of counterparties, products, markets, risk sources (e.g. interest rate or exchange rate) and exposure types (e.g. credit value adjustments, current exposures or potential future exposures), and the limits shall be set respectively taking into full account the stress testing results.
VI. Country Risk
41. Commercial banks shall identify their management strategies, policy process and risk preferences in terms of country risk.
42. Commercial banks shall develop country risk management policies appropriate to the nature, scope and complexity of their business practices in the PFTZ with a proper degree of forward-lookingness, including but not limited to:
(1) Definition of country risk that satisfies regulatory requirements;
(2) Organizational structure, terms of reference and responsibilities in country risk management;
(3) Procedures to identify, measure, monitor and control country risk related with business activities in the PFTZ;
(4) Limits system and control measures for country risk related with business activities in the PFTZ;
(5) Stress tests and emergency response plans for country risk related with business activities in the PFTZ.
43. Commercial banks shall adopt country risk measurement methods appropriate to the types, exposure degree and complexity of country risk related with their business activities in the PFTZ, covering all major risk exposures and types and applicable in measuring individual and consolidated country-specific risks and measuring country risks with or without risk transfer.
44. Commercial banks shall have in place a country risk assessment system and an internal sovereign risk rating system appropriate to the exposure degree and complexity of country risk related with their business activities in the PFTZ, to conduct risk assessment and rating of every country and region where they have or plan to have business activities.
45. Commercial banks shall properly set country risk limits to on-balance-sheet and off-balance-sheet items and give appropriate authorization to their institutions in charge of the PFTZ-related matters, provided that the country risk exposure monitoring frequency of these institutions is no lower than that of the other institutions of the commercial banks and procedures of limits monitoring, limits breach reporting and approval are in place.
46. Commercial banks shall explicate their country-specific credit policies and management requirements and ensure that the same credit principles are applied inside the PFTZ and in the domestic market outside the PFTZ in terms of credit access, due diligence, credit assessment, and post-loan credit risk monitoring and management.
VII. Legal and Compliance Risk
47. Commercial banks shall, based on the special characteristics of the business activities and financial markets in the PFTZ, develop applicable compliance management policies to ensure that their business practices are in compliance with relevant Chinese and foreign laws, regulations and transaction rules inside and outside the PFTZ, and also develop proper policy schemes, agreements or contracts to avoid any legal and compliance risk.
48. Commercial banks shall, following the principles of “knowing your clients, knowing your business, and due diligence”, establish an effective mechanism of verifying transaction background information and prevent illegal arbitrage and other illegal activities.
49. Commercial banks shall have in place a monitoring mechanism of abnormal fund flows and fulfill their legal obligations in anti-money laundering and counter-terrorist financing, according to the regulatory requirements for deposits and payments in the PFTZ and the characteristics of trade financing.
VIII. Financial Consumer Protection
50. Commercial banks shall develop policy measures to protect the interests of financial consumers and establish a mechanism inclusive of all business process and financial products to ensure adequate protection of financial consumers' rights and timely and effective settlement of their complaints.
51. When recommending financial products to consumers in the PFTZ-related business, commercial banks shall abide by the principle of transparent selling and protect consumers' rights to know and rights of choice. Product risks shall be truly, accurately and fully exposed to consumers, so shall be the channels and standards of information disclosure, to avoid any practices of hiding risks, exaggerating earnings or mandatory transaction.
52. Commercial banks shall, following the principle of risk-benefit match appropriate to the characteristics of the PFTZ-related business, establish risk preference and risk tolerance assessment standards and procedures for financial consumers in the PFTZ, so as to ensure that product designers, risk managers and sales people fully understand financial products they recommend or sell to consumers, and avoid providing a product or service to a customer that does not match his risk tolerance.
IX. Assessment Procedure
53. Commercial banks shall conduct self-evaluation according to prudential regulations of CBRC and the Guideline before conducting any PFTZ-related business, and shall entrust corresponding supervisory institution to submit a written self-evaluation report to CBRC Shanghai Bureau within ten days after conducting the PFTZ-related business (The Self-evaluation report of a Shanghai local registered bank with legal personality shall be submitted by its head office).
Commercial banks that conduct PFTZ-related business shall submit business risk evaluation of the previous year to CBRC Shanghai Bureau before the end of March each year. Where commercial banks find any serious risks in self-evaluation, they shall take measures to ensure that the risk management complies with the business development in the PFTZ, and send a written report to CBRC Shanghai Bureau without delay.
Self-evaluation shall focus on the effectiveness and adaptability of the risk management procedures and ability for the PFTZ-related business. Commercial banks that are found at variance with prudential regulations of CBRC and the Guideline when conducting pre-assessment and continuous self-evaluation are not allowed to conduct PFTZ-related business.
54. Commercial banks shall highlight contents conforming to the Guideline in the self-evaluation report. Specific information like authorization documents, management policies, personnel records and description of system shall be attached to verify the report.
55. CBRC Shanghai Bureau shall continuously regulate and supervise the self-evaluation of commercial banks if required, and shall verify it by field investigations and other measures as appropriate. The supervision of self-evaluation serves as a basis for intermediary and post-establishment supervision. Any misstatement in a self-evaluation report of PFTZ-related business or other behaviors that violate laws, rules, prudential regulations of CBRC and the Guideline shall bring on administrative punishment to the bank and its officer concerned by regulatory authorities, or mandatory regulation such as suspension of business.
X. Supplementary Provisions
56. CBRC Shanghai Bureau reserves the right to the final interpretation of the Guideline.
57. The Guideline shall enter into effect as of the date of issue. Commercial banks dealing with the PFTZ-related business in Shanghai before the Guideline is issued shall conduct self-evaluation according to the Guideline as well and submit the report before June 10, 2014. Commercial banks that are found at variance with the Guideline in self-evaluation are not allowed to continue the PFTZ-related business.
Annex 2:
The Monitoring and Reporting System
for Banking Institutions in the China (Shanghai) Pilot Free Trade Zone (Interim)
I. What to Be Reported
1. T1_ Business Development in the China (Shanghai) Pilot Free Trade Zone (Interim) (referred to hereafter as the "T1", see Table 1). From the perspective of customers, this table reports data of the business conducted by Shanghai-based banking institutions in the China (Shanghai) Pilot Free Trade Zone (referred to hereafter as the “PFTZ”). The aforementioned PFTZ-related business refers to banking and financial services provided by banking institutions in Shanghai to customers in the PFTZ (including residents and non-residents), including services provided by companies both in and outside the PFTZ.
Banking institutions operating PFTZ-related business in Shanghai shall make use of shared information from government bodies or regulatory authorities and information acquired during business development, accurately identify and understand the scope of customers in the PFTZ, and classify them with corresponding codes. Specifically, companies in the PFTZ, financial institutions and other institutions (including administrative bodies, public institutions and other institutions) shall be classified by the registration address, including legal person status, branches and primary-level institutions; individuals in the PFTZ shall be classified by the registration address of the company they are employed by or they own.
2. T2_Information of Banking Institutions in the China (Shanghai) Pilot Free Trade Zone (Interim) (referred to hereafter as the "T2", see Table 2). From the perspective of institutions, this table reports all business data of all banking institutions physically based in the PFTZ, which include legal entities and branches of all banking institutions physically registered in the PFTZ. All business includes banking services provided to customers both in and outside the PFTZ. A bank branch in the PFTZ whose high-level office is not located in the PFTZ is also classified as a banking institution in the PFTZ, and its business data shall also be reported via this table.
II. Who to Report
The monitoring and reporting scope for banking institutions in the PFTZ covers all of their business data within the jurisdiction of Shanghai. In order to maintain unity, both T1 and T2 shall be reported by Shanghai branches of banking institutions. In case a banking institution has not established a branch in Shanghai, its head office in Shanghai or relevant municipal-level management unit shall do the report. Reporting units shall monitor the reporting of PFTZ-related business and ensure quality control rather than just be a channel of reporting.
The banking institution that has more than one municipal branch in Shanghai or has different management structures and financial arrangement for the PFTZ-related business shall, with the support of its head office, coordinate with relevant departments to clearly identify the reporting unit and carefully develop PFTZ-related business and complete the reporting work.
III. When and How to Report
The reporting time shall be within the last ten days of a month, and shall be postponed in case of statutory holidays. All reporting units shall use Excel 2003 version and submit reporting statements to corresponding regulatory department via the information network of CBRC Shanghai Bureau.
The first reporting time of all banking institutions in Shanghai is June 10, 2014. At that time all data information of April and May 2014 shall also be reported.
IV. Format Requirement
1. The table shall clearly indicate who has filled in the table and who has verified the information contained in the table, and their contact information shall be provided.
2. Aside from where needs to be filled in, no changes shall be made to the tables, no sheet shall be added and no lines or rows shall be deleted. Where institutions have added new services/products targeting customers in the PFTZ during the reporting period, or have made major operation or management adjustments to its PFTZ-related business, or events of serious risk have happened, explanations shall be made in a formal written report.
3. The reporting tables shall be named as: T1_full name of the institution_xxxxxxxx, T2_full name of the institution_xxxxxxxx. Specifically: “_” is an English underscore in DBC case, and no space shall be added before or after it; the full name of the institution must be the name on its financial institution license, and no abbreviation is allowed; “xxxxxxxx” is the reporting date, such as “20140531”.
V. Arrangement during Trial Period
Since detailed rules and regulations of various financial support policies in the PFTZ are under way, and various links to support the reporting procedures still need to be improved, a trial period of two months is applicable. During the trial period, the regulatory authority will not evaluate poor reporting performance caused by miscomprehension of the rules and regulations. However, banking institutions in Shanghai must fill in and verify the tables in real earnest and ensure correct logic of data validation. The regulatory authority shall take strict measures to regulate wrong validation processes.
Upon the end of the trial period, the regulatory authority shall, according to the Law of the People's Republic of China on Banking Regulation and Supervision, Law of the People's Republic of China on Commercial Banks and relevant accounting policies of CBRC, mete out administrative punishment or take corresponding regulatory measures towards irregular reporting behaviors.
VI. Feedback Channel
In order to improve timely communication and feedback, banking institutions in Shanghai may report problems encountered when filling in the forms via the information network of CBRC Shanghai Bureau, and then submit the file to the specific branch or information statistics department of foreign banks. The name of the file shall be: “feedback of the monitoring and reporting system in the PFTZ+the name of the institution”. CBRC Shanghai Bureau shall handle properly the feedback, revise and improve the reporting system in a timely manner.
Annex 3:
Detailed Rules on the Simplification of the Access of Banking Institutions and their Executives to the China (Shanghai) Pilot Free Trade Zone
(Interim)
I. General Provisions
1. (Basis of Policy Formulation) These Detailed Rules are put into trial use in accordance with the Notice of the China Banking Regulatory Commission on Issues concerning Banking Supervision in China (Shanghai) Pilot Free Trade Zone and relevant banking regulations, after being reported to and approved by CBRC.
2. (Overall Objectives) The overall objectives of these Rules are to deepen the reform of the administrative examination and approval system, accelerate the transformation of banking regulating functions and innovation of regulating modes; improve intermediary and post-establishment supervision levels according to the principle of providing special access to national privileges and requirements for internationalization and legalization; and further clarify the management responsibility of banking authorities while simplifying administrative procedures, and accumulate supervision experience that can be reproduced and promoted.
3. (Application Scope) In an attempt to simplify the access control for institutions and their executives to the China (Shanghai) Pilot Free Trade Zone (the “PFTZ”), the CBRC Shanghai Bureau shall, in accordance with these Detailed Rules and relevant regulations, supervise and manage the implementation of these Detailed Rules among players in the banking industry while guiding and supervising the Shanghai Banking Association’s fulfillment of obligation to be self-disciplined and ready to serve. The CBRC Shanghai Bureau shall also release the general information of the institutions in the PFTZ and provide update on specific information including site selection preference of the institutions in the PFTZ.
4. (Legal Responsibility) The banks shall ensure the authenticity, completeness and accuracy of the submitted materials prepared as instructed in these Detailed Rules and ensure the compliance and eligibility of the corresponding institutions and their executives.
Where any non-compliance or imprudent conducts such as making false statement or concealing information in the reporting are detected by the regulatory authorities, the reporting institution and its officer concerned shall be held responsible, be imposed on administrative penalty as stipulated by law, and be subject to coercive measures including termination of branch establishment, or replacement of its board directors or executives or limitation of their rights.
5. (Annual Branch Network Arrangement) The prior approval is not needed for the annual plans of Chinese-funded national commercial banks, policy banks and Shanghai-based banks on establishing new branches or upgrading the existing ones in the PFTZ, and such actions will not be subject to the overall annual plans of the above banks for their branch network in Shanghai.
II. Simplify the Access Control of Institutions to the PFTZ
6. (Applicable Institutions) Any establishment, alternation or termination of subsidiaries including sub-branches, sub-branch offices and savings offices of Chinese-funded national commercial banks (excluding the Postal Savings Bank of China), Shanghai-based banks, foreign-funded legal-person banks and foreign banks are not required to be approved by the CBRC Shanghai Bureau in advance but shall be reported afterwards. However, this provision is not applied to banks that have not established branches or higher-level offices in the PFTZ.
These Detailed Rules are also applicable to institutions of banks based in Hong Kong, Macau and Taiwan that are established in the PFTZ.
7. (Reporting Content) Content to be reported afterwards includes establishment, alteration and termination of institutions, in which alteration refers to relocation, change of name, upgrading or downgrading.
8. (Reporting Entity) The higher-level offices which have a direct reporting relationship with the institutions established in the PFTZ that have undergone establishment, alteration or termination shall report to the CBRC Shanghai Bureau in accordance with the provisions in these Detailed Rules.
9. (Information to Be Reported) In accordance with the administrative permission or reporting requirements on establishment, alteration or termination of the offices of Chinese domestic and foreign banks, the banks shall set up internal management system for self-evaluation and verification in which the standards and requirements are clarified and duties and responsibilities are defined to ensure that the newly-established or altered offices meet the requirement of compliance and prudence and that the termination of institutions are completed and in compliance with regulations. The following information shall be submitted to the CBRC Shanghai Bureau:
(1) For establishment
(i) Report on establishment, including the amount of funds allocated to this new institution for operation, its business address and the names of its main officers;
(ii) Document of approval issued by its head office or higher-level office or board resolution;
(iii) Asset verification report;
(iv) Verification certificates issued by public security authority and fire department;
(v) A List of internal management systems;
(vi) Self-evaluation and verification management system (to be submitted only when the system is established and amended and re-submission is not needed. Same below) and corresponding verification certificate in which each evaluation result bears the seal of appropriate verification department and signature of its officer;
(vii) A feasibility study report;
(viii) An organizational chart (people actual on the payroll need to be specified);
(ix) Profile of executives in accordance with Article 13 in these Detailed Rules.
(2) Relocation within the PFTZ
(i) Report on the relocation within the PFTZ, including the reason for relocation and the new business address;
(ii) Verification certificates issued by public security authority and fire department;
(iii) Self-evaluation and verification management system and corresponding verification certificate in which each evaluation result bears the seal of appropriate verification department and signature of its officer;
(iv) Original and copies of Financial License (in A4 sheet size).
(3) Change of name
(i) Report on the change of name including the reason and results of name validation at the Commerce and Industry Bureau concerned;
(ii) Self-evaluation and verification management system and corresponding verification certificate in which each evaluation result bears the seal of appropriate verification department and signature of its officer;
(iii) Original and copies of Financial License (in A4 sheet size).
(4) Institution upgrading or downgrading
(i) Report on the upgrading and downgrading including the reasons for such upgrading or downgrading;
(ii) Head office structural reform plan or document of approval of higher-level office with regard to such upgrading or downgrading;
(iii) Authorization document specifying business scope of the institution after such upgrading or downgrading issued by higher-level office;
(iv) Organizational charts before and after such upgrading or downgrading (people actual on the payroll need to be specified);
(v) Original and copies of Financial License (in A4 sheet size).
(5) Termination
(i) Report on the termination including the reasons;
(ii) Document of approval issued by its head office or higher-level office, or board resolution;
(iii) Plan of asset disposal, debt liquidation and personnel allocation and name list and contact information of the people in charge;
(iv) Original and copies of Financial License (in A4 sheet size).
10. (License Issuing) Within ten days upon receipt of the complete reporting materials, the CBRC Shanghai Bureau shall have the institution registered for the establishment, alteration and termination of the institutions in the Access Management System of Financial Institutions and the Financial License Management System of the China Banking Regulatory Commission and then issue, replace or recall the Financial License. The CBRC Shanghai Bureau is responsible for reviewing the completeness of the reporting materials and enhances intermediary and post-establishment supervision.
III. Simplify the Access Control of Executives to the PFTZ
11 (Applicable Executives) The principal officer or anyone who acts as a principal officer without the title at the institutions listed in Article 6 in these Detailed Rules can be appointed without prior approval by the CBRC Shanghai Bureau or participation in the qualification exam for executive officers. The appointment needs to be reported afterwards.
12. (Reporting Entity) The higher-level offices of the institutions in the PFTZ where the executives are appointed shall submit reporting materials to the CBRC Shanghai Bureau in accordance with the provisions in these Detailed Rules.
13. (Information to Be Reported) The banks shall, in accordance with the administrative permission or reporting requirements on executive appointments at both Chinese domestic and foreign banks, set out a clear recruitment standard, roles and responsibilities and appointment process, and shall review, verify and confirm that the executives at the institutions in the PFTZ meet all the standards set up by the supervisory authorities and possess the expertise and experience in management that are required to carry out the business development strategy of the institutions in the PFTZ. The following information shall be submitted to the CBRC Shanghai Bureau:
(1) The appointment letter which shall include:
Title
Duties
Areas of authority
Where the position is in the organizational structure, and
its reporting channel;
(2) The authorization letter for the appointment (with verification of notary public and authentication);
(3) The resume, and copies of personal identity and academic certificate of the appointee (signed by the authorized person);
(4) The statement of no past delinquencies, and the commitment letter to act in the spirit of law and due diligence after taking office, both of which shall be signed by the appointee;
(5) The auditor's report on economic responsibilities or the performance appraisal from the previous organization;
(6) The description of previous full-time or part-time jobs held by the appointee in banks, bank groups or other related companies;
(7) The qualification review report signed by the examining body or the person in charge.
14. (Reporting Process) Within ten working days since the appointment takes into effect, the bank shall submit all the required documents to CBRC Shanghai Bureau. The CBRC Shanghai Bureau is responsible for reviewing the completeness of the reporting materials and enhances intermediary and post-establishment supervision.
IV. Simplifying Approval Process for Institution Relocation inside and outside the PFTZ and Executives Appointment
15. (Institution Relocation) The principle of one-way access, or “permission of entry only”, shall be applied to banking institutions under the branch-level (exclusive) in changing their business locations without name changes. Specifically, such banking institutions based outside the PFTZ shall be allowed to directly relocate into the PFTZ in accordance with provisions specified in Chapter II of these Detailed Rules, and the reporting system shall be applied. The relocation outside from the PFTZ of banking institutions established under the reporting system shall be subject to the relevant CBRC regulations.
16. (Executive Appointment) The principle of one-way access, or “permission of entry only”, shall be applied to banking institutions under the branch-level (exclusive) in transferring their executives to same-level or lower-level positions in the same legal entity. Specifically, executives of such banking institutions based outside the PFTZ shall be allowed to directly transferred to the same-level or lower-level positions in the PFTZ in accordance with provisions specified in Chapter III of these Detailed Rules, and the post reporting system shall be applied. The transfer of executives appointed under the post reporting system in banking institutions based in the PFTZ to the same-level or lower-level positions outside the PFTZ shall be subject to application procedures for qualification assessment in accordance with relevant CBRC administration regulations.
The application procedures for qualification assessment are not needed for qualified executives who have been transferred into the PFTZ, and later reappointed to same-level or lower-level positions in the same legal entity located outside the PFTZ, provided that their executive positions are not interrupted for a continuous period of over a year.
V. Supplementary Provisions
17. (Any Issue Not Mentioned Herein) Relevant regulations shall be applied where these Detailed Rules do not cover.
18. (Subject of Legal Interpretation) CBRC Shanghai Bureau reserves the right to the final interpretation of these Detailed Rules.
19. (Effective Date) These Detailed Rules shall enter into effect as of the date of issue.
