On 30 September 2013, the CBRC released consultation draft rules in relation to the approval requirements for foreign-funded banks in China, both simplifying the approval and strengthening the CBRC’s regulatory oversight.

Highlights

Key changes proposed by the new rules include:

• Resolving inconsistencies.  The new rules, when formally issued after completion of the consultation process, will replace the 2006 Administrative Approval Measures for Foreign-funded Financial Institutions in their entirety. In particular, many parts of the existing rules were taken from CBRC legislation which has itself since been repealed. The new rules are intended to replace the outdated provisions, ensuring a clearer and more transparent application process for foreign-funded banks, based on a consistent set of rules.
• Consolidating legislation.  Provisions in respect of, for example, derivatives and credit card businesses, which are currently covered by a wide range of disparate rules, are proposed to be consolidated into a single set of rules.
• Clarifying existing procedures.  The new rules provide clearer guidance on the application requirements and processes for foreign-funded banks applying to conduct certain new business lines. For example, as a follow up to the recent opening up of the securities investment funds custody market to foreign-funded and PRC-incorporated banks in April 2013, the new rules contain specific guidance for the application process for this business line.
• Multiple sub-branch applications permitted.  The current restrictions on a foreign-funded bank only being able to apply to establish one sub-branch in the same city per application, and for all previously-submitted applications to be concluded before a new application can be submitted, are proposed to be removed, enabling a foreign-funded bank to simultaneously apply to establish multiple sub-branches in the same city.
• QFII custodian approval requirements abolished.  The current requirement for CBRC approval to be obtained as a prerequisite to a foreign-funded bank engaging in Qualified Foreign Institutional Investor (QFII) custodian services are proposed to be abolished.
• Possible relaxation of certain approval requirements.  The requirements for CBRC approval to be obtained as a prerequisite to foreign-funded banks acquiring credit assets from their parent or affiliated banks, and foreign-funded bank branches making use of their interest-bearing assets, are proposed to be removed. However, further corresponding amendments will also need to be made to the associated rules and implementing regulations before CBRC approval can be dispensed with.
• New capital and shareholder requirements. In line with the capital requirements applicable to Chinese domestic nationwide commercial banks, the minimum paid-up capital for a foreign-funded bank subsidiary is proposed to be increased from RMB300 million to RMB1 billion. To be eligible to establish a foreign-funded bank subsidiary, the new rules also propose that the cash flow of the parent bank has not been subject to undue fluctuations resulting from general macroeconomic conditions, and that its asset liability and financial leverage ratios are equal to or less than the industry average.

Reference: Administrative Measures of Foreign-funded Banks’ Administrative Approvals (Draft for Consultation) (《外资银行行政许可事项实施办法》（征求意见稿）)

Issuing authority: The China Banking Regulatory Committee (the “CBRC”)

http://www.linklaters.com/Publications/AsiaNews/LinkstoChina/Pages/CBRC-Issues-Consultation-Draft-Rules-relation-Approval-Requirements-Foreign-funded-Banks-China.aspx