Chapter 1 General Regulations
Article 1 The Regulations are drafted to meet demand of open up and economy development, enhance, improve administration to financial institution with foreign investment and promote stable operation of bank industry.
Article 2 The financial institutions with foreign investment referred to in the Regulations are the following financial institutions approved to be established and operate within China subject to applicable laws and relations of PRC:
(1) foreign capital bank with its headquarter within China (hereinafter referred to as Wholly Foreign Owned Bank);
(2) branch bank of foreign bank within China (hereinafter referred to as Foreign Bank Branch);
(3) bank jointly ran by foreign financial institutions and Chinese corporation and enterprises (hereinafter referred to as Joint Venture Bank);
(4) financing company of foreign capital with its headquarter within China (hereinafter referred to as Wholly Foreign Owned Financing Company);
(5) financing company jointly ran by foreign financial institution and Chinese corporation and enterprises (hereinafter referred to as Joint Venture Financing Company);
Article 3 Financial institutions with foreign investment will comply with laws and regulations of PRC and will not impair the social public interest
Proper business and lawful rights of financial institutions with foreign investment will be protected by laws of PRC.
Article 4 People's Bank of China is the administrative authority that manages and supervises financial institutions with foreign investment; People's Bank of China branch will conduct daily supervision and management upon the financial institutions with foreign investment within its administrative district.
Chapter 2 Establishment and Registration
Article 5 The minimum registered capital for wholly foreign owned bank and joint venture bank shall be convertible currency to the equivalent of RMB 300,000,000. The minimum registered capital for wholly foreign owned financing company and joint venture financial institution shall be convertible currency to the equivalent of RMB 200,000,000. The registered capital shall be the actual contributed capital.
Headquarters of foreign banks shall remit convertible currency to the equivalent of no less than RMB 100,000,000 to its branch as working capital without consideration.
The People's Bank of China may increase the minimum level requirements of its registered or working capital and determine the applicable RMB rate in accordance with the business scope of foreign-owned financial institutions and the requirements of prudent supervision.
Article 6 An applicant purporting to establish a wholly foreign owned bank or wholly foreign owned financial institution must meet the following requirements:
(1) The applicant must be a financial institution;
(2) The applicant must have established a representative office within China for 2 years or more;
(3) The total assets of the applicant must not be less than USD 10,000,000,000 at the end of the previous year before submitting the establishment application;
(4) The country or territory where the applicant is based must possess a consummate financial supervision and management system, and the applicant must be under the effective governance of the supervising body in the country or territory where it is based;
(5) The supervising body of the country or territory where the applicant is based must approve of its application;
(6) Other due diligence conditions as set down by the People's Bank of China.
Article 7 An applicant purporting to establish the branch of a foreign bank branch must meet the following requirements:
(1) The applicant must have established a representative office within China for 2 years or more;
(2) The total assets of the applicant must not be less than USD 20,000,000,000 at the end of the previous year before submitting the establishment application, and the capital adequacy ratio must not be less than 8%;
(3) The country or territory where the applicant is located must possess a consummate financial supervision management system, and the applicant must be under the effective governance of the supervising body in the country or territory where it is located;
(4) The supervising body in the country or territory where the applicant is based must approve of its application;
(5) Other due diligence conditions as set down by the People's Bank of China.
Article 8 The applicant purporting to establish a joint venture bank or joint venture financial institution must meet the following requirements:
(1) The foreign investor must be a financial institution;
(2) The foreign investor must already have a representative office within China;
(3) The total assets of the foreign investor must not be less than USD 10,000,000,000 at the end of the previous year before submitting the establishment application;
(4) The country or territory where the foreign investor is based must possesses a consummate financial supervision management system, and the applicant must be under the effective governance of the supervising body in the country or territory where it is based;
(5) The supervising body in the country or territory where the foreign investor is based must approve of its application;
(6) Other due diligence conditions as set down by the People's Bank of China.
Article 9 An applicant purporting to establish a wholly foreign owned bank or wholly foreign owned financial institution shall submit a written application and the following materials to People's Bank of China:
(1) An application letter for establishing a wholly foreign owned bank or wholly foreign owned financial institution, including the following contents: the name of the wholly foreign owned bank or wholly foreign owned financial institution purporting to be established, the amount of registered capital and business category it is applying under, etc.
(2) Feasibility study;
(3) Articles of Association of the wholly foreign owned bank or financial institution to be established;
(4) Photocopy of the business license as issued by the supervising body of the country or territory where the applicant is based and its application proposal;
(5) Annual reports of the applicant for the last 3 years;
(6) Other materials as required by People's Bank of China.
Article 10 An applicant purporting to establish a branch of a foreign bank, the headquarters of the foreign bank shall submit a written application and the following materials to the People's Bank of China:
(1) An application letter signed by the legal representative, including the following contents: the name of the foreign bank branch to be established, working capital to be remitted by the headquarters without consideration, the business category it is applying under, etc.
(2) Feasibility Study Report;
(3) Photocopy of the business license issued by the supervising body of the country or territory of where the applicant is based and its application proposal;
(4) Annual reports of the applicant for the last 3 years;
(5) Other materials required by People's Bank of China.
Article 11 An applicant purporting to establish a joint venture bank or financial institution, the joint venture parties shall jointly submit a written application and the following materials to the People's Bank of China:
(1) An application letter to establish a joint venture bank or financial institution, including the following contents: name of the joint venture bank or financial institution to be established, names of joint venture parties, registered capital, contribution ratio of each party, business category they are applying under;
(2) Feasibility study report;
(3) Joint Venture Agreement and Articles of Association of the joint venture bank or financial institution to be established;
(4) Photocopy of the business license issued by the supervisor of the country or territory where the foreign party is located and its application proposal;
(5) Annual reports of the foreign party for the last 3 years;
(6) Relevant materials of the Chinese joint venture party;
(7) Other materials required by People's Bank of China.
Article 12 Where materials listed in Article 9, Article 10 and Article 11 are in a foreign language, except for the annual reports, they must be accompanied by Chinese translations.
Article 13 The People's Bank of China shall conduct an initial examination of the application for establishing a foreign-owned financial institution before making a decision whether or not to accept the application within 6 months after receiving all of the application documents. After the application is accepted, the People's Bank of China shall issue a formal application form to the applicant; in the event the application is refused, the People's Bank of China shall inform the applicant in writing, stating its reasons for refusal.
Under special circumstances, if the People's Bank of China is unable to complete the initial examination and reach a decision whether or not to accept the application within the period stipulated in the previous article, the People's Bank of China may extend the stipulated period as it sees fit and inform the applicant accordingly. However, an extension in this instance shall not exceed 3 months.
Article 14 The Applicant shall complete its establishment procedures within 6 months from the date of receiving the formal application form. Upon being approved by the People's Bank of China, the Applicant may obtain an extension of 3 months in the event that its establishment procedures cannot be completed within the stipulated period for valid reasons. The acceptance decision of the People's Bank of China shall be invalidated automatically if the establishment procedures are still not completed within the extended period. After the establishment procedures are completed, the Applicant shall submit the completed application form together with the following documents to the People's Bank of China for approval:
(1) List of names and the resumes of the principals of the foreign-owned financial institutions;
(2) Authorization letter for the principals of the foreign-owned financial institutions;
(3) Contribution verification certificate issued by a legal capital verification institution;
(4) Materials regarding the safety and precautionary measures and of other facilities relevant to the business;
(5) If establishing a branch of a foreign-owned bank, a warranty letter from the headquarters assuming the tax and debt liabilities of the branch;
(6) Other documents as required by the People's Bank of China.
Article 15 People's Bank of China shall make a decision as to whether or not to approve a completed formal application accompanied by documents for establishing a foreign-owned financial institution within 2 months of receiving the application. In the event the People's Bank of China approves of the application, it shall issue a Financial Institution Operating License; in the event that it refuses the application, it shall inform the Applicant in writing, explaining the reasons for refusal.
Article 16 The Applicant shall receive a Business License from the Administration of Industry and Commerce ("AIC") after it submit its Financial Institution Operation Approval Certificate to the AIC.
Chapter 3 Scope of Business
Article 17 A wholly foreign-owned bank, a branch of a foreign bank and a joint venture bank may, subject to their scope of business as approved by the People's Bank of China, either partially or wholly operate the following types of business in accordance with the relevant laws:
(1) accept deposits from the public;
(2) issue short-term, mid-term and long-term loans;
(3) prepare for the acceptance and discount of negotiable instruments;
(4) purchase and sale of government bonds, financial bonds and other securities in foreign currency other than stocks;
(5) provide letters of credit service and guarantees;
(6) conduct domestic and international settlements;
(7) foreign exchange and foreign exchange agency;
(8) conduct foreign exchange business;
(9) Conduct inter-bank borrowing;
(10) Conduct bankcard business;
(11) Provision of safes;
(12) provide credit investigation and consulting services;
(13) any other types of business approved by the People's Bank of China.
Article 18 A wholly foreign-owned financial institution and a joint venture financial institution may, subject to the scope of business approved by People's Bank of China, partially or wholly operate the following types of business in accordance with the relevant laws:
(1) accept deposits of not less than RMB 100,000,000 or its equivalent in convertible currency for a period of not less than 3 months;
(2) issue short-term, mid-term and long-term loans;
(3) prepare for the acceptance and discount of negotiable instruments;
(4) purchase and sale of government bonds, financial bonds and other securities in foreign currency other than stocks;
(5) provide security;
(6) deal with foreign exchange and conduct a foreign exchange agency;
(7) inter-bank borrowing;
(8) provide credit investigation and consulting services;
(9) Provide foreign exchange trust services;
(10) Engage in other types of business as approved by the People's Bank of China.
Article 19 The People's Bank of China will determine the geographical scope and the scope of service for the RMB business of foreign-owned financial institutions in accordance with applicable regulations.
Article 20 Foreign-owned financial institutions conducting RMB business shall possess the following qualities:
(1) Having conducted business in China for over 3 years prior to making the application;
(2) Having traded profitably for 2 years prior to making the application;
(3) Meet other due diligence requirements as established by the People's Bank of China.
Article 21 Foreign-owned financial institutions, prior to creating new banking products within the scope of business approved by the People's Bank of China, shall first make a written application to the People's Bank of China. The People's Bank of China shall, within 60 days from receiving the written application, make a determination as to whether or not it will approve the application. Should the People's Bank of China decide not to grant approval, it should provide a written notice to the applicant providing reasons.
Chapter 4 Supervision and Management
Article 22 The interest rates for deposits, loans and various handling fees of foreign-owned financial institutions shall be determined by the relevant regulations of the People's Bank of China.
Article 23 Foreign-owned financial institutions when conducting banking transactions shall maintain a deposit accumulation fund with the branch of the People's Bank of China in its locality, the ratio of which is to be determined and adjusted by the People's Bank of China where necessary.
Article 24 30% of the working capital of the branches of foreign-owned banks shall exist as interest-bearing assets as specified by the People's Bank of China, and included in the deposit and other funds as specified by the People's Bank of China.
Article 25 Wholly-owned banks, jointly-owned banks, wholly-owned financial institutions, joint-venture financial institutions shall ensure that their capital adequacy ratio is not lower than 8%.
Article 26 Wholly-owned banks, jointly-owned banks, wholly-owned financial institutions, joint-venture financial institutions shall ensure that the ratio of their balance trust funds in one enterprise and in other related enterprises is not higher than 25%, except where it has been approved by the People's Bank of China.
Article 27 Wholly-owned banks, jointly-owned banks, wholly-owned financial institutions, joint-venture financial institutions shall ensure that the ratio of their fixed assets and their shareholders' equity is not higher than 40%.
Article 28 Wholly-owned banks, jointly-owned banks, wholly-owned financial institutions, joint-venture financial institutions shall ensure that the ratio of their RMB capital and the RMB equivalent of their high-risk assets is not lower than 8%.
The branches of foreign-owned financial institutions shall ensure that the ratio of the RMB equivalents of the sum of their working capital and accumulation funds, and of their high-risk assets is not lower than 8%.
The People's Bank of China shall progressively make adjustments to the two abovementioned ratios in accordance with the relevant regulations.
Article 29 Foreign-owned financial institutions shall ensure the liquidity of their assets. The ratio of their balance liquid assets and their balance liquid liabilities shall not be lower than 25%.
Article 30 Foreign-owned financial institutions shall ensure that the ratio of their
foreign currency deposits received from within Chinese borders and their total foreign currency reserves shall not be higher than 70%.
The People's Bank of China shall progressively make adjustments to the abovementioned ratio in accordance with the relevant regulations.
Articles 31 Foreign-owned financial institutions shall maintain a bad debts accumulation fund in accordance with the relevant regulations.
Article 32 Foreign-owned financial institutions shall employ an accountant qualified to practice in China, and approved by the People's Bank of China.
Article 33 Under the following circumstances, foreign-owned financial institutions, upon receiving the approval of the People's Bank of China, shall apply for the relevant registration with the relevant Administration of Industry & Commerce office:
(1) Establishment of a branch;
(2) Adjustment or transfer of registered capital, increase or decrease in working capital;
(3) Change to the name of the organization or place of business;
(4) Adjustment to the scope of business;
(5) Changes to the total capital or shares of shareholders holding more than 10% shareholding;
(6) Amendments to the Articles of Association;
(7) Changes to senior management personnel;
(8) Other circumstances stipulated by the People's Bank of China.
Article 34 Foreign-owned financial institutions shall tender financial reports and other related information to the People's Bank of China in accordance with the regulations.
Article 35 The People's Bank of China and its delegated authorities, either on a regular or random basis, have the right to conduct investigations, audit the deposits, loans, balances, bad debts and other accounts of foreign-owned financial institutions, the right to request that foreign-owned financial institutions tender relevant documents, information and written reports within a stipulated period of time, and the right to penalize foreign-owned financial institutions for their activities which are in violation of the law.
Article 36 The People's Bank of China and its delegated authorities have the right to demand foreign-owned financial institutions to construct and improve business management, cash management and safety precautions in accordance with the regulations governing business administration policies.
Article 37 A foreign-owned financial institution shall accept the People's Bank of China and its delegated authorities' supervision and investigations by tendering, and not refusing, obstructing or hiding, relevant and accurate documents, information and written reports.
Chapter 5 Dissolution and Liquidation
Article 38 Where a foreign-owned financial institution intends to voluntarily cease operations, it should submit a written application to the People's Bank of China within 30 days before the intended date of cessation of operations. The institution can be dissolved and liquidated only after it receives the approval of the People's Bank of China.
Article 39 Where the foreign-owned financial institution is unable to repay its debts in time, the People's Bank of China can order that it cease operations and put its finances in order within a stipulated period of time. Within this stipulated period, if it recovers the ability to repay debts, it shall resume operations and apply to the People's Bank of China for resumption of operations; if it has yet recovered the ability to repay debts outside of the stipulated period, it shall be liquidated.
Article 40 Where a foreign-owned financial institution ceases operations as a result of dissolution, revocation in accordance with relevant laws or being under liquidation, it shall be liquidated in accordance with the relevant laws and regulations of China.
Article 41 The summary of a foreign-owned financial institution's audit must be registered at the original registration authority within the legally stipulated timeframe
Chapter 6 Legal Obligations
Article 42 The unauthorized establishment of financial institutions and the illegal operation of financial business activities shall be suppressed by the People's Bank of China; criminal liability for offences pertaining to the unauthorized establishment of financial institutions, illegally accepting deposits from the general public or other criminal activities shall be pursued; where the activities are insufficient to constitute criminal offences, the People's Bank of China shall confiscate the unlawful gains and impose a fine in the range of two to six times the amount of the unlawful gains; where there are no unlawful gains or the unlawful gains are less than RMB 100,000, the fine to be imposed shall be in the range of RMB 100,000 and RMB 500,000.
Article 43 Where a foreign-owned financial institution exceeds the scope of business, territory or clientele as approved by the People's Bank of China in the conduct of its business, the People's Bank of China shall pursue criminal charges for illegal trading or other offences under the Criminal Law; where it is insufficient to constitute criminal charges, the People's Bank of China shall issue a warning, confiscate illegal gains and impose a fine in the range of two to six times the amount of the unlawful gains; where the unlawful gains are less than RMB 100,000, the fine shall be in the range of RMB 100,000 and RMB 500,000.
Article 44 Where a foreign-owned financial institution, within the scope of business approved by the People's Bank of China, creates a new type of business without approval, the People's Bank of China shall order that the new unapproved type of business cease operation, confiscate the unlawful gains and impose a fine in the range of two to four times the amount of the unlawful gains; where the gains are lawful or the unlawful gains is less than RMB 50,000, the fine shall be in the range of RMB 50,000 and RMB 300,000.
Article 45 The People's Bank of China shall issue a warning notice, confiscate the unlawful gains and impose a fine in the range of two to four times the amount of the unlawful gains on a foreign-owned financial institution that operates in violation of Chapter 4 of this legislation; where the unlawful gains are less than RMB 50,000, the fine shall be in the range of RMB 50,000 and RMB 300,000.
Article 46 The People's Bank of China shall issue a warning notice and impose a fine in the range of RMB 100,000 and RMB 500,000 on a foreign-owned financial institution that violates the relevant articles of this legislation by rejecting or obstructing lawful examination or tendering false documents, information and written reports.
Article 47 The People's Bank of China shall issue a warning notice, providing a period for rectification, and impose a fine in the range of RMB 10,000 and RMB 100,000 on a foreign-owned financial institution that violates the relevant articles of this legislation by failing to punctually submit financial reports or related documents, information and written reports, or failing to establish, formulate or improve the relevant business and management policies in accordance with the regulations.
Article 48 Where foreign-owned financial institutions violate this legislation, apart from the penalties imposed by Articles 43, 44, 45, 46 and 47, if the violation is serious, the People's Bank of China can order the said financial institution to cease operations or revoke the institution's Financial Business Operation licence; cancel the fixed-term to lifetime tenure of senior management personnel of the said foreign-owned financial institution in China.
Article 49 Foreign-owned financial institutions in violation of PRC laws or regulations shall be penalized by the supervising body in accordance with the relevant laws.
Chapter 7 Supplementary Articles
Article 50 This legislation applies to financial institutions of Hong Kong Special Administration Region, Macao Special Administration Region and Taiwan which establish and run financial business institutions in PRC.
Article 51 The People's Bank of China shall establish the management methods for foreign-owned financial institutions' representative offices based in China.
Article 52 This legislation takes effect as of February 1, 2002. The PRC Foreign-owned Financial Institutions Management Law promulgated by the State Council on February 25, 1994 shall be repealed on the same date.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.
