Detailed Rules for the Implementation of the Regulations of the People’s Republic of China on the Administration of Foreign-invested Banks (7)
Source: CBRC View: 379 Date: 2011-05-16

Chapter V Supervision and Administration

Article 78 A business institution of a foreign-invested bank shall establish an internal control system and business operating procedures which satisfy the demands of the development of its Chinese businesses and shall, report to the local institution dispatched by the CBRC the revisions to its internal control system and business operating procedures before the end of March every year.

Article 79 An independent risk management department, a regulation-compliance management department and an internal audit department shall be established by a solely foreign-invested bank, Chinese-foreign equity joint bank.
A branch of a foreign bank shall appoint a special department or employee to be responsible for the regulation-compliance work.

Article 80 After the end of an internal audit, a business institution of a foreign-invested bank shall timely submit an internal audit report to the local institution dispatched by the CBRC, which may communicate with the internal auditors of the business institution of the foreign-invested bank in a proper way.

Article 81 A loan risk classification system shall be established by a business institution of a foreign-invested bank and reported to the local institution dispatched by the CBRC the corresponding relationship between its loan risk classification criterions and the classification criterions as provided for by the CBRC.

Article 82 The phrase "provisions on the administration of the ratio of liabilities to assets" as mentioned in Article 40 of the Regulations refers to the provisions of Article 39 of the Law of the People’s Republic of China on Commercial Banks governing the ratio of liabilities to assets.
The ratio of liabilities to assets of a solely foreign-invested bank or Chinese-foreign equity joint bank shall, according to the provisions of the banking regulatory statement indicator system, be calculated and shall be evaluated in accordance with the criterions on consolidated statements for both home and foreign currencies.

Article 83 An affiliated transaction management system shall be established by a solely foreign-invested bank or Chinese-foreign equity joint bank. The commercial principles shall be abided by in affiliated transactions, of
which the transaction conditions shall not be more favorable than those of any transaction between non-affiliated parties.
The CBRC and its dispatched institution shall determine the affiliated transactions and non-affiliated transactions in accordance with the administrative measures for the affiliated transactions of commercial banks.

Article 84 A business institution of a foreign-invested bank shall make policies and management rules on business outsourcing, inclusive of decision-making procedures for business outsourcing, evaluation and management of contractors, measures for the control of confidentiality and safety of bank information, and the emergency plan.
A business institution of a foreign-invested bank shall report to the local institution dispatched by the CBRC the main risks of the business outsourcing agreement and the corresponding risk prevention measures before it signs a business outsourcing agreement.

Article 85 The term "interest-earning assets" as mentioned in Article 44 of the Regulations covers the foreign exchange interest-earning assets and Renminbi interest-earning assets.
30% of the foreign exchange operating capital of a branch of a foreign bank shall be foreign exchange fixed deposits of 6 months or longer as foreign exchange interest-generating assets. 30% of the Renminbi operating capital of the said branch shall be Renminbi fixed deposits of 6 months or longer as Renminbi interest-generating assets.
The interest-earning assets of a branch of a foreign bank, which exist in the form of fixed deposits, shall be deposited in 3 or less Chinese-invested commercial banks within the territory of China that have steady business operations and considerable strength. It shall not repurchase the interest-earning assets in the form of government debts in Renminbi by way of pledge or other methods that may have a bearing on the right to dispose of them.
By the end of June and December every year, the branch of the foreign bank shall report to the local institution dispatched by the CBRC the information about interest-earning assets, covering the banks where the interest-earning assets are deposited, amounts, interest rates, terms and interest rates of the interest-earning assets, as well as the amounts, forms and maturity dates of the government debts in Renminbi that it holds.
The branch of the foreign bank shall be subject to the approval of the local institution dispatched by the CBRC if it plans to change the form of any interest-earning assets or change the depositing bank of any fixed deposit. The branch of foreign bank shall not use such interest-earning assets without approval of the institution dispatched by the CBRC.

Article 86 The term "the totality of operating capital and reserve" as mentioned in Article 45 of the Regulations refers to the total amount of the operating capital, undistributed profits and general loan loss reserves. The term "risk assets" refers to the in-statement and off-statement weighted risk assets which are calculated in accordance with the provisions on weighted risk assets.
The ratio as mentioned in Article 45 of the Regulations shall be calculated according to each China-based branch of the foreign bank and shall be evaluated on the basis of the balance by the end of every quarter.

Article 87 The liquid assets of a branch of a foreign bank include the cash, gold, deposits in the People’s Bank of China, inter-bank deposits, inter-bank loans to be due in one month, inter-bank lending to be due in one month, net amount of the corresponding assets with overseas associated banks and their affiliated institutions, interests receivable and other receivables within 1 month, loans to be due in 1 month, bond investments to be due in 1 month, other bond investments that may be realized in 1 month at the secondary markets home and abroad, and other assets that may be realized in 1 month. Those among the aforesaid assets, which may not be drawn back as estimated shall be deducted. The interest-earning assets shall not be included into the liquid assets.
The "liquid debts" of a branch of a foreign bank include current deposits, fixed deposits to be due in 1 month, inter-bank deposits, inter-bank borrowings to be due in 1 month, payables to be due in 1 month, net amount of correspondent liabilities with the foreign associated banks and their affiliated institutions, and other debts to be due in 1 month. Frozen deposits shall not be included into the present liabilities.
A branch of a foreign bank shall calculate its liquidity ratio on the basis of Renminbi and foreign currencies every day, respectively, and maintain the liquidity ratio as provided for in Article 46 of the Regulations. It shall be separately estimated as a China-based branch of a foreign bank.

Article 88 The balance of domestic and foreign currencies assets within territory of China and the balance of domestic and foreign currencies liabilities within territory of China as mentioned in Article 47 of the Regulations shall be calculated as follows:
The balance of domestic and foreign currencies assets within territory of China = total assets in home and foreign currencies - the (assets) to and from overseas associated banks - the (assets) to and from overseas affiliated institutions - the overseas loans - the overseas inter-bank deposits - the overseas inter-bank lending - the purchase of overseas reverse-sale assets - the overseas investments and other overseas assets
The following investments may not be included into the overseas investments: the purchase of Chinese government bonds issued outside the territory of China, bonds of Chinese financial institutions and bonds of Chinese non-financial institutions.
The balance of domestic and foreign currencies liabilities within territory of China ˊ total liabilities in home and foreign currencies - the (liabilities) to and from overseas affiliated institutions - the overseas deposits - the overseas inter-bank deposits - the overseas inter-bank borrowings - the sales amount of overseas reverse-purchase items - other overseas liabilities
The provisions of Article 47 of the Regulations shall be implemented according to the China-based branches of a foreign bank on a consolidated basis.

Article 89 No business institution of any foreign-invested bank may falsely state, overstate or understate its assets, liabilities and the owner’ s equities.

Article 90 The headquarters or the authorized regional headquarters of the foreign bank shall appoint one of these branches as the managing bank to manage the businesses within China as a whole and to submit the unified financial information and comprehensive information of all branches within China when a foreign bank has established 2 or more branches within China.
A foreign bank or its authorized regional headquarters shall appoint the managing president to manage the businesses within China and appoint a person-in-charge of regulation compliance to be responsible for regulation compliance of the businesses within China.

Article 91 By the end of each quarter, a business institution of a foreign-invested bank shall submit to the local institution dispatched by the CBRC the information about the transnational flow of large-sum money and about the transnational transfer of assets in accordance with the provisions of the CBRC.

Article 92 A business institution of a foreign-invested bank plans to transfer in any credit asset from its headquarters or from any associated bank, it shall be subject to the approval of the local institution dispatched by the CBRC.

Article 93 The branch of a foreign bank shall submit a report to the institution dispatched by the CBRC to the place where this branch or managing bank is located if it is under any of the following circumstances:
(1) If the aggregate of undistributed profit of a branch of a foreign bank and the net income or loss of the current year is negative, and if the aggregate of the absolute negative amount and the insufficient part of loan-loss reserve is over 30% of the operating capital, a report shall be submitted by the end of each quarter;
(2) A report shall be submitted by the end of each quarter, if the balance of credits which the branch of the foreign bank grants to all its big clients exceeds 8 times its operating capital. The term "big client" concerns the clients to whom the balance of credits is over 10% of operating capital of the branch of the foreign bank. Such indicator shall be calculated by consolidating the quarter-end balances of the branches of the China-based branches of the foreign bank;
(3) A report shall be submitted by the end of each quarter, if the balance of the assets to and from the overseas associated banks and affiliated institutions of the branch of the foreign bank exceeds the aggregate of the balance of liabilities to and from the overseas associated banks and affiliated institutions. This indicator shall be accounted by consolidating the China-based branches of the foreign bank; or
(4) Any other circumstances as determined by the CBRC.

Article 94 The special regulatory measures as taken by the CBRC and its dispatched institution against a business institution of a foreign-invested bank cover:
(1) Having an interview with the relevant persons-in-charge so as to give them a warning;
(2) Ordering the business institution to regularly submit written reports about pertinent issues;
(3) Taking measures to restrict the outbound flow of funds;
(4) Ordering the business institution to suspend part of its businesses, or to suspend the acceptance of the application of this business institution for engaging in any new business;
(5) Ordering the business institution to issue a guarantee;
(6) Putting forward special requirements for the relevant risk control indicators;
(7) Ordering the business institution to keep a certain rate of assets as accepted by the CBRC;
(8) Requested the business institution to supplement capital or operating capital within a time limit;
(9) Ordering the business institution to change its director or senior manager within a time limit;
(10) Suspending the acceptance of the application of the business institution for establishing any new institution;
(11) Taking restrictive measures for the profit distribution and the outbound remittance of profit;
(12) Assigning special supervisors to this business institution so as to supervise and direct its routine management of business operations;
(13) Increasing the frequency of submission of the relevant supervisory statements; and
(14) Other special supervisory measures as taken by the CBRC.

Article 95 The following important matters shall be timely reported to the local institution dispatched by the CBRC by a business institution of a foreign-invested bank:
(1) The serious problems which occur in the financial status and business operations of this business institution;
(2) The important changes in the operating strategies of this business institution;
(3) If the business institution suspends business on a day that is not a legal holiday, it shall, except for any case of force majeure, submit a written report to the local institution dispatched by the CBRC not later than 7 days before it does so;
(4) The important resolutions of the board of directors of the solely foreign-invested bank or Chinese-foreign equity joint bank;
(5) The modification made to the articles of association, registered capital or registered address of the headquarters of the branch of the foreign bank, of the solely foreign-invested bank, or of the shareholders of the Sino-foreign equity joint equity bank;
(6) The merger, split-up and other restructuring matters of the headquarters of the branch of the foreign bank, of the solely foreign-invested bank, or of the shareholders of the Chinese-foreign equity joint bank, and changes of the chairman of the board of directors or president (chief executive officer, general manager);
(7) The serious problems which occur in the financial status and business operations of the headquarters of the branch of foreign bank, of the solely foreign-invested bank, of the shareholders of the Chinese-foreign equity joint bank;
(8) The serious cases which occur in the headquarters of the branch of the foreign bank, in the solely foreign-invested bank, or in the shareholders of the Chinese-foreign equity joint bank;
(9) The important supervisory measures taken against the headquarters of the branch of the foreign bank, solely foreign-invested bank or the foreign shareholder of the Chinese-foreign equity joint bank by the financial regulatory authority of the country or region where it is located;
(10) The important changes of the financial regulations and of financial regulatory system of the country or region where the headquarters of the branch of the foreign bank, solely foreign-invested bank, or foreign shareholder of the Chinese-foreign equity joint bank; and
(11) Other matters as requested by the CBRC.

Article 96 If any of the following important matters occurs in the foreign bank a representative office represents, the said representative office shall timely report it to the local institution dispatched by the CBRC:
(1) The modification of the articles of association, registered capital or registered address;
(2) The merger, split-up and other restructuring matters as well as the change of the chairman of the board of directors or president (chief executive or general manager) of the foreign bank;
(3) The serious problems which occur in the financial status or business operations of the foreign bank;
(4) The serious cases which occur in the foreign bank;
(5) The important supervisory measures taken against the foreign bank by the financial regulatory commission of the country or region where it is located; and
(6) Other matters which have an important influence on the business operations of the foreign bank.

Article 97 If a non-formal employee of a China-based institution of a foreign-invested bank works in this institution for more than 20 consecutive days, or for more than 30 days in accumulation within 90 days, the foreign-invested bank shall report to the local institution dispatched by the CBRC.

Article 98 By the end of each fiscal year, a solely foreign-invested bank, Chinese-foreign equity joint bank, or a foreign bank which has established 2 or more branches within the territory of China shall hire a qualified accounting firm lawfully established within the territory of China to audit all its business institutions within the territory of China on a consolidated basis and shall submit an audit report and an management proposal to the banking regulatory institution where the solely foreign-invested bank, Chinese-foreign equity joint bank or managing bank is located within 4 months after the end of each fiscal year.
By the end of each fiscal year, a branch of a foreign bank shall hire a qualified accounting firm lawfully established within the territory of China to audit it and shall submit an audit report and an management proposal to the local banking regulatory institution within 4 months after the end of each fiscal year.

Article 99 One month before a business institution of a foreign-invested bank hires a qualified accounting firm lawfully established within the territory of China to conduct an annual audit or an audit of other items, it shall submit to the local institution dispatched by the CBRC the basic materials of the accounting firm as well as of the certified public accountants who participate in the audit.

Article 100 The information about the capital adequacy, asset quality, corporate governance, internal control, profit, liquidity, market risk management, etc. shall be included in the annual audit of a solely foreign-invested bank or Chinese-foreign equity joint bank.
The financial report, risk management, operating control, regulation-compliance information, asset quality, etc. shall be covered by the annual audit of a branch of a foreign bank.

Article 101 The CBRC and its dispatched institution may, where necessary, appoint an accounting firm to audit the operating status, financial status, risk status and internal control system of a business institution of a foreign-invested bank, and the business institution’s carrying out the internal control system.

Article 102 The CBRC and its dispatched institution may request a business institution of a foreign-invested bank to replace an accounting firm whose professional skill and independence do not satisfy the supervisory requirements with a new one.

Article 103 A solely foreign-invested bank or Chinese-foreign equity joint bank shall submit to the local institution dispatched by the CBRC annual statements of the solely foreign-invested bank and of its shareholder(s), or annual statements of the Chinese-foreign equity joint bank and of its shareholders within 6 months after the end of a fiscal year.
A branch or a representative office of a foreign bank shall submit an annual statement of its headquarters to the local institution dispatched by the CBRC within 6 months after the end of the fiscal year of its headquarters.

Article 104 Before the end of February every year, a representative office of a foreign bank shall submit to the local institution dispatched by the CBRC a work report of the previous year and a work plan for the present year in accordance with the formats as requested by the CBRC.

Article 105 A representative office of a foreign bank shall have a separate office, office facilities and full-time personnel.

Article 106 A proper number of personnel shall be necessary for a representative office. The duties of the personnel shall conform to the functions of the representative office.

Article 107 A representative office of a foreign bank shall establish account books to reflect the actual information about its incomes and disbursements. Its costs and expenses shall accord with its functions.
No representative office of a foreign bank may utilize the account of any other enterprise, organization or individual.

Article 108 No representative office of a foreign bank may utilize any business processing system which does not accord with its functions through its computer system.

Article 109 As regards the materials which the present Detailed Rules require submission, those written in a foreign language shall be accompanied by a Chinese translation except for the annual statements. A Chinese translation shall be attached to the internal control system, business operating procedures, and specimens of business vouchers of a business institution of a foreign-invested bank. As regards the relevant documents of other business archives and management archives, they shall be accompanied by a Chinese translation, if the supervisory personnel deem it necessary. The CBRC and its dispatched institution may require that the relevant Chinese translation be notarized by an institution accredited by the country or region where the headquarters of the branch of the foreign bank under any special circumstance, or the foreign shareholder of the solely foreign-invested bank or the foreign shareholder of the Chinese-foreign equity joint bank is located, and be certified by the Chinese embassy or consulate in this country or region.

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