The People’s Bank of China (PBOC) has issued new rules governing the use of bills for supply chain financing and other forms of financing by small and medium-sized enterprises (SME’s).
The “Standardised Bill Administrative Measures” (标准化票据管理办法) were issued by PBOC on 24 June, and are scheduled to come into effect on 28 July 2020.
“Bills are an important financing channel for SME’s, as well as a tool for fund transaction and balance sheet management by financial institutions” said the PBOC’s official news outlet.
“SME bill financing has long awaited improvements to accessibility and efficiency as a result of multiple factors…in order to expand SME bill financing channels, PBOC undertook standardisation mechanism trials in August 2019.
“PBOC has drafted these Administrative Measures on the basis of the foundation of trial work to clarify the definitions, participating institutions, underlying assets, information disclosure, investor protections and regulatory management for bill standardisation.”
Key contents of the Measures are as follows:
- Clarification of the definition of standardised bills: They are defined as referring to “money market tools in the form of differentiated benefit certificates that are supported by cash flow payments from a pool of underlying assets comprised of commercial drafts with similar credit qualities and terms from depository institutions.”
- Clarification of main participating institutions: Defined as the original bill bearer, the depository institution and other participating institutions.
- Standardised base assets: Base assets should satisfy conditions including similar core credit qualities, similar maturities, and lawful procurement. The original bill bearer uses endorsement at the time of deposit to fully transfer rights to the base assets, and effectively protect the lawful rights and interests of investors. The original bill bearer bears responsibility for the veracity, validity and effectiveness of the base assets, and the depository institution and the bill broker should conduct inspection of the veracity, validity and effectiveness of the base assets. The bill market infrastructure system is responsible for unified registration and management of base assets.
- Strengthening of information disclosures and investor protection: The depository institution should promptly disclose information that has a material impact on the investment value of standardised bills at the time prior to the establishment of the standardised bills and during their term.
- Clarification of the regulatory framework. Standardised bills will be subject to current administrative regulations for the interbank market during underwriting, registration and entrustment, and transaction and circulation.