China’s Banking Authority Steps up Regulation of Trust Company Shareholders, Corporate Governance

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The China Banking and Insurance Regulatory Commission (CBIRC) has issued new regulations concerning the shareholders and corporate governance of domestic trust companies.

On 24 November CBIRC announced via its official website that it had issued the “Trust Company Administrative Licensing Items Implementation Measures” (信托公司行政许可事项实施办法), with the goal of “further strengthening regulation of entry into the trust company market.”

State media said that the new Measures will strengthen requirements for non-financial enterprises that hold stakes in trust companies, as well as lead to improvements in trust company corporate governance.

Zhou Maohua (周茂华), financial markets analyst with Everbright Bank, said that the Measures also optimise licensing procedures, simplify application materials, reduce entry requirements and business categories, which will be of benefit to foreign investment in the domestic market.

A CBIRC official said that new requirements in relation to shareholder regulation will include:

  1. Strengthening qualification requirements for non-financial enterprises acquiring stakes in trust companies, and outlining stricter entry requirements with regards to the equity investment ratios, earnings capacity and net assets ratios of non-financial enterprises planning to become controlling shareholders in trust companies;
  2. Strengthening inspection requirements for the funding sources of shareholders, and strictly requiring that funds for capital contributions be their own;
  3. Strictly standardising trust company equity pledging, and further requiring that shareholders commit to not establishing trusts or other financial products using the beneficiary rights they hold in trust companies;
  4. Clearly stipulating that shareholder regulation, shareholder rights and duties and other related matters be included in trust company charters in accordance with relevant regulations.

With regard to the corporate management of trust companies, the Measures call for:

  1. Appropriately loosening the operating term and regulatory assessment requirements for trust companies;
  2. Guiding trust companies in strengthening compliant management awareness, and increasing conditions and licensing procedures for the general supervisors of trust companies;
  3. Optimising trust company corporate governance mechanisms, strengthening regulation by independent directors, raising the independence of independent directors in the performance of their duties, and clearly requiring that independent directors serve for no more than six years with a single trust company.

The Measures also cancel the requirement that foreign-invested financial institutions investing in trust companies have USD1 billion in total assets.

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