The China Banking Regulatory Commission Guidance Opinions on the Standardisation of the Banking Sector ‘s Provision of Service to Enterprises Expanding Abroad and the Strengthening of Risk Prevention and Control
Issued by CBRC  No. 1
To each of the bank regulatory departments, the policy banks, large-scale banks, joint-stock banks, postal banks, foreign-invested banks and banking associations:
In order to deeply and thoroughly implement the strategy policy arrangements of the central party and the State Council in relation to the joint establishment of “One Belt One Road” and advance international productive capacity cooperation; standardise the overseas business conduct of banking sector financial institutions, raise the service capability for supporting enterprises expanding abroad, and establish a long-term, stable, sustainable financial protection system with controllable risk that services “One Belt One Road,” the following opinions and hereby put forth:
I. General requirements
(I) Clarification of strategic position.Banking sector financial institutions shall engage in comprehensive analysis of client demand, external environments as well as their own advantages, and establish differentiated and distinctive strategic positions, prepare domestic and overseas organisational arrangements and service development, and formulate as well as implement unified domestic and overseas development strategy plans.
(II) Strengthen services to key areas. Banking sector financial institutions shall actively and thoroughly implement “One Belt One Road” strategies, and provide high-quality financial services to enterprises expanding abroad and international productive capacity cooperation. Under the pre-conditions of risk control and commercial sustainability, and with reference to the strategic positioning for providing services to enterprises expanding abroad, actively connect with major overseas projects in key areas, support infrastructure linkages and connections, and the establishment of international productive cooperation and economic and trade industry cooperative zones.
(III) Enrich financial service methods. With a focus on the effective demand of enterprises expanding abroad, banking sector financial institutions shall strengthen financial innovation that is of benefit to raising service quality and efficiency, and matches their own risk management and control capability; expand international finance models, and actively develop relevant financial services including export loans, project financing, bank syndicate loans, trade financing, investment banking, cross-border RMB operations, financial markets, global cash management, asset management, electronic banking and financial leasing.
(IV) Strengthen corporate governance. Banking sector financial institutions shall establish healthy and complete corporate governance principles and frameworks that encompass overseas organisations and operations, clarify corresponding authorisations and responsibilities, establish scientific and rational governance and operation mechanisms for strategic policy, implementation, supervision, incentives and accountability; raise the effectiveness of internal control, and ensure that overseas institutions and service develop in consonance with individual overall strategy.
(V) Strengthen risk management. Banking sector financial institutions shall continue to raise comprehensive risk management capability, and strengthen strategic risk, credit risk, market risk, compliance risk, overseas risk, environmental and social risk, liquidity risk and operating risk management in relation to overseas organisations and institutions. Focus on cross-border cross-ector risk that integrated operation brings, and improve a consolidated administrative framework that encompasses all overseas organisations and operations.
(VI) Encourage healthy competition. Banking sector financial institutions shall strictly abide by relevant laws and regulations and overseas project administrative regulation; strengthen information exchange with the Ministry of Commerce, the National Development and Reform Commission and other departments, as well as our overseas consulates, and are prohibited from providing finance to overseas projects that have not obtained the relevant filing and approval documentation in accordance with regulations. Banking sector financial institutions shall strictly abide by commercial ethics, and resolutely oppose commercial bribery, the infringement of commercial confidentiality and other forms of inappropriate competition.
(VII) A sound system for the pursuit of liability. Banking sector financial institutions shall improve and refine a liability pursuit system for various form of conduct that breach laws, regulations and internal control systems. Where dereliction of duty or supervisory oversights cause risk incidents to arise, the relevant personal shall be pursued for liability based on event investigation results as well as the severity of circumstances. With respect to major risk incidents, “two line” accountability shall be strictly implemented, requiring that liability pursued upwards two levels.
(VIII) Strengthen the establishment of guarantee capability. Banking sector financial institutions shall accelerate improvements to internal operation organisational frameworks, make internal policies and procedures more strict, strengthen headquarter and subsidiary administration and line administration, establish sound, global client management systems, and raise domestic and overseas coordination effects. They shall improve overseas information system establishment plans, raise basic data quality, raise network safety protection levels, comprehensively strengthen the support capability of information systems for internationalised operations, satisfy the requirements of both domestic and overseas regulatory authorities with respect to areas including organisation reports, systemic security, data security, anti-money laundering and client information protection, and establish emergency contingency response plans. They shall accelerate the cultivation of integrated internationalised management personnel teams that are adept at financial operations, as well as familiar with overseas laws, taxation and regulatory systems.
II.Strengthen credit risk management
(IX) Improve policies on authorisation and credit extension. Banking sector financial institutions shall strengthen overseas authorisation management, and regularly assess the risk management capability of overseas organisations, as well as operation needs and local regulatory requirements, and re-inspect or adjust authorisation policy. They shall strengthen domestic and overseas unified credit extension management, and incorporate the various credit extension business developed both domestically and overseas for a given legal person (group) client into the client’s integrated credit extension amount. They shall improve concentrated risk management frameworks that cover domestic and overseas risk openings.
(X) Strengthen due diligence. Banking sector financial institutions shall abide by the principles of independence, comprehensiveness, depth and prudence in strengthening the due diligence and risk assessment of overseas operations. They shall perform in-depth analysis of the economic, legal, political and social environments of project locations, and engage in prudent assessments of project profitability and related risk, and independently research and determine the feasibility of projects.
With regard to productive capacity cooperative projects, they shall perform comprehensive analysis of sales channels, target market volume and competitive advantages, and prudently assess future return capability; with respect to the project contractors and other third party organisations involve in overseas projects, they shall inspect whether or not they satisfy local regulatory, legal and environmental requirements.
(XI) Uphold independent loan inspection. The provision of services by banking sector financial institutions to enterprises expanding abroad shall involve the independent inspection of loans, the strict control of check points, focus on risk management control and cost restraints, cautious judgement of project returns, scientific assessment of the independent cash flow coverage capability of projects, the scientific setting of contractual provisions and the realisation of return sources in accordance with the commercial principles of “independent management, independent undertaking of risk, independent bearing of profits and losses, and independent restraint.”
(XII) The strengthen of post-loan management. Banking sector financial institutions shall strengthen the monitoring and analysis of overseas loan asset quality, and in accordance with the credit extension scale and risk of overseas projects implement differentiated post-loan management. With expect to overseas loan operations that have higher risk, they shall strengthen on-site inspection and supervision, and closely pay attention to project progress and other circumstances; strengthen capital supervision and management, prevent loan capital from being misappropriated or borrowers absconding from debt. When clients suffer form major risk circumstances, banking sector financial institutions shall promptly adopt effective measures and mitigate risk. With respect to non-export loan operations for which there are no local branch organisations or agency banks to perform effective post-loan management, cautious interventions shall be made.
(XIII) Strengthen guarantee management and risk sharing. Banking sector financial institutions shall strictly abide by local laws and regulations in relation to guarantees in their overseas operations, and prudently assess the regulatory compliance, adequacy and viability of guarantees and collateral; track and monitor changes in the price of collateral, collateral ratios and the guarantee capability of guarantors.
Banking sector financial institutions shall strengthen cooperation with relevant insurance companies, domestic and overseas banks and factoring companies, and by sans of trade insurance, project, insurance, the establishment of banking syndicates, international factoring and other methods rationally share risk. With respect to Chinese export credit insurance companies undertaking policy-based operations, banking sector financial institutions shall calculate loan risk weightings in accordance with the relevant supervisory and regulatory provisions and categorise loans. With respect to operations that adopt the aforementioned risk sharing mechanisms, banking sector financial institutions shall still continue to focus on full-procedure risk management, and strengthen inspection of the veracity of background trades, and pragmatically perform their own duties with respect to risk sharing mechanisms.
(XIV) Preventing risk in key sectors. Banking sector financial institutions that engage in cross-border take-over loan operations shall give comprehensive consideration to the credit status, business management capability, financial stability, and independent capital adequacy of the take-over party, as well as the market prospects, future earnings, country risk, take-over coordination effects and other factors in relation to the take-over target, give full consideration to the transaction risk and integrated operation risk during the take-over process, and prudently enter overseas cyclical industry and cross-industry take-over projects.
Banking sector financial institutions that engage in cross-border guarantee operations such as the provision of domestic guarantees to overseas loans shall strengthen analysis of financing first repayment sources, prudently assess the risk capacity of borrowing and guaranteeing entities, as well as strictly abide by provisions in relation to cores-border RMB operations and foreign exchange management.
III. Strengthen country risk management
(XV) Improve country risk management systems. Banking sector financial institutions shall establish country risk management systems that correspond to their own strategic goals, risk latitude and degree of complexity, as well as incorporate country risk management into the comprehensive risk management framework. Country risk management policies and procedures shall be approved by the board of directors. The board of directors shall fully implement supervisory professional duties with respect to senior management, and ensure that country risk management policies and procedures are effectively implemented.
(XVI) Improve country risk assessment and rating procedures. Banking sector financial institutions shall improve country risk assessment and internal rating procedures, and further implement risk assessment and ratings of countries and regions where they already have or plan to undertake operations. During the formulation of operations development strategies, the setting of country risk thresholds, assessment of the repayment capability of borrowers and review and approval of credit extension, they shall give full consideration to the risk assessment and ratings results.
(XVII) Raise country risk threshold management capability. Banking sector financial institutions shall improve country risk threshold management information systems, and lay data operation foundations, rationally set and refine counter risk thresholds that cover both on and off-balance sheet items, and regularly conduct assessment and adjustment. When the risk conditions of certain countries or regions undergo marked change, they shall raise the frequency of assessment and adjustment.
(XVIII) Improve emergency disposal mechanisms. Banking industry financial institutions shall strengthen country risk monitoring and research and assessment, and undertake country risk stress monitoring, analyse risk transmission channels, and formulate country risk emergency plans. They shall clarify risk mitigation measures that shall be adopted under different circumstances, and by means of transaction structure arrangements and legal arrangements mitigate the risk of certain countries.
(XIX) Strictly allocate country risk reserves. Banking sector financial institutions shall sully allocate country risk provisions and perform dynamic adjustments in accordance with country risk change in accordance with requirements of the “Banking Sector Financial Institution Country Risk management Guidelines.”
IV. Strengthen compliance risk management
(XX) Strengthen the establishment of compliance systems. Banking sector financial institutions shall improve domestic and overseas compliance risk management systems, strengthen the establishment of compliance culture, clarify compliance policies and procedures, strengthen independent compliance professional capability, and ensure that compliance requirements cover all organisations, operations, lines, operating segments and personnel. The board of directors shall be final responsibility for the compliance of business activities, and senior management shall pragmatically implement compliance management professional duties. The supervisory board shall strengthen its implementation of supervision of the compliance management professional duties of the board of directors and senior management.
(XXI) Strengthen daily compliance management. Banking sector financial institutions shall properly perform tracking analysis and compliance training with respect to the supervisory and administrative regulations for overseas organisations and operations. They shall perform inspection, assessment and reporting in compliance, and improve compliance risk response plans. The establishment, research and development and launch of new cross-border operations as well as newly developed overseas operations, shall be included in compliance risk management systems, achieving full procedure management and control and comprehensive coverage of compliance risk.
(XXII) Strengthen compliance resource allocation. Banking sector financial institutions shall rationally establish head bank (company ) and overseas organisation compliance positions and fully allocate compliance personnel in accordance with domestic and overseas laws and regulations. The main executives for overseas organisation compliance work shall possess rich compliance work experience, and be familiar with the relevant international supervisory and administrative regulations and local laws, as well as regulatory requirements.
(XXIII) Properly maintain client entry standards. Banking sector financial institutions shall abide by the principle of “understanding your customer,” comprehensively understand customer business operations and financial conditions, as well as local operation conditions, and when necessary shall also understand the “customers of customers” and other information. In particular, they shall engage in in-depth investigation of whether clients have records of poor conduct or conduct in breach of laws or regulations, such as money laundering, terrorist financing, tax evasion, breaches of labor laws, violations of intellectual property rights fake manufacturing or sale, and breaches of customs regulatory provisions.
(XXIV) Strengthen anti-money laundering and anti-terrorist financing management. Banking sector financial institutions shall strictly implement the relevant resolutions of the United Nations Security Council, and strictly abide by both domestic and foreign laws, regulations and supervisory and administrative requirements on anti-money laundering and anti-terrorist financing. They shall promptly record and update sanction lists, and perform dynamic inspections borrowers and remitters, and the main shareholders and senior management of borrowing and receiving units. They shall strengthen the development and maintenance of anti-money laundering systems, satisfy the IT requirements with respect to anti-money laundering work data collection, filtering, analysis and reporting, and strengthen suspect transaction identification and reporting. Based on domestic and overseas regulatory requirements, they shall perform freezing of funds, reporting to regulatory departments and other duties, and prevent any organisation or institution from using them to engage in support of terrorism, money-laundering or other illegal activities. Banking sector financial institutions shall correctly use client information within the framework of relevant laws, regulations and supervision and administration, and in accordance with the regulatory requirements of relevant countries or regions strengthen the privacy protections of clients, actively maintain the lawful rights of clients.
(XXV) Strengthen communication with regulators. The overseas senior management of banking sector financial institutions shall strengthen communications with the local regulatory departments for overseas organisations and operations, and actively cooperate on regulatory work. Banking sector financial institutions shall promptly report major matters on which overseas institutions and local regulators have communicated to Chinese regulatory departments.
V. Strengthen environmental and social risk management.
(XXVI) Prioritise overseas operation environmental and social risk management. Banking sector financial institutions shall actively make reference to the Equator Principles and other international best practices, and focus on environmental and social risk of customers and their key affiliates during construction, production and business activities, and supervise and encourage the establishment of sound environmental and social risk control systems. They shall formulate as wells implement relevant action plans, and strictly abide by environmental and industrial laws and regulations. With respect to environmental and social risk in relation to energy resources, agriculture, forestry, pastoralism and farming, major infrastructure and project contracting areas, special attention should be given during the provision of project financing and trade financing, and when necessary the opinions of the relevant industrial authorities may be solicited, or inquiries pursued with qualified, independent third parities.
(XXVII) Implement full procedural management for environmental and social risk. Banking sector financial institutions shall fully assess the environmental and social risk of projects for expanding abroad, and make assessment the results the primary basis for project approval, rating and management, as well as implement differentiated management of the “three inspections for loans,” as well as loan pricing and economic capital allocation. Banking sector financial institutions shall strengthen the monitoring of overseas project environmental and social risk monitoring, and expand tracking of projects characterised by major risk, as well as promptly adopt risk mitigation measures.
(XXVIII) Preserve the rights and interests of local people. Banking sector financial institutions shall supervise and encourage customers to maintain the lawful rights and interests of workers, and during project establishment and company operations strive to increase employment, educational and other development opportunities for local people, as well as abide by local cultural, religious and social customs.
(XXIX) Advance exchange and interaction with parties whose interests are affected. Banking sector financial institutions shall supervise and expedite the establishment of complaint-response mechanisms for major customers involved with major environmental and social risk, and promptly process as well as respond to reasonable complaints of people, non-govenrment organisations and other parties whose interests are affected in the location of projects or company operations.
(XXX) Strengthen information disclosures. Banking sector financial institutions shall designate specialist departments and personnel to be responsible for information disclosure in relation to overseas institutions and operations, and properly perform public relations and prevent repetitional risk. With respect to projects that suffer from major latent environmental and social risk, they shall stipulate with customers in advance the prompt disclosure via appropriate means of project names, the names of key investors and contractors, credit amounts, environmental impact assessments and other key information, and actively strengthen communications with parties whose interests are affected, and be subject to the supervision of the public.
9 January 2017