China Banking Regulatory Commission Circular on Pragmatic Supplementation of Regulatory Shortcomings and the Raising of Regulatory Effectiveness (中国银监会关于切实弥补监管短板提升监管效能的通知)
Yinjianfa (2017) No. 7
In recent years, following the development of the financial market, new changes have emerged in the operations structure and risk characteristics of the banking sector, exposing the existence of a number of defects in the banking sector regulatory system and its implementation. In order to further raise the effectiveness of supervision and regulation, present and dissipate financial risk, and expedite the stable and healthy operation of the banking sector, this work items circular concerning the supplementation of regulatory shortcomings is as follows:
I. Strengthen the Establishment of a Regulatory System
(I) Supplementation of shortcomings in the regulatory system. With reference to international regulatory standards and based on the actual risk conditions of China’s banking sector, engage in in-depth removal of leaks in the regulatory system, and supplement shortcomings in the regulatory system as rapidly as possible. Firstly, uphold problem guidance, targeting current and existing outstanding risk in the banking sector, and supplement and perfect regulatory systems for shareholder administration, cross-financial products and wealth management operations. Secondly, uphold the principle of responding rapidly to areas of need, and launch and issue [directives] as soon as possible in order to achieve substantive results as soon as possible, where the need is urgent and the short-term results are clear. Thirdly, uphold coordination and ancillary assistances, strengthen the connection and coordination between regulatory systems, and stifle space for regulatory arbitrage.
(II) Perfect detailed rules on the implementation of regulations. Based on division of professional responsibility, regulatory departments at each level must systematically establish operating procedures for market entry thresholds, off-site regulation, on-site inspections, regulatory penalties, information disclosure and other areas; refine regulatory needs, raise regulatory efficiency and transparency, continuously undertake performance assessments and constantly check for flaws and supplement shortcomings.
(III) Establish complete internal administrative systems. Banking sector financial institutions shall comprehensively benchmark their regulatory systems, expunge gaps and leaks in internal regulatory systems, gradually perform increase, supplementation and improvement, and promptly convert various regulatory directives into the policies, procedures and methods of company administration, business operations and risk control, in order to ensure that various regulatory systems are fully implemented.
II. Strengthen Suppression of Sources of Risk
(I) Strengthen regulation of the entry of shareholders. Research and formulate unified banking sector financial institution shareholder regulatory rules, clarify regulatory requirements for matters such as qualifications for shareholding in banking sector financial institutions and the volume of institutions that hold controlling shares. Regulatory departments at all levels shall strengthen regulation of entry, and thoroughly identify actual controllers and final benefiting owners, as well as perform inspection of their qualifications; strengthen inspections of affiliate relationships, and prevent the use of conduct to avoid shareholder qualification inspections by methods including proxy holding of equity by entrusted third parties and affiliate parties jointly holding shares with consistent actors; strengthen capital source inspections, and ensure that capital invested in shares is independently possessed by investors, and that sources are in compliance with laws and regulations.
V. Strengthen regulatory penalties
(I) Standardised regulatory penalty work mechanisms. Further perfect regulatory penalty rules and procedures, and raised the standardisation and timely effectiveness of penalisation work. It is necessary to strengthen regulatory penalisation powers for off-site regulation, and lawfully penalise any unsafe or imprudent business conduct as well as failure to meet regulatory indices as uncovered by offsite monitoring. It is necessary to continue to improve regulatory law enforcement handbooks, clarify the bases and benchmarks for penalisation of various conduct in breach of laws and regulations, and raise the fairness and consistency of regulatory penalties.
VI. Strengthen pursuit of liability
(I) Strict pursuit of banking sector financial institution liability. Banking sector financial institutions must finely divide the professional duties of their various operations lines, subsidiary organisations and operations positions, clarify professional requirements and responsibility for professional negligence, establish a standardised, procedure-based system or the pursuit of liability, so that those who perform their duties are exempt from liability and those who are negligent in their duties are pursued for liability. They must designed specialised departments to undertake investigations of problems that the subject of regulatory department notifications or that are revealed by internal inspections or exposed in other forms, and based on the professional duties of positions perform confirmation of liability, and undertake pursuit of liability based on the extent to which professional duties and responsibilities are performed. [They] must strengthen the independent and authoritative nature of the pursuit of liability, and strictly handle those that conceal professionally negligent conduct or hide those responsible. [They] must implement dual lines of accountability for all business lines and subsidiary organisations, and while holding those directly responsible accountable, they must also hold those management personnel accountable for failure to fully or properly perform their professional management duties.
(II) Strengthen supervision of the conduct of regulators. Regulatory departments at all levels must pragmatically strengthen supervision and regulation of the professional conduct of regulatory personnel, and perform pursuit of liability with respect to those who fail to perform or do not correctly perform their professional duties whether deliberately or by accident. Administrative punishments should be applied for cases where administrative penalties should be applied but have not been applied, transfers should be made but have not been made, [personnel] have not fulfilled their professional duties to assist investigations, there have been severe breaches of administrative penalty procedures, or the category or scope of penalty decisions have been independently amended.