Laws and Regulations
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1 Mar 2004
Law of the People’s Republic of China on Banking Regulation
Adopted at the 6th Meeting of the Standing Committee of the 10th National People’s Congress on December 27, 2003.
Chapter I General Principles
Article 1. This law is formulated to strengthen the regulation over the banking sector, standardise regulatory activities, prevent and dissolve risks in the banking sector, protect the lawful benefits of depositors and other clients, and promote the healthy development of the banking sector.
Article 2. The banking regulatory body of the State Council is responsible for the regulation of financial institutions within the banking sector and their operations throughout the country.
Financial institutions within the banking sector mentioned in this law refer to commercial banks, city credit co-operatives, rural credit co-operatives, and financial institutions and policy banks set up within the People’s Republic of China to attract savings from the public.
The provisions of this law on the regulation of financial institutions within the banking sector are applicable to the regulation over financial assets management companies, trust and investment firms, accounting firms, financial leasing firms, and other financial institutions approved to be set up by the banking regulatory body of the State Council in the People’s Republic of China.
The banking regulatory body of the State Council exercises, in line with the related provisions of this law, regulation over the operations of financial institutions approved by it to be set up overseas and the overseas operations of financial institutions mentioned in the two previous paragraphs.
Article 3. The objective of banking regulation is to promote the lawful and steady operations of the banking sector and safeguard the confidence of the public in the banking sector.
Banking regulation shall protect fair competition within the banking sector and enhance the competitiveness of the banking sector.
Article 4. When exercising regulation over the banking sector, the banking regulatory body shall abide by the principles of observing the law, being open, fair, and efficient.
Article 5. The banking regulatory body and its working staff shall implement their regulatory functions in accordance with the law, which is under the protection of the law. Local governments, various levels of governmental departments, social entities and individuals are not allowed to interfere.
Article 6. The banking regulatory body of the State Council shall develop a regulatory information sharing mechanism with the People’s Bank of China and other financial regulatory bodies of the State Council.
Article 7. The banking regulatory body of the State Council may develop regulatory co-operation mechanisms with banking regulatory bodies of other countries or regions, and exercise cross-border regulation.
Chapter II Regulatory Body
Article 8. The banking regulatory body of the State Council dispatches agencies in line with the need to implement its functions and exercises unified administration and management over agencies dispatched by it.
Agencies dispatched by the banking regulatory body of the State Council exercise regulatory functions within the power authorised by the banking regulatory body of the State Council.
Article 9. Staff working in the banking regulatory body for regulation shall possess professional knowledge and working experience accommodating their positions.
Article 10. Working staff of the banking regulatory body shall be loyal to their posts, behave according to laws, be honest and upright, and not seek unfair benefits by virtue of their occupational positions, or hold concurrent posts in financial institutions and other enterprises.
Article 11. Working staff of the banking regulatory body shall keep State secrets in accordance with the law and are responsible for maintaining confidentiality for financial institutions within the banking sector and the parties concerned under its regulation.
In cases where the banking regulatory body of the State Council exchanges regulatory information with banking regulatory bodies of other countries or regions, it shall make arrangements with regard to confidentiality of information.
Article 12. The banking regulatory body of the State Council shall make public the regulatory procedures and develop a system of responsibility and an internal supervision system.
Article 13. When the banking regulatory body of the State Council deals with risks of financial institutions within the banking sector, punishes related law-breaking activities in the financial sector, etc., local governments and related departments at various levels shall provide co-operation and assistance.
Article 14. The auditing, supervisory and other bodies of the State Council shall conduct supervision and regulation over the activities of the banking regulatory body of the State Council in accordance with the law.
Chapter III Regulatory Functions
Article 15. The banking regulatory body of the State Council shall draft and publish rules and regulations governing the financial institutions within the banking sector and their operations according to laws and administrative regulations.
Article 16. The banking regulatory body of the State Council shall examine and approve the establishment, modification, termination and business scope of financial institutions within the banking sector in line with the terms and procedures specified in laws and administrative regulations.
Article 17. When applying to establish a financial institution in the banking sector or a financial institution in the banking sector changes its total capital held or changes shareholders holding shares of over the specified percentage, the banking regulatory body of the State Council shall examine the source of capital, financial status, capital adequacy ability and credit reputation of the shareholders.
Article 18. Operational varieties within the business scope of financial institutions within the banking sector shall undergo examination and approval or record-filing by or with the banking regulatory body of the State Council. Types of operations to be examined and approved or registered will be worked out and published by the banking regulatory body of the State Council in line with laws and administrative regulations.
Article 19. No unit or individual is allowed to establish a financial institution within the banking sector or engage in operations offered by financial institutions within the banking sector without approval from the banking regulatory body of the State Council.
Article 20. The banking regulatory body of the State Council exercises post-holding administration over board members and senior managers of financial institutions within the banking sector and the detailed measures shall be worked out by the banking regulatory body of the State Council.
Article 21. The principle of prudent operations of financial institutions within the banking sector are specified by laws and administrative regulations or may be worked out by the banking regulatory body of the State Council according to the provisions of laws and administrative regulations.
The principle of prudent operations mentioned in the previous paragraph include risk management, internal control, capital adequacy ratio, assets quality, loss reserves, risk concentration, associated transactions, capital fluidity, and others.
Financial institutions within the banking sector shall strictly abide by the principle of prudent operations.
Article 22. The banking regulatory body of the State Council shall, within the specified period of time, make a written decision of whether or not to approve the following items of application. Reasons shall be given to those that are rejected:
1. within 6 months upon receipt of application documents in the case of the establishment of a financial institution within the banking sector;
2. within 3 months upon receipt of application documents in the case of the modification and termination of financial institutions within the banking sector, and business scope and increase of business types within the business scope of financial institutions within the banking sector;
3. within 30 days upon receipt of application documents in the case of examination over the post-holding qualifications of board members and senior managers.
Article 23. The banking regulatory body shall conduct off-site supervision over the business operations and risk status of financial institutions within the banking sector, develop regulatory information systems of financial institutions within the banking sector, analyse and assess the risk status of financial institutions within the banking sector.
Article 24. The banking regulatory body shall conduct on-the-spot inspection over the business activities and risk status of financial institutions within the banking sector.
The banking regulatory body of the State Council shall work out procedures governing on-the-spot inspection and standardise on-the-spot inspections.
Article 25. The banking regulatory body of the State Council shall conduct administration over statement merger regulation over financial institutions within the banking sector.
Article 26. The banking regulatory body of the State Council shall reply within 30 days upon receipt of suggestions made by the People’s Bank of China on inspection over financial institutions within the banking sector.
Article 27. The banking regulatory body of the State Council shall develop a grading system and risk pre-warning mechanism of regulation over financial institutions within the banking sector and identify the frequency, scope and other measures to be taken for on-the-spot inspection in view of the grading situation and risk status of financial institutions within the banking sector.
Article 28. The banking regulatory body of the State Council shall develop a responsibility system for discovering and reporting in cases of emergencies within the banking sector.
In cases where the banking regulatory body discovers emergencies that are likely to trigger risks in the banking sector or seriously influence social stability, it shall report to the person responsible for the banking regulatory body of the State Council immediately. If the person responsible for the banking regulatory body of the State Council deems it necessary to report to the State Council, it shall report to the State Council promptly and notify the People’s Bank of China, the finance department of the State Council and other related departments.
Article 29. The banking regulatory body of the State Council shall develop a system of dealing with emergencies within the banking sector jointly with the People’s Bank of China, finance department and related departments of the State Council, formulate plans to deal with emergencies within the banking sector, clarify handling institutions and staff and their functions, measures taken and procedures followed, and handle emergencies within the banking sector in a timely and effective manner.
Article 30. The banking regulatory body of the State Council is responsible for compiling statistics and statements of financial institutions within the banking sector throughout the country in a unified manner, and publishing them in line with the related provisions of the State.
Article 31. The banking regulatory body of the State Council shall provide guidance and conduct supervision over the activities of self-regulatory organisations within the banking sector.
Articles of association of the self-regulatory body within the banking sector shall be reported to the banking regulatory body of the State Council for record-filing.
Article 32. The banking regulatory body of the State Council may conduct international exchanges and co-operation related to banking regulation.
Chapter IV Regulatory Measures
Article 33. The banking regulatory body, in line with the requirements to implement its functions, is entitled to the right to request financial institutions within the banking sector to submit balance of payments, statement of profits, and other financial, accounting, and statistical reports, operational and management materials and auditing report issued by a certified accountant.
Article 34. The banking regulatory body, in line with requirements of the regulation of prudence, may adopt the following measures to conduct on-the-spot inspection:
1. entering financial institutions within the banking sector to conduct inspection;
2. consulting working staff of the financial institutions within the banking sector, asking them to give explanations of related items under inspection;
3. consulting, duplicating documents and materials of financial institutions within the banking sector related to the items under inspection, and sealing documents and materials that are likely to be transferred, concealed, or damaged;
4. inspecting the system of computerized management adopted by the financial institutions within the banking sector.
When conducting on-the-spot inspection, approval from the person responsible for the banking regulatory body shall be obtained. In the course of on-the-spot inspection, there shall be at least two inspection staff present and they shall produce lawful certificates and a notice of inspection. In cases where there are less than two inspection staff or they fail to produce lawful certificates and notice of inspection, the financial institution within the banking sector is entitled to the right of refusing the inspection.
Article 35. The banking regulatory body may, in view of the need to perform its functions, consult the board members and senior managers of financial institutions within the banking sector on the regulation, and request board members and senior managers of the financial institutions within the banking sector to give explanations on major events of business operations and risk management.
Article 36. The banking regulatory body shall order financial institutions within the banking sector to disclose financial and accounting reports, risk management status, changes to the board members and senior managers and other major items to the public as per the regulations.
Article 37. In cases where financial institutions within the banking sector violate the principle of prudent operation, the banking regulatory body of the State Council or agencies dispatched to the province level by the banking regulatory body of the State Council is responsible for ordering rectification within a specified period of time. In the case of failure to rectify within the specified period of time or where the acts have seriously endangered the stable operations of the financial institution in question, or harmed the lawful benefits of depositors and other clients, the following measures may be taken in view of different situations, subject to the approval by the banking regulatory body of the State Council or the persons responsible for agencies dispatched to the province level by the banking regulatory body of the State Council:
1. ordering the suspension of some operations and termination of approval for opening new operations;
2. restricting the distribution of dividends and other income;
3. restricting assets transfer;
4. ordering majority shareholders to transfer share right or restricting the rights of related shareholders;
5. ordering the adjustment made to board members, senior managers or restricting their rights;
6. stopping the approval of new branches.
When adjustment is made to the financial institutions within the banking sector, a report shall be submitted to the banking regulatory body of the State Council or agencies dispatched by it to the province level. In cases where the banking regulatory body of the State Council or agencies dispatched by it to the province level discovers from its check that the institutions conform to the related principle of prudent operations, it shall remove the related measures taken in line with the provisions of the previous paragraph within three days starting from the day of completion of the check.
Article 38. In cases where a financial institution within the banking sector has experienced or is likely to face credit crisis, which will influence the lawful benefits of depositors and other clients seriously, the banking regulatory body of the State Council may take over the institution or encourage institutional regrouping according to laws. The take-over and institutional regrouping shall be conducted in line with the related laws and provisions of the State Council.
Article 39. In cases where a financial institution within the banking sector is found to be guilty of illegal operations or poor operations and other problems and failure to cancel it will seriously harm the financial order and the social and public benefits, the banking regulatory body of the State Council is entitled to the right of cancelling it.
Article 40. In cases where a financial institution within the banking sector is taken over, regrouped or cancelled, the banking regulatory body of the State Council is entitled to the right of requesting the board members, senior managers and other working staff of the financial institution to perform their duties in line with the requirements of the banking regulatory body of the State Council.
In the course of liquidation through take-over, regrouping or cancellation, the following measures may be taken over board members, senior managers and other personnel directly responsible, subject to the approval by the person responsible for the banking regulatory body of the State Council:
1. notifying the exit authority to prevent their exit according to laws in cases where board members, senior managers and other persons directly responsible going abroad will cause serious loss to the national interests;
2. applying juridical authorities to ban the transfer of property or establish other rights over the property.
Article 41. Subject to the approval of the banking regulatory body of the State Council or of the person responsible for the agency dispatched by the banking regulatory body of the State Council to the province level, the banking regulatory body is entitled to the right of enquiring into the accounts of the financial institutions within the banking sector suspected to be engaged in financial misconduct and their staff and that of their associated parties. In the case of suspicion of transferring or concealing capital earned illegally, applications may be filed to the juridical authority to freeze the account, subject to the approval from the person responsible for the banking regulatory body.
Chapter V Legal Responsibilities
Article 42. Under any of the following circumstances staff of the banking regulatory body engaged in the regulation will be subject to administrative punishment according to laws or investigated for their criminal liabilities in cases where their misconduct has constituted crimes:
1. examining and approving the setup, modification, termination of financial institutions within the banking sector as well as their scope of business and business types within the scope of business in violation of regulations;
2. conducting on-the-spot inspection over financial institutions within the banking sector in violation of regulations;
3. failing to report emergencies as requested by article 28 of this law;
4. enquiring into accounts or applying to freeze accounts in violation of regulations;
5. taking measures or imposing punishments over financial institutions within the banking sector in violation of regulations;
6. other acts of abusing power or neglecting their duties.
If the corruption, bribe taking, disclosure of national secrets or commercial secrets known to them on the part of staff of banking regulatory body engaged in regulation constitutes a crime, their criminal liabilities will be investigated. If they do not constitute a crime, administrative punishments will be imposed.
Article 43. Establishment of financial institutions within the banking sector without permission or financial institutions engaging in operations within the banking sector illegally will be cancelled by the banking regulatory body of the State Council. In cases where crimes have been constituted, the criminal liabilities will be investigated. In cases where the misconduct has not constituted a crime, the banking regulatory body of the State Council will be responsible for confiscating the illegal income and impose a fine of one to five times that of the illegal income in cases where the illegal income is over RMB 500,000.
In cases where there is no illegal income or the illegal income earned is less than RMB 500,000, a fine of between RMB 500,000 and RMB 2 million will be imposed.
Article 44. Under any of the following circumstances financial institutions within the banking sector will be ordered by the banking regulatory body of the State Council to rectify and have their illegal income, if any, confiscated. In cases where the illegal income is over RMB 500,000, a fine of between one to five times that of the illegal income will be imposed. In cases where there is no illegal income or the illegal income earned is less than RMB 500,000, a fine of between RMB 500,000 and RMB 2 million will be imposed. In cases where the misconduct is serious or no rectification has been made within the specified period of time, the violator may be ordered to stop business and undergo consolidation or have their business license cancelled. The criminal liabilities will be investigated in cases where crimes have been constituted:
1. setting up branches without permission;
2. undergoing modification or termination without permission;
3. engaging in operations that have not been approved or registered previously in violation of the regulations;
4. raising or decreasing savings or loan interest rates in violation of the regulations;
Article 45. Under any of the following circumstances financial institutions within the banking sector will be ordered by the banking regulatory body of the State Council to rectify and pay a fine between RMB 200,000 and RMB 500,000. In cases where the misconduct is serious or no rectification has been made within the specified period of time, the violator may be ordered to stop business and undergo consolidation or have their business license cancelled. The criminal liabilities will be investigated in cases where crimes have been committed:
1. appointing board members or senior managers without undergoing examination of post-holding qualifications;
2. refusing or hindering off-site supervision or on-the-spot inspection;
3. providing false statements, reports and documents and information or documents thus provided having concealed important facts;
4. failing to conduct information disclosure as requested;
5. seriously violating the principle of prudent operations;
6. refusing to implement measures specified in article 37 of this law;
Article 46. In cases where the financial institutions within the banking sector fail to provide statements, reports and documents and materials as requested, the banking regulatory body will be responsible for ordering a rectification. In the case of failure to rectify within the specified period of time, a fine of between RMB100,000 and RMB 300,000 will be imposed on the violator.
Article 47. In cases where financial institutions within the banking sector violate the provisions of laws, administrative regulations and of the State on banking regulation, the banking regulatory body shall take the following measures in view of the different circumstances, in addition to imposing punishments in line with the provisions of articles 43 to 46 of this law:
1. ordering the financial institutions within the banking sector to impose disciplinary punishments on board members and senior managers directly responsible and other staff directly responsible;
2. in cases where the conduct of financial institutions within the banking sector has not a constituted crime, warning punishment will be imposed on board members and senior managers directly responsible and other staff directly responsible, with a fine of between RMB 50,000 and RMB 500,000;
3. cancelling the post-holding qualifications of board members and senior managers directly responsible for a specified period of time up to life cancellation, prohibiting board members and senior managers directly responsible and other staff directly responsible from engaging in banking business for a specified period of time up to a lifelong ban;
Chapter VI Supplementary Articles
Article 48. In cases where laws and administrative regulations have other provisions on policy banks and financial assets management firms established inside the People’s Republic of China, the provisions shall prevail.
Article 49. In cases where laws and administrative regulations have other provisions on the regulation of branches of foreign funded banking financial institutions, Chinese-foreign joint equity banking financial institutions, and foreign banking institutions established inside the People’s Republic of China, those provisions shall prevail.
Article 50. This set of rules shall enter into force as of February 1, 2004.