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China: Increased Regulation of Commercial Banks’ Personal Banking Business

(July 31, 2009) The China Banking Regulatory Commission (CBRC) issued a notice on July 6, 2009, effective the same day, on further regulation of the personal banking business of the country's commercial banks. The notice stipulates that the banks must observe principles of prudence and maintenance of stability in investment management of bank funds and “shall not invest in any high-risk financial product that may incur substantial loss to the principal or any financial product with over-complex structure.” (CBRC Further Regulating Personal Banking Business of Commercial Banks, 26 ISINOLAW WEEKLY (July 20-July 26, 2009), via e-mail from [email protected]; Notice of the China Banking Regulatory Commission on Relevant Issues Concerning Further Regulating the Investment Management of the Personal Banking Business of Commercial Banks, CBRC website, July 6, 2009, available at

The notice sets forth specific requirements on the use of bank funds for the granting of trust loans and for investment in fixed-income financial products, in banks' credit assets, in bank loans for a single borrower and a related enterprise, in combinations of assets in open market and non-open market transactions, in financial derivative products or structured products, and in aggregate funds of trust plans (Id., items 11-17). It proscribes investment of bank funds in shares that are publicly traded in China's secondary market as well as in securities investment funds related to such shares; in equities of non-listed enterprises; or in listed companies' non-publicly offered or traded shares. Bank fund participation in subscription of new shares must conform to state laws, regulations, and other regulatory norms. However, the notice states, for investors “with high net asset value, the relevant investment experience, and relatively strong risk tolerance, a commercial bank may satisfy their investment demands by means of private banking service without being subject to the aforesaid restrictions.” (ISINOLAW, supra.)

For investment of bank funds in overseas financial markets, the notice points out that the commercial banks must not only conform to this notice's provisions but also to certain other relevant provisions as well. It “strictly prohibits” the banks from taking advantage of a client-entrusted overseas banking business to sell as an agent, in a disguised form, financial products issued by, or to develop clients or conduct similar activities in a disguised form on behalf of, an overseas financial institution that lacks the qualifications to launch the related financial business in China. If a client suffers significant economic loss because of commercial bank's violation of the notice's provisions or due to serious negligence on the part of the responsible party, the regulatory authority will investigate the liability of the persons in charge of the senior management and of the relevant departments of the bank that made the sales and will suspend the institution from selling new banking products (items 21-22). (ISINOLAW & CBRC, supra.)