Laws of the People's Republic of China

Circular of China Banking Regulatory Commission on the Further Prevention of the Related Risks in the Transactions between Banking Financial Institutions and Securities Companies

Yin Jian Fa [2006] No. 97

Each banking regulatory bureau, policy bank, state-owned commercial bank, joint stock bank, and financial asset management company, credit company, financial company and financial lease company under the direct supervision of China Banking Regulatory Commission:

In recent years, many risks existed in some transactions between banking commercial institutions and securities companies, particularly, in business of entrusted financial management and inter-bank lending. Recently, the related departments have discovered and investigated the irregular acts conducted by several commercial banks in their business of depositing and keeping the trading settlement funds of clients and the illegal acts conducted by a few enterprises to misappropriate bank credit funds for stock speculation. For the purpose of effectively preventing the risks in the transactions between banking financial institutions and securities companies, guaranteeing the lawful operation of the business of depositing and keeping the trading settlement funds of clients by the commercial banks, seriously forbidding the bank funds from entering into the stock market by various means, and guaranteeing the safe and stable operation of the banking industry, the related matters are hereby informed as follows:

1.

Further strengthening the awareness of lawful operations and risks, and effectively avoiding inter-market risks

Any banking financial institution shall constantly reinforce the financing risk management of securities companies, improve the ability to warn against risks in advance, increase the asset preservation strength, effectively set up a "firewall" between banks and the securities market, and seriously avoid the inter-market or inter-industry transfer of risks. When any banking financial institution engages in the business of depositing and keeping the trading settlement funds of clients, it shall make effective supervision over the trading settlement funds of clients strictly according to the related provisions, and shall not grant any institution or individual any loan that is guaranteed by the trading settlement funds of clients.

2.

Setting up and perfecting various rules and systems, consummating the internal control mechanism, and improving the risk management level.

Any banking financial institution shall integrate the financing to securities companies into a uniform credit management system, and set up a risk identification and appraisal mechanism according to its business varieties and business scale; and when it engages in business, it shall carry out a comprehensive appraisal of the qualifications and credits of securities companies, in particular, shall pay more attention to avoiding the risks in respect of entrusted financial management or inter-bank lending business.

3.

Seriously forbidding the misappropriation of bank credit funds for stock speculation

It is seriously forbidden for any enterprise or individual to misappropriate any bank credit fund from entering the stock market directly or indirectly, and a banking financial institution shall not grant any loan to any enterprise or individual for stock speculation. Where any loan is of the misappropriated for stock speculation, a banking financial institution shall immediately adopt timely and necessary measures to recover the loan. If any enterprise or individual conducts any irregular act, it or he shall be punished seriously, and the CBRC or its dispatched office shall record such irregular act into the credit management system in collaboration with the related departments.

4.

Reinforcing the management of individual consumption credits, and avoiding consumption loans from entering into the stock market in any disguised form

A banking financial institution shall conduct the business of individual consumption credits strictly according to the related laws and regulations, practically reinforce the management of individual consumption credits, and avoid consumption loans from entering into the stock market in any disguised form. A banking financial institution shall intensify the examination of the borrowers' motives, loan purposes, and repayment sources, etc., and shall not grant individual consumption credits to those clients failing to provide reasonable loan purposes, or repayment sources; and shall intensify the follow-up capital check to individual consumption loans of large amount, and guarantee that the loans are used in accordance with the contract. A banking financial institution shall set up an effective follow-up assessment system for the business of individual consumption loans, sum up experiences and lessons in a timely manner, and make improvements.

5.

Intensifying the "three examinations" system of loans, and reinforcing the follow-up capital supervision

A banking financial institution shall further reinforce the controlling ability to the loan management, practically fulfill the "three examinations" system of loans, in particular, reinforce the follow-up examination, carry out an effective track-up and check of the loan purposes, and avoid the misappropriation of loans; and shall reinforce the control of the borrowers' accounts, avoid enterprises from mixing the use of their own funds and credit funds, impose main monitor on the enterprises not only borrowing credit funds but also conducting stock speculation, and seriously avoid the credit funds from being misappropriated for stock speculation.

6.

Actively taking measures, and doing a good job in risk investigation and disposal

A banking financial institution shall pay more attention to the existing risks and problems in the transactions with securities companies, further inspect its own initiative, conduct further investigations of possible risks in the transactions with securities companies. As regards the types of occurred risks, a banking financial institution shall reinforce the collection thereof, adopt effective legal measures, legally keep the credits and interests of banks, and try to decrease risks and losses; and shall report to the banking regulatory organ in a timely manner for any important matter.

7.

Reinforcing supervisory cooperation, and closely assisting the investigation and punishment of illegal and irregular acts

The dispatched institutions of CBRC shall reinforce coordination and cooperation with the dispatched institutions of CSRC as well as other financial regulatory organs, consummate the information exchange and sharing mechanism with other regulatory organs, abundantly share the sources for supervision, conduct joint check when necessary, and form a combined force of supervision, so as to severely handle and combat those illegal or irregular acts of misappropriating credit funds for stock speculation.

8.

Strengthening the accountability system, and enhancing the strength to punish related persons held to be responsible

The dispatched institutions of CBRC shall, during the process of risk disposal and assets liquidation, severely punish the persons held to be responsible for the occurrence of risks in accordance with the related provisions, fortify punishment, and complement the accountability system; and shall, in accordance with laws and regulations as well as the requirements as indicated in the present Circular, investigate the acts of misappropriating the trading settlement funds of clients or credit funds for stock speculation occurred in the transactions between banking financial institutions and securities companies, and fortify the punishment of those institutions committing illegal or irregular acts and those persons held to be responsible.

All the banking regulatory bureaus shall forward this Circular to each banking regulatory sub-bureau, urban commercial bank, urban credit cooperative, rural commercial bank, rural cooperative bank, rural credit cooperative, foreign-funded bank, financial asset management company, credit trust company and financial company within their respective jurisdictions.

China Banking Regulatory Commission

December 31, 2006