Laws of the People's Republic of China

People's Bank of China, China Banking Regulatory Commission, State Administration of Foreign Exchange

Circular of PBC, CBRC and SAFE on Promulgating the Interim Measures for the Administration of Commercial Banks Providing Overseas Financial Management Services

Yin Fa [2006] No. 121

April 17, 2006

To Shanghai Head Office of the People's Bank of China, all branches and business management departments and the central sub-branches of the provincial capital cities, the central sub-branches of Dalian, Qingdao, Ningbo, Xiamen and Shenzhen, the banking regulatory bureaus of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan, the branches and foreign exchange departments of the State Administration of Foreign Exchange of all provinces, autonomous regions and municipalities directly under the Central Government, the branches of the State Administration of Foreign Exchange of Shenzhen, Dalian, Qingdao, Xiamen and Ningbo, all wholly state-owned commercial banks and joint-stock commercial banks,

For the purpose of advancing the convertibility of Renminbi capital accounts in an orderly and controllable way, meeting the reasonable demands of domestic institutions and individuals for financial investments and asset management abroad, and promoting the balance of international payments, the People's Bank of China, China Banking Regulatory Commission and State Administration of Foreign Exchange have jointly formulated the Interim Measures for the Administration of Commercial Banks Providing Overseas Financial Management Services, which are hereby promulgated. Please implement them accordingly.

All branches and business management departments of the People's Bank of China shall transmit it to the commercial banks and foreign capital banks in the cities within their respective jurisdictions immediately after receipt of the present Notice.

Appendix: The Interim Measures for the Administration of Commercial Banks Providing Overseas Financial Management Services Appendix:Interim Measures for the Administration of Commercial Banks Providing Overseas Financial Management Services

Chapter I General Provisions

Article 1

For the purpose of regulating commercial banks' provision of overseas financial management services, the present Measures are formulated in light of the relevant laws and administrative regulations.

Article 2

The term "overseas financial management services " as mentioned in the present Measures shall refer to the business activities carried out by commercial banks that are qualified for overseas financial management services and are entrusted by domestic institutions and individual residents (except non-domestic residents, hereinafter referred to as "investors") to make stipulated financial product investments with the investors' funds pursuant to the relevant requirements of the present Measures.

Article 3

The China Banking Regulatory Commission (hereinafter referred to as "the CBRC") shall take charge of the access administration and business administration of commercial banks' overseas financial management services.

Article 4

The State Administration of Foreign Exchange (hereinafter referred to as "the SAFE") shall take charge of the foreign exchange quota administration of commercial banks' overseas financial management services.

Article 5

The commercial bank shall accord with the laws and regulations of the state, the provisions of the state on foreign exchange administration and industry administration when making overseas financial management investments service, and shall carry out investment activities in accordance with the laws and regulations at the locality of the investments.

Article 6

Where a commercial bank is entrusted by a domestic individual resident to provide overseas financial management services, it shall accord with the relevant provisions on the administration of commercial banks' provision of personal financial management services; where a commercial bank is entrusted by a domestic institution to provide overseas financial management services, it shall perform the activities with reference to the relevant requirements on building up internal control rules and risk management systems as in the administration of commercial banks' provision of personal financial management services as well as other prudential requirements.

Article 7

A commercial bank shall take practical and effective measures to strengthen the management of relevant risks when providing overseas financial management services.

Chapter II Management of Business Access

Article 8

The commercial bank shall apply to the CBRC for approval when intending to provide overseas financial management services.

Article 9

The commercial bank that provides overseas financial management services shall be a designated foreign exchange bank, which shall meet the following requirements:

(1)

It has established an effective market risk management system and has improved it;

(2)

It has sound internal control rules;

(3)

It has the capacities for and experiences in overseas investment management;

(4)

It has not been penalized by the CBRC within one year before applying for the financial management activities; and

(5)

Other prudential conditions as required by the CBRC.

Article 10

The commercial bank shall submit the following materials (in triplets) when applying to the CBRC for the qualification for providing overseas financial management services:

(1)

A letter of application;

(2)

Relevant rules on internal control and risk management;

(3)

Draft of the custody agreement; and

(4)

Other documents as required by the CBRC.

Article 11

The CBRC shall examine and approve the commercial banks' qualifications for overseas financial management services in accordance with the relevant procedures and provisions on administrative license.

Article 12

Where a commercial bank sells personal financial management products within the territory of China after obtaining the qualification for overseas financial management services, the activities shall be governed by the relevant provisions of the Interim Measures for the Administration of Commercial Banks' Personal Financial Management Services.

Where a commercial bank sells financial management products or provides integrated financial management services to domestic institutions after obtaining the qualification for overseas financial management services, the access administration shall be subject to the reporting system, and the issues concerning the reporting procedures and requirements as well as management of relevant risks shall be handled in light of the relevant provisions on the administration of personal financial management services.

Chapter III Quota of Foreign Exchange Purchased for Investment and Conversion Administration

Article 13

Where a commercial bank is entrusted by an investor to purchase foreign exchange with Renminbi to provide overseas financial management services, it shall apply to the SAFE for the quota of foreign exchanges purchased for overseas financial management services.

Where a commercial bank is entrusted by an investor to invest in overseas financial management with the investor's own foreign exchange, the amount of funds under entrustment shall not be counted into the quota of foreign exchange purchased for investment as approved by the SAFE.

Article 14

The commercial bank shall submit the following documents to the SAFE when applying for the quota of foreign exchange purchased for overseas financial management:

(1)

A letter of application (including but not limited to the basic information on the applicant, the requested quota of foreign exchange purchased for investment, the investment plan, etc.);

(2)

Approval document on the business qualification issued by the CBRC;

(3)

Draft of the custody agreement;

(4)

Sample of the agreement of entrustment (in standard form) to be concluded with the certain investor, which shall include the rights and obligations of both parties, the assumption of proceeds and risks and other relevant contents; and

(5)

Other documents required by the SAFE.

The SAFE shall make a reply on approval or disapproval, and notify the applicant in written form and send a copy to the CBRC, within 20 working days as of receipt of the entire application documents.

Article 15

The commercial bank may issue to investors the overseas financial management products whose prices are marked in Renminbi within the approved quota of purchased foreign exchange, and shall uniformly go through the formalities for the purchase of foreign exchange for raising Renminbi funds.

Article 16

The commercial bank shall pay the investment principals and proceeds to the investors after the overseas financial management funds are remitted to China. Where an investor purchases foreign exchange with Renminbi for investment, the commercial bank shall pay the foreign exchange to the investor after the settlement of exchange; where an investor makes investments with foreign exchange, the commercial bank shall transfer the foreign exchange into the investor's original account, or may transfer the foreign exchange into the account designated by the investor in case that the original account has been closed up.

Article 17

The quota of net foreign exchange purchased by a commercial bank for providing overseas financial management services shall not exceed the quota of purchased foreign exchange as approved by the SAFE.

Article 18

The commercial bank shall take effective measures to hedge and cope with the foreign exchange rate risks of overseas financial management services by making use of forward foreign exchange settlement and other business.

Chapter IV Administration of Inward and Outward Funds

Article 19

The commercial bank shall entrust another domestic commercial bank approved by the CBRC for custody business as the custodian to keep custody of all the assets used for overseas investments when making overseas financial management investments.

Article 20

Besides the duties as prescribed by the CBRC, the custodian shall perform the following ones:

(1)

Opening the domestic custody account, the settlement account on use of overseas foreign exchange funds, and the securities custody account on behalf of the commercial bank according to the financial management plan;

(2)

Supervising the commercial bank's investment operation, and in case any of the commercial bank's investment instructions violates any law or rule, timely reporting it to the SAFE;

(3)

Preserving the relevant information such as the records on the remittance and conversion of the commercial bank's funds, collection and payment of foreign exchange, and flow of funds and etc. for not less than 15 years;

(4)

Making statistical reports on the balance of international payments according to the provisions;

(5)

Assisting the SAFE in inspecting the use of the commercial bank's funds abroad; and

(6)

Other duties as prescribed by the SAFE in light of the principle of prudential supervision.

Article 21

The custodian shall submit the relevant reports according to the following requirements:

(1)

Reporting the fact to the CBRC and the SAFE within 5 working days as of opening domestic custody account, the settlement account on use of oversea foreign exchange funds, and the securities custody account on behalf of the commercial bank;

(2)

Reporting the remittance of funds to the SAFE within 5 working days as of the day when the commercial bank remits the principal or proceeds out or back;

(3)

Reporting the income and expenditures of the commercial bank's domestic custody account to the SAFE within 5 working days as of the end of each month;

(4)

Submitting the commercial bank's statement on using foreign exchange funds abroad in the last year to the SAFE within 1 month as of the end of each accounting year;

(5)

In case any of the commercial bank's investment instructions violates any law or rule, timely reporting it to the CBRC and the SAFE; and

(6)

Other reporting matters as prescribed by the CBRC and the SAFE.

Article 22

The commercial bank shall bring the approval document to conclude a custody agreement with the domestic custodian, and open a domestic custody account after receipt of the SAFE's approval document on the quota of purchased foreign exchange. The commercial bank shall submit the formal custody agreement to the SAFE within 5 working days as of opening the domestic custody account.

Article 23

The scope of income of a commercial bank's domestic custody account shall include the foreign exchange funds transferred by the commercial bank into the said account, the investment principal and proceeds remitted from abroad and other income as prescribed by the SAFE.

The scope of expenditure of a commercial bank's domestic custody account shall include the funds transferred into the settlement account on use of overseas foreign exchange funds, the funds remitted back to the commercial bank, the currency conversion fee, the custody fee, the asset management fee, various commissions and other expenditure as prescribed by the SAFE.

Article 24

In light of the principle of prudence, the domestic custodian shall select an overseas financial institution as its overseas custody agent according to the risk management requirements and commercial practices.

The domestic custodian shall open the settlement account for the use of the commercial bank's foreign exchange funds and the securities custody account at the overseas custody agent, and use the said accounts for the funds settlement business and securities custody business with overseas securities registration and settlement institutions.

Article 25

The domestic custodian and its overseas custody agent shall separately set up custody accounts for different commercial banks.

Chapter V Disclosure of Information and the Supervision and Administration

Article 26

The commercial bank shall conform to the relevant risk management provisions of the CBRC when buying overseas financial products.

The CBRC shall supervise the risks in commercial banks' overseas financial management services in accordance with the relevant laws and regulations.

Article 27

The commercial bank that provides overseas financial management services shall inform the investors in details and in an all-round way of the investment plans, product features and relevant risks when selling its products, so that the investors may make their choices independently.

Article 28

The commercial bank that provides overseas financial management services shall disclose the information on investment conditions, investment behaviors, risk conditions and etc. to investors at regular intervals.

Article 29

The commercial bank that provides overseas financial management services shall perform the obligations of making statistical reports on settlement and sale of foreign exchange according to the provisions.

Article 30

The SAFE may adjust the quota of commercial banks that provide overseas financial management services for purchasing foreign exchange for investment in light of the requirements of the balance of international payments.

Article 31

The CBRC and the SAFE may require a commercial bank, a domestic custodian or an overseas custody agent to provide the relevant information on the commercial bank's overseas investment activities, and may make on-site inspections on the commercial bank with their supervisory duties when necessary.

Article 32

In case a commercial bank is under any of the following circumstances, it shall report the circumstance to the CBRC and the SAFE for archival filing within 5 working days as of the occurrence:

(1)

The custodian or the custody agent is changed;

(2)

The registered capital of the company or the structure of shareholders is changed greatly;

(3)

It has been involved in any lawsuit or severely penalized; or

(4)

Other circumstances as prescribed by the CBRC and the SAFE.

Article 33

In case a commercial bank's domestic custodian is under any of the following circumstances, it shall report the circumstance to the SAFE within 5 working days as of the occurrence:

(1)

Its registered capital or stock right structure is changed greatly;

(2)

It has been involved in any major lawsuit or severely penalized; or

(3)

Other matters as prescribed by the SAFE.

Article 34

Where a commercial bank or its domestic custodian violates the present Measures, it shall be given administrative penalties by the SAFE. Where the circumstance is serious, the CBRC and the SAFE shall have the power to require the commercial bank to replace the domestic custodian, or to revoke the commercial bank's quota of foreign exchange for overseas financial management services. Where an overseas custody agent refuses to provide relevant information, the CBRC and the SAFE shall have the power to demand replacement of the overseas custody agent.

Chapter VI Supplementary Provisions

Article 35

Where a commercial bank invests in the financial products in Hong Kong Special Administrative Region or Macao Special Administrative Region, it shall take the relevant clauses of the present Measures as reference.

Article 36

The power to interpret the present Measures shall remain with the People's Bank of China and the CBRC.

Article 37

The present Measures shall come into force as of the date of promulgation.