Laws of the People's Republic of China

Circular of the General Office of China Banking Regulatory Commission on Regulating the Overseas Investment Scope for Commercial Banks to Provide Overseas Financial Management Services on Behalf of Clients

Yin Jian Ban Fa [2007] No. 114

All banking regulatory administrations, all state-owned commercial banks and joint-stock commercial banks,

Since the promulgation of the Circular on the Related Issues for Commercial Banks to Provide Overseas Financial Management Services on Behalf of Clients (Yin Jian Ban Fa [2006] No. 164, hereinafter referred to as the Circular), related business procedures for commercial banks to provide overseas financial management services on behalf of clients have been sorted out fundamentally, and related investment experience has been accumulated. On the premise that commercial banks make overseas investment by rigidly differentiating self-owned funds from clients' funds and sell products in light of the types of clients, the overseas investment scope is hereby regulated and the related requirements are hereby brought forward as follows, so as to further diversify the investment varieties of overseas financial management services on behalf of clients and promote the stable development of such business.

1.

The provision of "not directly investing in stocks, their structured products, commodity derivatives or securities below the grade of BBB" in paragraph 4 of Article 6 of the Circular shall be regulated as "not investing in commodity derivatives, hedge funds or securities below the grade of BBB as granted by internationally recognized grading agencies".

2.

The following requirements shall be met, when a commercial bank issues overseas financial management products on behalf of clients, which are used to invest in overseas stocks:

(1)

The stocks to be invested in shall be those listed in overseas stock exchanges;

(2)

The funds used to invest in such stocks may not exceed 50% of the total net assets of a single financial management product; the funds used to invest in a single stock may not exceed 5% of the total net assets of a single financial management product. The commercial bank shall timely regulate the investment portfolio within the period of investment so as to ensure the continued compliance with these requirements;

(3)

The minimum sales amount for a single client shall be more than 300,000 Yuan (or the foreign currency with an equivalent value);

(4)

The clients shall have related experiences in stock investment. The commercial bank shall formulate specific evaluation standards and procedures, evaluate the experiences of clients in stock investment, and ask clients to sign for the confirmation of related evaluation results;

(5)

The verse as investment manager shall be an institution approved or ratified by the overseas supervisory department which has concluded the memorandum of understanding on supervisory cooperation concerning the overseas financial management products on behalf of clients with China Banking Regulatory Commission (hereinafter referred to as the CBRC). The commercial bank shall conduct fidelity examination on the overseas investment managers it selects, and ensure that the manager continuously holds the corresponding qualification; and

(6)

The commercial bank shall choose the stocks in the stock exchanges under the supervision of the overseas supervisory department which has concluded the memorandum of understanding on supervisory cooperation concerning the overseas financial management services on behalf of clients with the CBRC for investment.

3.

A commercial bank shall, when providing overseas financial management products on behalf of clients, which are used to invest in overseas fund products, select those as approved, registered or ratified by the overseas supervisory department which has concluded the memorandum of understanding on supervisory cooperation concerning the overseas financial management services on behalf of clients with the CBRC.

4.

A commercial bank shall, when issuing overseas financial management products on behalf of clients, which are used to invest in overseas structured products, select those as provided by the financial institutions with the grade of A or higher as granted by internationally recognized grading agencies.

5.

A commercial bank shall, when providing overseas financial management services on behalf of clients, accord to the principles of prudence and diversification of assets, fully take into account the market situation, its resources, its risk management capabilities and investors' risk tolerating ability, etc., carry out the development of products and the design of investment portfolio from the aspect of asset allocation, avoid concentration risks with respect to investment areas, types of assets and investment objective.

6.

A commercial bank shall, when providing overseas financial management services on behalf of clients, formulate related rules for investment management, explicitly prescribe the principles, norms and procedures for selecting overseas investment managers and various investment products, and the related staff members shall own corresponding qualities and qualifications.

7.

A commercial bank shall, when providing overseas financial management services on behalf of clients, make investments strictly according to the investment objective, investment scope, investment portfolio and investment restrictions as stipulated with its clients.

8.

A commercial bank shall, when providing overseas financial management services on behalf of clients, use swaps, forwards and other derivative financial instruments circulated in the financial market just for the purpose of avoiding risks, not for speculation or large transactions.

9.

A commercial bank shall, when providing overseas financial management services on behalf of clients, set up a client suitability evaluation mechanism in light of the principle of "knowing about your clients", and shall, based on the financial status, investment objectives, investment experiences, risk preferences, investment expectations and etc. of its clients, evaluate the risk affordability of its clients, determine the risk rating of its clients, provide its clients with the products in line with their appropriate risk levels, and avoid wrongful or improper sales of its financial management personnel.

10.

A commercial bank shall, when providing overseas financial management services on behalf of clients, rigidly manage its financial management personnel, pay great attention to the training of the marketing staff for financial management business, make them know the features and risks of financial management products they sold and inform their clients of all these features and risks in a proper manner during the selling process, and ensure the regulation compliance of their sales.

11.

A commercial bank shall, when providing overseas financial management services on behalf of clients, completely separate the raised clients' funds from its self-owned funds and the funds of relevant persons in charge, and open a separate account in the name of financial management products. Commercial banks and their related persons in charge shall be strictly prohibited from misappropriating the clients' funds.

12.

A commercial bank may not, when providing overseas financial management services on behalf of clients, transfer the interests with any related person in charge.

13.

When providing overseas financial management services on behalf of clients, a commercial bank shall, with the assistance of relevant persons in charge and strictly according to the Interim Measures for the Administration of Commercial Banks'Personal Financial Management Services and the Interim Measures for the Administration of Commercial Banks' Financial Management Services on Behalf of Clients, regularly disclose the related information to its clients for their investment decisions, and timely disclose unexpected incidents, which will result in serious affect on the interests or yields of investors to its clients, and perform the obligation of information disclosure dutifully.

14.

A commercial bank shall, when providing overseas financial management services on behalf of clients, set up and properly implement procedures for the disposal of complaints the clients inside, properly accept, investigate and handle the complaints of clients.

15.

A commercial bank shall, when providing overseas financial management services on behalf of clients, set up a related risk management system, formulate and continuously improve risk management rules, practically prevent market risks, credit risks, operational risks, legal risks, reputation risks and etc., and ensure the legitimate rights and interests of investors.

16.

The clauses other than those that have been regulated in this Circular remain applicable.

All banking regulatory administrations shall forward this Circular to urban commercial banks, foreign-funded banks and other banking financial institutions within their respective jurisdictions.

General Office of China Banking Regulatory Commission

May 10, 2007