Rules Governing the Consolidated Supervision of Foreign Banking Organizations

Chapter 1   General Provisions

Article 1        The Rules Governing the Consolidated Supervision of Foreign Baking Organizations (hereinafter referred to as the Rules) is formulated for the purposes of implementing the Law of the PeopleЎЇs Republic of China on Banking Regulation and Supervision and Regulations of the People's Republic of China on Administration of Foreign-funded Financial Institutions, standardizing the consolidated supervision, and effectively performing the risk-based supervision.

Article 2        The China Banking Regulatory Commission (hereinafter referred to as the CBRC) shall be responsible for providing guidance to the consolidated supervision of foreign banking organizations.

Article 3        The CBRC shall perform consolidated supervision of foreign banking organizations, which refer to the solely foreign-funded banks and sino-foreign joint?equity banks incorporated in China that have opened branches and subsidiaries, and the foreign banks that have opened two or more Chinese branches.

The CBRC shall, by way of conducting consolidated supervision, oversee the global operations and risks of foreign-funded banks incorporated in China, and overall Chinese operations and the associated risks of foreign banks as well as their global business risks and market performances.

Article 4         The main reporting bank mentioned in the Rules refers to the headquarters of a solely foreign-funded bank or a sino-foreign joint-equity bank, or the Chinese branch designated by the headquarters or the headquarters-authorized regional office of a foreign bank to file consolidated financial statements and comprehensive information with the relevant local office of the CBRC. The consolidated supervisory office mentioned in the Rules refers to the CBRCЎЇs local office in the same location as the main reporting bank. The local supervisory office mentioned in the Rules refers to the CBRCЎЇs local office in the same location as a Chinese branch of a foreign bank other than the main reporting bank.

Article 5         The reporting year mentioned in the Rules refers to the calendar year starting on January 1 and ending on December 31, while the accounting year mentioned in the Rules refers to the statutory accounting year in each country.

Chapter 2   Designation and Responsibilities of the Main Reporting Bank

Article 6        The foreign banking organization subject to consolidated supervision as defined in Article 3 of the Rules shall designate a main reporting bank.

Article 7        Where a foreign-funded bank becomes subject to consolidated supervision as a result of a new establishment or merger or acquisition, its headquarters shall report this change to the local office of the CBRC within one month upon the conditions being met.

Where a foreign bank becomes subject to consolidated supervision as a result of a new branch establishment, its headquarters or authorized regional office shall designate a main reporting bank within one month upon the branch approval by the CBRC, and the main reporting bank shall report its designation to the consolidated supervisory office, with a copy of the report handed in to the relevant local supervisory office.

Article 8        Where a foreign bank plans to change its main reporting bank, its headquarters or authorized regional office shall change the main reporting bank one month prior to the ending of the accounting year. Such a change shall be filed for record by both the original and the newly-designated main reporting banks with the respective consolidated supervisory offices, with a copy sent to the relevant local supervisory offices.

The newly-designated main reporting bank shall assume its functions starting from the beginning of the next accounting year.

Article 9         The main reporting bank shall appoint a China regional compliance officer, whether full time or part time, whose qualifications shall be reviewed by and filed for record with the supervisory authority in accordance with the Rules for Implementing the Regulations of the PeopleЎЇs Republic of China On Administration of Foreign-funded Financial Institutions. 

Article 10        The main reporting bank shall be responsible for consolidating the financial statements and compiling the comprehensive information, ad shall perform the following consolidation functions:

1.    The main reporting bank shall hand in to or file for record with consolidated supervisory office the required financial statements, description of material events, reports and other documents, and shall be responsible for the authenticity, accuracy and timeliness of the information.

The main reporting bank shall be responsible for filing the application with the consolidated supervisory office for opening a new business to be offered by more than one Chinese branches of the foreign bank. In the meantime, a copy of the application shall be handed in to each local supervisory office concerned.

2.    A main reporting bank may represent its parent bank to participate in the working meetings or seminars summoned by the CBRC, and provide comments and suggestions in the name of its parent bank. The main reporting bank shall report the information acquired from the meetings or seminars to its parent bank (headquarters) or regional office, and communicate the information with the other Chinese branches in a timely manner.

The comments and suggestions from a foreign banking organization regarding the Chinese supervisory policies and regulations shall be collected and presented to the consolidated supervisory office by the main reporting bank. Upon receiving feedbacks from the supervisory authority, the main reporting bank shall communicate the feedback with the other Chinese branches in a timely manner.

3.    The main reporting bank shall report to the supervisory authority the economic and financial information of its parent bank (headquarters) and home country (region).

4.   The main reporting bank shall be responsible for the information disclosure by the Chinese operational entities of a foreign banking organization.

5.   The main reporting banks shall undertake other tasks required by the supervisory authority.

The main reporting bank shall hand in the written documents to the supervisory authority with an electronic version attached.

Article 11        The head of the main reporting bank shall be responsible for the delivery of consolidation functions.

Chapter 3   Off-Site Surveillance

Article 12        The CBRC head office is responsible for guiding and overseeing the activities of its local offices in conducting the off-site surveillance of foreign banking organizations on the consolidated basis.

Article 13        The consolidated supervisory office shall make sure that the main reporting bank hand ins the consolidated financial statements of the entire Chinese operations on a quarterly basis. A solely foreign-funded bank or a sino-foreign joint-equity banks shall hand in on an annual basis the financial statements of its overseas branches and subsidiaries as well as the group consolidated financial statements.

Article 14        The consolidated supervisory office shall require the main reporting bank to hand in the following documents and information in a timely manner:

1.    the published annual report of the foreign banking organization and the information disclosed by each Chinese branch and subsidiary of the organization at the end of each accounting year;

2.    the ratings of the foreign banking organization by the external rating agencies;

3.    the important press releases by the parent bank (headquarters);

4.    the description of the events in which the foreign banking organization is being investigated;

5     the evaluation opinions and the major supervisory actions by the foreign banking organizationЎЇs home country (region) supervisors;

6.    the description of the major changes in the financial and economic policies in the foreign banking organizationЎЇs home country (region).

7.   other related information and documents specified in the Rules for Implementing the Regulations of the PeopleЎЇs Republic of China On Administration of Foreign-funded Financial Institutions.

Article 15        The consolidated supervisory office shall require the main reporting bank to hand in a Consolidated Report of Business Operations on a semi-annual basis, which shall include, among others, the basic information (i.e. the number of operational entities and employees, and changes in business scope), a description of credit concentration, analysis of the loan loss provisioning, transfers of assets of significant value, analysis of cash inflow and outflow, information on connected transactions, portfolio of loans/investments abroad, and the trends in the business development of its operational entities. The Report shall also describe the changes in the parent bankЎЇs organizational structure, business strategies, capital adequacy, financial soundness and market reputation.  

Article 16        The consolidated supervisory office shall monitor and evaluate on a quarterly basis the consolidated data indicating compliance performance, and analyze the trends in the risk-indicating data and in overall business performance.

Article 17        The consolidated supervisory office shall be informed of the business management policies and procedures of each foreign banking organization, and shall communicate with the senior management of the main reporting bank or regional office of the foreign banking organization on issues related to risk management, including the regional management mode, the management information system, risk control and internal authorization policies, compliance management, credit management, and financial management, etc.  

Article 18        The consolidated supervisory office shall report the following information to the CBRC head office in accordance with relevant regulations:

1.   the major events as well as business management policies and procedures filed for record by the foreign banking organizations;

2.   errors made in the consolidated financial statements handed in by the foreign banking organizations;

3.    the consolidated data indicating non-compliance and abnormal changes; and

4.   the findings of consolidated supervision.

Article 19        The consolidated supervisory office shall, on the basis of analyzing both supervisory information acquired in off-site surveillance and on-site examination results, complete the semi-annual and annual consolidated supervisory reports.

Article 20        The CBRC head office shall communicate and share the information with the host country supervisory authority of a foreign-funded bank or a foreign bank branchЎЇs home country (region) supervisory authority on supervisory issues of common interest.

Article 21        The CBRC shall promote the information communication and sharing within the banking supervisory authority, and shall be in the position to disclose the information about the domestic business operations of a foreign banking organization in accordance with disclosure policies and procedures.

Article 22        The CBRC head office shall put into place policies, procedures and requirements for consolidated supervision.

Chapter 4   On-Site Examination

Article 23        The CBRC head office shall organize, guide and coordinate the consolidated on-site examination of foreign banking organizations.

Article 24        The consolidated on-site examinations shall be conducted in the following two separate manners:

1.    The CBRC head office may authorize either a consolidated supervisory office or a local supervisory office to form an examination team to conduct consolidated examination according to the examination plan.

2.    The CBRC head office may by itself form an examination team consisting of supervisors from the foreign banking supervisory department to conduct consolidated examination of a main reporting bank.

Article 25        The CBRC head office shall prepare consolidated on-site examination plans in accordance with supervisory assessment of risks and examination timetable, and set out requirements on the examination approaches, content and priorities.

Article 26        The CBRC head office may adjust the content, timing and rate of progress of a consolidated on-site examination according to the real situations. In case that any material problems are identified in the examination, the examination team shall report to the CBRC head office in a timely manner.

Article 27        The CBRC head office shall make the plans for the consolidated on-site examinations conducted by the team formed by the CBRC head office. The examination team shall conduct the examination in line with the procedures and requirements prescribed in the examination manual, and complete the examination within the prescribed timeframe.

At the end of field inspection, the examination team shall complete the Examination Findings and Assessments along with the CAMELs or ROCA rating, and confirm the findings with the senior management of the main reporting bank being examined. When the examination is finished, the examination team shall hand in to the CBRC local office the Examination Findings and Assessments, the CAMELs or ROCA rating and other examination files.

When the entire examination process is completed, the examination team shall compile a consolidated examination report, and hand in to the CBRC head office the report together with the Examination Findings and Assessments and the bankЎЇs ratings.

Article 28        The supervisory conclusions about each foreign banking organization being examined on a consolidated basis shall be finalized by consulting with the CBRC head office. The CBRC head office shall present its supervisory opinions in accordance with the Examination Findings and Assessments and communicate its opinions with the CBRC local office concerned. 

Article 29        The consolidated supervisory office shall be in the position to follow up on each consolidated on-site examination.

The consolidated supervisory office shall present a formal letter of supervisory conclusions to the local main reporting bank in accordance with the Examination Findings and Assessments as well as the supervisory opinions by the CBRC head office, and require the bank to make corrective actions accordingly. In the case of any rule-breaking activities being identified, the consolidated supervisory office shall impose due penalties in accordance with relevant regulations.

The consolidated supervisory office shall, within three months after the completion of consolidated on-site examination, evaluate the performance of the local main reporting bank in implementing corrective actions, or conduct a follow-up examination, and report the correction performance to the CBRC head office in a timely manner.

Article 30        The CBRC head office shall be in the position to receive and accept the application for cross-border on-sit examination of a foreign banking organization by its home country supervisory authority, and shall entrust the relevant local office to communicate with the examination team on issues related to the supervision of the foreign banking organization being examined.

The CBRC local office shall report the information acquired from its communication with the examination team to the CBRC head office, and shall take follow-up actions to address the issues raised by the examination team.

Chapter 5   External Audit and Three Party Meeting

Article 31        The foreign banking organization subject to consolidated supervision shall in principle employ the same accounting firm to audit both each of its operational entities in China and the consolidated Chinese operations,

Article 32        The main reporting bank shall, with a month prior to the end of an accounting year, file for the record with the consolidated supervisory office the information of the external auditors or auditing team being employed, and in the meantime hand in a copy of the information to the CBRC local offices concerned. Where the accounting firm is to be changed, the main reporting bank shall explain the change in writing.

Where the CBRC local office holds negative opinions towards the qualification of the external auditors employed by a foreign banking organization, it shall advise the organization to change the auditors or the accounting firm within 14 days from the date of receiving the filing by the organization.

Article 33        The external auditors shall, before conducting the consolidated auditing, communicate with the consolidated supervisory office on the auditing requirements.

Article 34        The main reporting bank shall, within five months after the end of an accounting year, hand in the Consolidated Auditing Report and the Consolidated Management Opinions to the consolidated supervisory office.

Article 35        The local supervisory office shall, within 30 working days from the date of receiving the External Auditing Report and the Management Opinions from the local foreign banking entity, present its feedback regarding the evaluation of the quality of the external audit.

The consolidated supervisory office shall make a comprehensive evaluation of the quality of the external audit based on the feedbacks received from local supervisory offices and the findings in both the Consolidated Auditing Report and the Consolidated Management Opinions.

Article 36        The consolidated supervisory office shall work out a three-party meeting schedule in accordance with the supervisory evaluations of each foreign banking organization.

The three-party meeting shall be organized by the CBRC head office, and attended by the CBRC (including the head office, the consolidated supervisory office and the local supervisory office), the main reporting bank and the external auditors. After the meeting, the consolidated supervisory office shall prepare the minutes of the meeting, and urge the main reporting bank to report in a timely manner its performance in implementing the corrective actions.

Chapter 6   Supplemental Provisions

Article 37        The power of the interpretation of the Rules shall rest with the CBRC head office.

Article 38        The consolidated supervisory conclusions shall serve as a reference for the licensing of the new establishment or new business or product by a foreign banking organization. 

Article 39        The Rules shall enter into effect on April 1, 2004, and shall prevail where there is any discrepancy between the Rules and the formerly promulgated regulations regarding the consolidated supervision of foreign banking organizations.