Speeding up foreign investment in financial sectors

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Following the announcement on 11 April 2018 by Yi Gang, the new governor of the People’s Bank of China (PBOC), regarding a more definite timetable to further open up China’s financial sectors, Chinese financial regulators have acted quickly to formulate and/or issue the relevant implementing regulations. In less than a month, the China Banking and Insurance Regulatory Commission (CBIRC) and the China Securities Regulatory Commission (CSRC) have respectively issued implementing regulations on the relaxation of foreign investment in banking institutions, securities companies, fund management companies, futures companies and insurance brokerage firms.

Also, on 24 April 2018, the State Administration of Foreign Exchange (SAFE) approved extra foreign exchange quotas to 24 financial institutions with Qualified Domestic Institutional Investors (QDII) qualifications, after freezing the quota three years previously. The relevant implementing regulations are outlined below.

Banking: Circular on Matters concerning the Further Opening-up of Market Access of Foreign-invested Banks, issued by the CBIRC on 27 April 2018.

(1) Wholly foreign-owned banks, Sino-foreign joint venture banks and branches of a foreign bank may carry out the business of issuing and cashing as an agent and underwriting government bonds without the advance approval of the CBIRC. Such banks or banking branches should report to the CBIRC or its local counterpart within five working days of carrying out such business.

(2) Where a foreign bank has established multiple branches in China, the branch that assumes the management role (the managing branch) and has been approved to carry out renminbi business may, through fulfilling its management obligations, authorize other branches in China to operate a renminbi business, provided it has assessed and ensured that other branches meet the relevant qualification requirements.

(3) Where a foreign bank has established multiple branches in China, the managing branch that has been approved to carry out derivatives trading business may, through fulfilling its management obligations, authorize other branches in China to operate a derivatives trading business, provided it has assessed and ensured that other branches meet the relevant qualification requirements.

Securities: Administrative Measures for Foreign-invested Securities Companies, promulgated by the CSRC on 28 April 2018.

A consultation paper on the same was issued by the CSRC on 9 March 2018. The contents of the formally issued measures are basically in line with the consultation paper, which includes the following key relaxations: (1) to allow a foreign investor to hold a controlling stake (capped at 51% at present, and no cap after three years) in a sino-foreign joint venture securities company (SJV); (2) to expand the business scope of such SJVs to the same footing with Chinese securities companies; and (3) to remove the requirement that a non-Chinese investor must partner with a Chinese securities company in order to set up an SJV.

Funds: Q&A by the CSRC spokesperson on the Administrative Measures for Foreign-Invested Securities Companies, published by the CSRC on 29 April 2018.

The Administrative Measures for Securities Investment Fund Management Companies provide that the foreign-owned equity stake in a sino-foreign joint venture fund management company (FMJV) should not exceed the opening-up commitment of China’s securities industry. The present relaxation on foreign investment in FMJVs will not require any amendment to the current regulations. Accordingly, non-Chinese investors that satisfy the applicable qualifications can already apply to the CSRC for an increase of equity interests in FMJVs, or for the establishment of new FMJVs with a view to owning up to 51% of equity interests in FMJVs.

Futures: Administrative Measures for Foreign-invested Futures Company (Consultation Paper), released by the CSRC on 4 May 2018 for public opinion consultation.

To raise the cap on the foreign-owned equity stake in a futures company to 51%, and to completely remove the cap after three years to be in line with the commitment to open up the futures industry.

Insurance brokerage firms: Notice on the Relaxation of Business Scope of Foreign-invested Insurance Brokerage Company, issued by the CBIRC on 27 April 2018.

The business scope of foreign-invested insurance brokerage firms has been expanded to be the same as that of Chinese insurance brokerage firms, including:

(1) to formulate insurance plan, select insurer and effect insurance for the insured;

(2) to assist the insured or beneficiaries in claims;

(3) to engage in reinsurance brokerage business;

(4) to provide disaster prevention, loss prevention or risk assessment and risk management consultation services to the client;

and (5) other businesses as approved by the CBIRC.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at danian.zhang@bakermckenzie.com