CBIRC issued Rules on Equity Custody of Commercial Banks (also known as Measures) in China. The aim of these rules is to implement relevant requirements in the Interim Rules on Equity Management of Commercial Banks, improve commercial banks’ equity management, raise the transparency of commercial banks’ equity information, and carry out the look-through regulation of commercial banks’ equities. The rules consist of 21 articles in 4 chapters, including, general provisions, equity custody, supervision and management, and supplementary provisions. The rules shall come into force as of the date of promulgation.
The rules cover the following:
- Principle of equity custody. Listed commercial banks on the National Equities Exchange and Quotations, or NEEQ, shall follow applicable laws and regulations; unlisted commercial banks follow the market principle and choose qualified equity custodian institutions.
- Basic framework of equity custody. Commercial banks should provide the custodian institutions with a complete register of shareholders and relevant equity information in a complete, timely, and accurate manner. The custodian institutions shall strictly abide by the service agreement signed by both parties, dutifully manage the register, and ensure that equity activities of commercial banks are conducted in a safe and efficient manner, and in compliance with relevant rules and regulations.
- Duties of regulatory authorities. The rules clarify the responsibilities of the regulatory authorities. In addition to imposing penalties on commercial banks that violate the rules, regulators will also establish a blacklist of equity custodian institutions and share the blacklist information with relevant government agencies via the national credit information sharing platform.
The rules specify that commercial banks should select the custodial institutions that meet the requirements in accordance with the Measures. For listed commercial banks, the Securities Law and other relevant laws and regulations have clearly required their shareholding custody and their share custody is carried out in accordance with the existing laws and regulations. For unlisted commercial banks, the current laws and regulations do not explicitly require their equity trusteeship and their equity management is highly dependent on corporate autonomy. In recent years, some banks have seen some stock chaos due to weak corporate governance. Therefore, according to the Banking Supervision and Administration Law, CBIRC requires pragmatic supervision from the perspective of prudential supervision, requiring unlisted commercial banks to escrow equity in legally established securities registration and settlement institutions, in accordance with the provisions of the Measures and not on the blacklist. In addition, the signing of a service agreement between a commercial bank and a custodian institution shall be fully included in the regulatory requirements stipulated in the Measures. For commercial banks that have already been custody, if they do not include the requirements in the agreement, a supplementary agreement shall be signed.
Related Links (in Chinese)
Effective Date: July 23, 2019
Keywords: Asia Pacific, China, Banking, Securities, Equity Management, Regulation and Supervision, Equity Custody, CBIRC
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