CBIRC Issues Corporate Governance Guidelines; PBC Issues LIBOR Update
CBIRC published guidelines for banks and insurers to improve quality and efficiency of corporate governance, along with questions and answers (Q&As) related to the guidelines. The guidelines specify that good corporate governance involves clear equity structure, sound organizational structure, clear boundaries of duties, high standards of professional ethics, effective risk management and internal control, sound information disclosure mechanism, reasonable incentive and restraint mechanism, good stakeholder protection mechanism, and strong sense of social responsibility. The guidelines have been set out in response to the advocacy requirements of the G20/OECD Corporate Governance Principles. The guidelines came into force on the date of issuance.
The supplementary provisions of the guideline explain that commercial banks, insurance companies, and bancassurance institutions, as mentioned in these "standards" refer to large state-owned commercial banks in the form of joint stock limited companies, national joint-stock commercial banks, urban commercial banks, private banks, rural commercial banks, foreign banks, insurance group (holding) companies, property insurance companies, reinsurance companies, and life insurance companies. The Guidelines on Corporate Governance of Commercial Banks and the Guiding Opinions on Regulating the Governance Structure of Insurance Companies (for Trial Implementation) have been repealed at the time of implementation of these guidelines. The guidelines on corporate governance stipulate some of the following key requirements for banking and insurance institutions:
- The shareholders, directors, supervisors, and senior management personnel of these institutions shall abide by laws and regulations, regulatory provisions, and the company’s articles of association and perform their duties in accordance with their respective responsibilities, coordinate operations, and effective checks and balances.
- Banking and insurance institutions shall, in accordance with regulatory provisions, establish a comprehensive risk management system that covers all business processes and operational links and matches the risk status of the company.
- Institutions shall mandate in the company's articles of association that major shareholders need to make a written long-term commitment to the institution for capital supplementation as part of the institution's capital planning; the company's articles of association shall stipulate that the company needs to formulate a prudent profit distribution plan.
- Regulatory agencies shall regularly conduct on-site or off-site evaluations on the corporate governance of the covered institutions. On communication of the regulator feedback on the results of the corporate governance regulatory assessment, the institution shall promptly report the relevant situation to the board of directors, the board of supervisors, and senior management and make timely corrections in accordance with the regulatory requirements.
In addition, PBC notified that a work conference on the self-regulatory mechanism of interest rate pricing was held in June 2021. During the conference, the plan for improving the self-regulatory management of deposit rates and the Self-Regulatory Initiative on Strengthening the Management of Public Information Disclosure were reviewed and adopted; moreover, recommended templates of agreement regarding the conversion of the benchmark rates for domestic USD loans were discussed. PBC has guided the interest rate self-regulatory mechanism to study and develop the recommended templates of agreement regarding the domestic floating-rate USD loans, which are applicable to new contracts referring to USD London Interbank Offered Rate (LIBOR), existing contracts referring to USD LIBOR, and new contracts referring to the Secured Overnight Financing Rate (SOFR), respectively. From the date of issuance, when concluding any floating-rate USD loan contracts, financial institutions may directly refer to the templates or make adjustments as applicable to their actual situations. With respect to non-USD floating-rate loan contracts, financial institutions may take relevant steps as suggested by the regulatory authorities of the currency-issuing economies and in accordance with their actual business conditions. Templates of agreement regarding domestic LIBOR derivatives are soliciting opinions from all parties concerned and will be released in the near future.
Related Links (in Chinese)
Keywords: Asia Pacific, China, Banking, Insurance, Governance, Internal Control, Disclosures, Operational Risk, ESG, Interest Rate Benchmarks, LIBOR, Interest Rate Risk, SOFR, Benchmark Reforms, PBC, CBIRC
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