The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions. Among the various recently issued rules, the regulator is also seeking comments, until January 09, 2023, on the draft measures for country risk management of banking institutions.
The rules on managing the risk of off-balance sheet businesses of commercial banks extend the definition of off-balance sheet activities, add up new types of off-balance sheet activities, and build up an overall and unified system for off-balance sheet management and risk control. The rules also address the nature of risk, legal relationship and the corresponding management requirements of off-balance sheet activities in all kinds. The rules consist of 47 articles in 6 chapters, including general provisions, governance structure, risk management, information disclosure, supervision and regulation, and supplementary provisions. The rules emphasize that commercial banks should establish and improve the risk management system of off-balance sheet business under the principles of full coverage of management, classified management and risk orientation, to reinforce off-balance sheet risk management, standardize off-balance sheet activities, and strengthen external supervision. The rules also put forward information disclosure requirements, stipulate the content, frequency, and form of disclosure as well as information disclosure by cooperative institutions to enhance business transparency. CBIRC has comprehensively revised the Guidelines on Risk Management of Off-Balance Sheet Business of Commercial Banks and formed the Rules on Risk Management of Off-Balance Sheet Business of Commercial Banks, which shall come into force on January 01, 2023. The revisions are aimed to provide better guidance for commercial banks on off-balance sheet business development and effectively prevent and resolve financial risks.
The revised rules on supervisory assessment of corporate governance of banking and insurance companies consist of 33 articles in five chapters, including general provisions, assessment criteria and methods, assessment procedures and division of responsibilities, assessment results and application, and supplementary provisions. The revised rules improve the assessment scope, assessment mechanism, assessment indicators, and application of assessment results, among others. In the original version of rules, only commercial banks and commercial insurance companies are included in the scope of assessment, while the revision extends the assessment scope to rural cooperative banks, financial asset management companies, financial leasing companies, corporate group finance companies, auto finance companies, consumer finance companies, money brokerage firms, and so on. The rules effectively improve the assessment mechanism and CBIRC will allocate assessment resources in accordance with the assessment results. In principle, supervisory assessment will be conducted for the banking and insurance institutions at least once a year. However, for institutions whose assessment results are Grade B (good) or above, the assessment frequency can be appropriately reduced. Supervisory assessment will adopt a mix of off-site and on-site assessment, with on-site assessment shall be conducted to the supervised institutions every three years. The regulatory authorities are required to focus on the banking and insurance institutions with corporate governance supervisory assessment results of grade D or below and initiate early intervention and timely correction for their major corporate governance risks, to prevent those institutions from hiding the risks and avoid amplification of risks. These rules take effect on the date of promulgation and CBIRC will start to make the work plan for the supervisory assessment of corporate governance of banking and insurance institutions in 2023.
The draft rules on country risk management of banking institutions are intended to revise and replace the Guidelines on Country Risk Management of Banking Institutions. Ther rules retain the framework of the Guidelines with 43 articles in five chapters. The key revisions are as follows. The Guidelines do not specify a uniform standard for the measurement of country risk exposure, while the revision has made it clear based on the principle of comprehensive risk coverage. Also, in view of the problem of repeated provisions arising from the inconsistency between the Guidelines and the new accounting standards, the revision includes country risk reserve under owner’s equity as an integral part of general reserve, which is required to meet the regulatory requirements of the Ministry of Finance on general reserve. The revision improves the scope and proportion of provisions for country risk and refines the content and text regarding the division of banking institutions’ country risk management responsibilities, the relevant restrictive requirements for country risk transfer, and the identification of country risk levels of international organizations or institutions. Finally, the revised rules set out a six-month transition period for new provision requirements for country risk. Meanwhile, the existing country risk reserve before the promulgation and implementation of the Rules is not subject to accounting adjustment.
Other proposed and final rules issues by the CBIRC include the following:
- Rules on comprehensive regulatory rating of foreign bank branches (Trial), with the rules taking effect on the date of their issuance. These rules shall apply to branches established by financial institutions in the Mainland of financial institutions in the Hong Kong Special Administrative Region, the Macao Special Administrative Region, and the Taiwan Region.
- Draft rules on supervision and administration of custody business of commercial banks and on administration of auto companies, with the comment period ending on January 29, 2023.
- Rules on consumer rights protection applicable to banking and insurance institutions, with effective date of March 01, 2023.
Related Links (in English and Chinese)
- Rules on Off-Balance Sheet Business
- Rules on Corporate Governance
- Draft Rules on Country Risk Management
- Rules on Foreign Bank Branches
- Draft Rules on Custody Business
- Draft Rules on Auto Financing
- Rules on Consumer Protection
Keywords: Asia Pacific, China, Banking, Off Balance Sheet Businesses, Governance, Disclosures, Reporting, CBIRC, Basel, Credit Risk, Country Risk, Foreign Bank Branches, Taiwan, Macao, Hong Kong
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