China Issues Regulations on the Supervision and Administration of Financing

Time:2017-08-22   Source:Source: Xinhua News Agency

Premier Li Keqiang signed the Regulations on the Supervision and Administration of Financing

BEIJING, Aug. 21 (Xinhua) -- Premier Li Keqiang recently signed the Regulations on the Supervision and Administration of Financing, which shall take effect on October 1, 2017.

The financing guarantee industry plays an important role in developing inclusive finance, promoting fund accommodation, and addressing the problem of small and micro enterprises and agriculture, rural areas, and farmers being unable to access loans or having to pay high interest to secure loans. In recent years, China’s financing guarantee industry has developed rapidly. However, there exist various problems such as ineffective regulation, improper operations, and weak willingness and ability to serve small and micro enterprises and agriculture, rural areas, and farmers. The Regulations can increase policy support, improve regulatory systems and help to guard against risks to promote the healthy development of the financing guarantee industry, and thus better serve small and micro enterprises and agriculture, rural areas, and farmers.

According to the Regulations, China will promote the establishment of the government-led financing guarantee system, encouragement the development of government-supported financing guarantee companies, establish the cooperation mechanism involving government, banking financing institutions and financing guarantee companies, expand financing guarantee services for small and micro enterprises and agriculture, rural areas, and farmers, and keep their financing costs at a relatively low level. Fiscal departments at various levels shall provide financial support for financing guarantee companies that mainly serve small and micro enterprises and agriculture, rural areas, and farmers. Government-supported financing guarantee companies shall enhance their abilities to use big data and other modern information technology means to serve the financing needs of small and micro enterprises, as well as agriculture, rural areas and farmers. Financing guarantee companies incorporated in the government-backed financing guarantee risk sharing mechanism shall, pursuant to relevant provisions of the State, reduce the service fees they charge for providing financing guarantee for small and micro enterprises and agriculture, rural areas, and farmers.

According to the Regulations, a financing guarantee company shall establish and improve its business regulations, risk management systems and other internal control systems, and measure its outstanding guarantee liabilities according to the risk weights stipulated by the State; the outstanding guarantee liabilities of a financing guarantee company shall not exceed ten times its net assets, or 15 times if it mainly serves small and micro enterprises and agriculture, rural areas, and farmers; a financing guarantee company shall use its proprietary funds pursuant to the provisions of the State on the safety and liquidity of the assets of financing guarantee companies, and shall not take deposits directly or in any disguised form, engage in proprietary lending or entrusted lending business, or make investment upon entrustment.

The Regulations clarifies the supervisory and regulatory system for financing guarantee companies. It stipulates that the departments designated by people’s governments at provincial level (“Department of Supervision and Administration”) shall be responsible for the supervision and administration of financing guarantee companies in their respective regions. People’s governments at provincial level shall be responsible for formulating policy measures that promote the development of the financing guarantee industry in their respective regions, disposing of the risks of financing guarantee companies, and urging Departments of Supervision and Administration to perform duties strictly as required. The State Council shall establish an inter-ministerial joint conference for the regulation of financing guarantee business. The Regulations also specifies the main responsibilities and specific regulatory measures of Departments of Supervision and Administration, and the regulatory requirements that all financing guarantee companies shall meet.

 

 

Full text:
Decree No. 683 of the State Council
The Regulations on the Supervision and Administration of Financing was endorsed at the 177th executive meeting of the State Council on June 21, 2017, and is hereby published. The Regulations shall come into effect on October 1, 2017.

Li Keqiang
Chinese Premier
August 2, 2017

 

Regulations on the Supervision and Administration of Financing


Chapter 1: General Provisions

Article 1      These Regulations are formulated with a view to supporting the development of inclusive finance, promoting the circulation of funds, regulating the behavior of financing guarantee companies and guarding against risks.

Article 2      For the purpose of these Regulations, financing guarantee shall refer to the activities whereby guarantors provide guarantee for the borrowing of funds, issuance of bonds and other debt financing activities of the guaranteed parties. For the purpose of these Regulations, financing guarantee companies shall refer to limited liability companies or companies limited by shares that are duly established and engage in financing guarantee business.

Article 3      When carrying out business, a financing guarantee company shall abide by laws and regulations, pursue prudent operations, uphold honesty and integrity, and refrain from prejudicing national interests, social and public interests and the legitimate rights and interests of others.

Article 4      The departments designated by the people's governments of all provinces, autonomous regions and municipalities directly under the Central Government (hereinafter referred to as the "Department of Supervision and Administration") shall be responsible for the supervision and administration of financing guarantee companies in their respective regions.

The people's governments of all provinces, autonomous regions and municipalities directly under the Central Government shall be responsible for formulating policy measures that promote the development of the financing guarantee industry in their respective regions, disposing of the risks of financing guarantee companies, and urging Departments of Supervision and Administration to perform duties strictly as required.

The State Council shall establish an inter-ministerial joint conference for the regulation of financing guarantee business which shall be responsible for developing the systems of supervision and administration of financing guarantee companies, coordinating and resolving the major issues during the supervision and administration of financing guarantee companies, and urging and guiding local people's governments to supervise, administer and dispose of the risks of financing guarantee companies. The inter-ministerial joint conference for the regulation of financing guarantee business shall be led by the banking regulatory authority of the State Council, and consist of relevant departments of the State Council.

Article 5      The State shall promote the establishment of a government financing guarantee system, develop government-backed financing guarantee companies, establish cooperation mechanisms among governments, banking financial institutions and financing guarantee companies, expand the size of financing guarantee business for small and micro-enterprises as well as the agricultural industry, rural areas and farmers, and maintain relatively low levels of fees and charges.

The finance departments of people's governments at all levels shall provide financial support for financing guarantee companies that mainly serve small and micro-sized enterprises as well as the agricultural industry, rural areas and farmers by way of injecting capital, establishing a risk sharing mechanism, etc. Specific measures in this regard shall be formulated by the finance department of the State Council.

Chapter 2: Establishment, Change and Termination of Financing Guarantee Companies

Article 6      The establishment of a financing guarantee company shall be subject to approval by the relevant Department of Supervision and Administration.

The name of a financing guarantee company shall explicitly include the words of financing guarantee.
Without approval by Departments of Supervision and Administration, no entity or individual may engage in financing guarantee business, and no entity may use the words of financing guarantee in its name, unless otherwise prescribed by the State.

Article 7      A proposed financing guarantee company shall be in compliance with the Company Law of the People’s Republic of China, and meet the following requirements before it may be established:

(1) The shareholders of the proposed company shall enjoy good reputation, and have no record of any grave violation of laws and regulations in the past three years;

(2) The registered capital of the proposed company shall not be less than RMB 20 million, and shall be paid up in cash;

(3) The proposed directors, supervisors and senior management personnel of the proposed company shall be familiar with the laws and regulations on financing guarantee business, and possess the working experiences and management abilities needed to perform their duties; and

(4) The proposed company shall have sound business standards, risk control and other internal management systems.

All provinces, autonomous regions and municipalities directly under the Central Government may raise the minimum amount of registered capital stipulated in the preceding Paragraph according to the actual economic development level and the actual developments of the financing guarantee industry in their respective regions.

Article 8      To apply for the establishment of a financing guarantee company, an applicant shall submit to the relevant Department of Supervision and Administration a written application and materials proving that it satisfies the conditions prescribed by Article 7 herein.

The Department of Supervision and Administration shall make a decision on approval or non-approval within 30 days from the date of acceptance of the application. Where the application is approved, the said department shall issue the permit for financing guarantee business to the applicant; and, where the application is not approved, the said department shall notify the applicant in writing, and explain the reasons therefor.

Financing guarantee companies established upon approval shall be announced by Departments of Supervision and Administration.

Article 9      A financing guarantee company shall obtain approval from the relevant Department of Supervision and Administration before merger, division or reduction of its registered capital.
Where it sets up a branch within the geographical scope of the province, autonomous region or municipality directly under the Central Government where it is domiciled, changes its name, changes any shareholder holding 5% or more of its equity or replaces any director, supervisor or senior management person, a financing guarantee company shall go through record-filing procedures with the relevant Department of Supervision and Administration within 30 days from the date of establishment of the branch or the date of change. Relevant matters after the changes shall be in compliance with Paragraph 2 of Article 6 and Article 7 herein.

Article 10      To establish a branch in a province, autonomous region or municipality directly under the Central Government that is different from where it is domiciled, a financing guarantee company shall satisfy the following conditions, and obtain approval from the Department of Supervision and Administration at the domicile of the proposed branch:

(1) The registered capital of the financing guarantee company shall not be less than RMB one billion;

(2) The financing guarantee company shall have been engaging in financing guarantee business for three years or longer, and shall be profitable for the past two consecutive fiscal years; and

(3) The financing guarantee company shall have no record of grave violations of laws and regulations in the past two years.

The procedures and deadlines for examination and approval by the Department of Supervision and Administration at the domicile of the proposed branch shall be governed by Article 8 herein.

The financing guarantee company shall report relevant situations to the Department of Supervision and Administration at its domicile within 30 days from the date of establishment of the branch.

The Department of Supervision and Administration at the domicile of a branch established by a financing guarantee company in a province, autonomous region or municipality directly under the Central Government that is different from where it is domiciled shall be responsible for the daily supervision and administration of the branch, while the Department of Supervision and Administration at the domicile of the financing guarantee company shall render cooperation.

Article 11      Where it is dissolved, a financing guarantee company shall set up a liquidation team pursuant to the law to carry out liquidation, and make clear arrangements for succession to the financing guarantee liabilities that have not become due. The liquidation process shall be subject to supervision by the relevant Department of Supervision and Administration.

Where it is dissolved or declared bankrupt pursuant to the law, a financing guarantee company shall hand back its permit for financing guarantee business to the relevant Department of Supervision and Administration for deregistration, and the said department shall also issue an announcement thereon.

Chapter 3: Business Rules

Article 12      In addition to financing guarantee business such as guarantee of borrowings and guarantee of bond issuance, a financing guarantee company with stable operations and a favorable financial position may also engage in non-financing guarantee business such as guarantee of bid submission, guarantee of project performance and guarantee of litigation preservation, as well as consulting and other services related to guarantee business.

Article 13      A financing guarantee company shall, in accordance with the principle of prudent operations, develop and improve business rules in terms of the review of financing guarantee projects, post-guarantee management, recourse against liabilities for repayment on behalf of borrowers, etc., as well as risk management and other internal control systems.

Government-backed financing guarantee companies shall enhance their abilities to use big data and other modern information technology means to serve the financing needs of small and micro-sized enterprises, as well as the agricultural industry, rural areas and farmers.

Article 14      A financing guarantee company shall measure its outstanding guarantee liabilities according to the risk weights stipulated by the State.

Article 15      The outstanding guarantee liabilities of a financing guarantee company shall not exceed ten times its net assets.

The maximum multiple prescribed in the preceding Paragraph may be raised to 15 with regard to a financing guarantee company that mainly serves small and micro-sized enterprises as well as the agricultural industry, rural areas and farmers.

Article 16      The outstanding guarantee liabilities of a financing guarantee company vis-à-vis the same guaranteed party shall not exceed 10% of the net assets of the financing guarantee company, while the outstanding guarantee liabilities of a financing guarantee company vis-à-vis the same guaranteed party and its affiliated parties shall not exceed 15% of its net assets.

Article 17      A financing guarantee company shall not provide financing guarantee for its controlling shareholder and actual controller. When a financing guarantee company provides financing guarantee for other affiliated parties, the conditions shall not be more favorable than those for providing similar guarantee for non-affiliated parties.

Where it provides financing guarantee for an affiliated party, a financing guarantee company shall report relevant information to the relevant Department of Supervision and Administration within 30 days from the date when guarantee is provided, and disclose the same in the notes to financial statements.

Article 18      A financing guarantee company shall accrue corresponding reserves in accordance with relevant provisions of the State.

Article 19      Financing guarantee rates shall be determined by a financing guarantee company and a guaranteed party upon consultation.

A financing guarantee company included in the financing guarantee risk sharing mechanism whose establishment is being pushed by the government shall lower financing guarantee rates applicable to small and micro-sized enterprises as well as the agricultural industry, rural areas and farmers in accordance with relevant provisions of the State.

Article 20      Where registration is required pursuant to the law when a guaranteed party or a third party provides counter-guarantee for a financing guarantee company in the form of mortgage or pledge, the relevant registration authority shall handle such registration pursuant to the law.

Article 21      A financing guarantee company shall be entitled to require a guaranteed party to provide information such as business activities and financial conditions related to financing guarantee.

A financing guarantee company shall provide the creditor of a guaranteed party with information such as business activities and financial conditions related to financing guarantee.

Article 22      A financing guarantee company shall use its proprietary funds pursuant to the provisions of the State on the safety and liquidity of the assets of financing guarantee companies.

Article 23      A financing guarantee company shall not engage in any of the following activities:

(1) To take deposits directly or in any disguised form;

(2) To engage in proprietary lending or entrusted lending business; or

(3) To make investment upon entrustment.

Chapter 4: Supervision and Administration

Article 24      A Department of Supervision and Administration shall establish and improve supervision and administration systems, use big data and other modern information technology means to monitor risks in a real-time manner, strengthen off-site regulation and on-site inspection of financing guarantee companies, and work with relevant departments to establish a supervision and administration coordination mechanism and an information sharing mechanism.

Article 25      A Department of Supervision and Administration shall, according to the business size, main service targets, internal management level, risk profile, etc. of each financing guarantee company, conduct supervision and administration of financing guarantee companies in a classified manner.

Article 26      A Department of Supervision and Administration shall submit statistical data of financing guarantee companies within its regions to the people's government at the same level and the banking regulatory authority of the State Council in accordance with the relevant financing guarantee statistical compilation system of the State.

Article 27      A Department of Supervision and Administration shall analyze and evaluate the development of the financing guarantee industry in its regions and the supervision and administration thereof, report relevant information obtained after such analysis and evaluation to the people's government at the same level and the banking regulatory authority of the State Council on an annual basis, and announce such information to the public.

Article 28      When conducting on-site inspection of a financing guarantee company, a Department of Supervision and Administration may take the following measures:

(1) Entering the premises of the financing guarantee company to carry out inspection;

(2) Making inquiries to the staff members of the financing guarantee company, and asking them to give explanations on relevant matters under inspection;

(3) Inspecting the computer information management system of the financing guarantee company; and

(4) Inspecting and duplicating the documents and materials of the financing guarantee company that are related to the matters under inspection, and sealing up the documents, materials and electronic equipment that may be transferred, concealed or destroyed.

On-site inspection shall be subject to approval by the person in charge of the Department of Supervision and Administration. During on-site inspection, there shall be at least two inspectors who shall produce lawful documents and inspection notices.

Article 29      A Department of Supervision and Administration may, according to the needs for performing duties, arrange regulatory talks with the directors, supervisors and senior management personnel of a financing guarantee company, and require them to give explanations on the business activities and risk management of the financing guarantee company.

A Department of Supervision and Administration may inform the creditor of a guaranteed party of the violations of laws and regulations or the risks of the relevant financing guarantee company.

Article 30      Where it finds that the business activities of a financing guarantee company may cause material risks, a Department of Supervision and Administration may, upon approval by its primary person-in-charge, take any of the following measures depending on actual circumstances:

(1) Ordering the financing guarantee company to suspend certain business;

(2) Restricting the size and manner of use of proprietary funds by the financing guarantee company; or

(3) Ordering the financing guarantee company to stop setting up any additional branch.

The financing guarantee company shall take timely measures to eliminate material risk hazards, and report relevant situations to the Department of Supervision and Administration. Where material risk hazards are confirmed to have been eliminated upon final inspection acceptance by the Department of Supervision and Administration, the said department shall lift the relevant measures prescribed in the preceding Paragraph within three days upon the completion of final inspection acceptance.

Article 31      A financing guarantee company shall, pursuant to relevant requirements, submit business reports, financial reports, annual auditor's reports issued by certified public accountants and other documents and materials to the relevant Department of Supervision and Administration.

Where a financing guarantee company conducts business in multiple provinces, autonomous regions and municipalities directly under the Central Government, the said company shall report business development situations to the Department of Supervision and Administration at its domicile and those in the places where it has business presence on a quarterly basis.

Article 32      A financing guarantee company shall cooperate with the supervision and inspection carried out by the relevant Department of Supervision and Administration pursuant to the law, and shall not refuse to accept, or obstruct, such supervision and inspection.

Article 33      A Department of Supervision and Administration shall establish and improve the credit record system of financing guarantee companies. The credit records of financing guarantee companies shall be included in the national credit information sharing platform.

Article 34      A Department of Supervision and Administration shall, in conjunction with other relevant departments, establish an early warning, prevention and handling mechanism for the major risk events of financing guarantee companies, and formulate contingency plans for the major risk events of financing guarantee companies.

Where it experiences a major risk event, a financing guarantee company shall promptly take emergency response measures, and report relevant information to the Department of Supervision and Administration concerned in a timely manner. The said department shall promptly handle the major risk event, and report relevant information to the people's government at the same level, the banking regulatory authority of the State Council and the People's Bank of China.

Article 35      Departments of Supervision and Administration and their staff members shall keep confidential the trade secrets that come to their knowledge during supervision and administration.

Chapter 5: Legal Liabilities

Article 36      Where a perpetrator, in violation of these Regulations, establishes a financing guarantee company or engages in financing guarantee business without approval and authorization, the perpetrator shall have the financing guarantee company banned or be ordered to cease financing guarantee business by the relevant Department of Supervision and Administration, be given a fine of not less than RMB 500,000 but not more than RMB one million, have its illegal gains, if any, confiscated, and be investigated for criminal liabilities pursuant to the law if criminal offenses are constituted.

Whoever violates these Regulations and uses the words of "financing guarantee" in its name without approval shall be ordered by the relevant Department of Supervision and Administration to make correction within the prescribed time limit. Where it fails to correct by the prescribed deadline, the perpetrator shall be given a fine of not less than RMB 50,000 but not more than RMB 100,000, and have its illegal gains, if any, confiscated.

Article 37      A financing guarantee company that falls under any of the following circumstances shall be ordered by the relevant Department of Supervision and Administration to make correction within the prescribed time limit, be given a fine of not less than RMB 100,000 but not more than RMB 500,000, and have its illegal gains, if any, confiscated; and, where it fails to correct by the prescribed deadline, the financing guarantee company shall be ordered to suspend business for rectification, and shall be revoked of its permit for financing guarantee business under grave circumstances:

(1) Where the financing guarantee company undergoes merger or division without approval;

(2) Where the financing guarantee company reduces its registered capital without approval; or

(3) Where the financing guarantee company sets up a branch in any province, autonomous region or municipality directly under the Central Government that is different from where it is domiciled without approval.

Article 38      A financing guarantee company shall be ordered by the relevant Department of Supervision and Administration to make correction within the prescribed time period if it fails to go through record-filing pursuant to these Regulations after changing relevant matters or if relevant matters after the change are not in compliance with these Regulations; and, where it fails to correct by the prescribed deadline, the financing guarantee company shall be given a fine of not less than RMB 50,000 but not more than RMB 100,000, and shall be ordered to suspend business for rectification under grave circumstances.

Article 39      A financing guarantee company that makes investment upon entrustment shall be ordered by the relevant Department of Supervision and Administration to make correction within the prescribed time limit, be given a fine of not less than RMB 500,000 but not more than RMB one million, and have its illegal gains, if any, confiscated; and, where it fails to correct by the prescribed deadline, the financing guarantee company shall be ordered to suspend business for rectification, and shall be revoked of its permit for financing guarantee business under grave circumstances.

A financing guarantee company that takes public deposits directly or in any disguised form, or engages in proprietary or entrusted lending business shall be punished in accordance with relevant laws and administrative regulations.

Article 40      A financing guarantee company that falls under any of the following circumstances shall be ordered by the relevant Department of Supervision and Administration to make correction within the prescribed time limit; and, where it fails to correct by the prescribed deadline, the financing guarantee company shall be given a fine of not less than RMB 100,000 but not more than RMB 500,000, have its illegal gains, if any, confiscated, may be ordered to suspend business for rectification, and shall be revoked of its permit for financing guarantee business under grave circumstances:

(1) Where the ratio of the outstanding guarantee liabilities of the financing guarantee company to its net assets is not in compliance with relevant requirements;

(2) Where the financing guarantee company provides financing guarantee for its controlling shareholder or actual controller, or where the conditions by which the financing guarantee company provides financing guarantee for other affiliated parties are more favorable than those for providing similar guarantee for non-affiliated parties;

(3) Where the financing guarantee company fails to accrue corresponding reserves in accordance with relevant provisions; or

(4) Where the financing guarantee company fails to use its proprietary funds pursuant to the provisions of the State on the safety and liquidity of the assets of financing guarantee companies.

Article 41      Where a financing guarantee company fails to submit business reports, financial reports, annual auditor's reports or other documents, materials or business development information to the relevant Department of Supervision and Administration, or fails to report any major risk event that has occurred, pursuant to relevant provisions, the financing guarantee company shall be ordered by the Department of Supervision and Administration to make correction within the prescribed time limit, and be given a fine of not less than RMB 50,000 but not more than RMB 200,000; and, where it fails to correct by the prescribed deadline, the financing guarantee company shall be ordered to suspend business for rectification, and shall be revoked of its permit for financing guarantee business under grave circumstances.

Article 42      A financing guarantee company that falls under any of the following circumstances shall be ordered by the relevant Department of Supervision and Administration to make correction within the prescribed time limit, and be given a fine of not less than RMB 200,000 but not more than RMB 500,000; where it fails to correct by the prescribed deadline, the financing guarantee company shall be ordered to suspend business for rectification, and shall be revoked of its permit for financing guarantee business under grave circumstances; where its acts constitute violations of public security administration, the financing guarantee company shall be punished in accordance with the Law of the People's Republic of China on Public Security Administration; and, where its acts constitute criminal offenses, the financing guarantee company shall be investigated for criminal liabilities pursuant to the law:

(1) Where the financing guarantee company refuses to accept, or obstructs, the supervision and inspection carried out by the Department of Supervision and Administration pursuant to the law;

(2) Where the financing guarantee company provides the Department of Supervision and Administration with false business reports, financial reports, annual auditor's reports or other documents and materials; or

(3) Where the financing guarantee company refuses to implement the measures taken by the Department of Supervision and Administration in accordance with Paragraph 1 of Article 30 herein.

Article 43      Where a financing guarantee company is fined in accordance with these Regulations, its directors, supervisors and senior management personnel subject to direct liabilities may be given a fine of up to RMB 50,000 at the same time depending on specific circumstances.

Where a financing guarantee company commits grave violations of these Regulations, the relevant Department of Supervision and Administration may prohibit the directors, supervisors and senior management personnel of the financing guarantee company who are subject to direct liabilities from serving as the directors, supervisors and senior management personnel of financing guarantee companies for a certain period of time or for life.

Article 44      Staff members of Departments of Supervision and Administration shall be given disciplinary sanctions pursuant to the law if they abuse power, neglect duties or practice favoritism for personal gains in carrying out supervision and administration of financing guarantee companies, and shall be investigated for criminal liabilities pursuant to the law if their acts constitute criminal offenses.

Chapter 6: Supplementary Provisions

Article 45      The financing guarantee industry organization shall, in accordance with laws, regulations and its articles of association, play the role of service, coordination and industry self-discipline, and guide financing guarantee companies to engage in business pursuant to the law and compete fairly with each other.

Article 46      Relevant provisions of the State shall apply where government funds or government departments directly set up operating agencies to engage in financing guarantee business for the purpose of promoting employment and entrepreneurship, etc.

These Regulations shall not apply where rural mutual assistance financing guarantee organizations carry out guarantee business or where guarantee for forestry rights reserves is carried out between and among forestry business operators.

Article 47      The administrative measures for financing re-guarantee companies shall be separately formulated by the banking regulatory authority of the State Council in conjunction with other relevant departments of the State Council, and be submitted to the State Council for approval.

Article 48      A financing guarantee company established prior to the effective date of these Regulations shall satisfy the conditions prescribed herein within the time limit prescribed by the relevant Department of Supervision and Administration if it currently fails to satisfy the conditions prescribed herein. The financing guarantee company shall not engage in new financing guarantee business if it still fails to satisfy the prescribed conditions beyond the prescribed deadline.

Article 49      The Regulations shall come into effect on October 1, 2017.

 

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