Name: Corporate Governance Guidelines for Commercial Banks (the “Guidelines”) (Draft for Consultation)
Issuing authority: China Bank Regulatory Commission (the “CBRC”)
Consultation period: ending on 25 August 2011
Subject: Corporate governance of commercial banks
The CBRC has published draft corporate governance guidelines for PRC commercial banks for public consultation. The Guidelines seek to strengthen corporate governance of commercial banks and to provide clear and consistent guidance for all commercial banks and other CBRC-regulated financial institutions, such as trust companies. Once officially issued, these Guidelines will replace the various existing rules on corporate governance for various types of commercial banks.
Highlights
- The Guidelines apply to commercial banks (“banks”) and financial asset management companies which have restructured as joint stock companies. Other CBRC-regulated financial institutions are required to use the Guidelines as a reference point to improve their corporate governance.
- In relation to shareholders, the draft Guidelines propose:
- where a bank’s capital does not meet regulatory requirements, a shareholder with 5% or more of the shareholding or voting rights, or which has significant influence over decision making of the bank (a “major shareholder”) must not prevent other shareholders from injecting new capital, or other qualified new investors from investing in the bank;
- major shareholders must make long term written commitments as to capital replenishment and liquidity support for the bank, which commitments will form part of the bank’s capital and liquidity contingency plans;
- the articles of association of the bank must provide that the voting rights of a shareholder at the general meeting of shareholders, and those of any directors nominated by it at board meetings, will be limited if any credit provided by the bank to that shareholder is overdue;
- except in the case of a bank with a sole shareholder, a shareholder cannot nominate both a director and a supervisor whose terms overlap (unless otherwise approved by the CBRC); further, directors nominated by a single shareholder, or its affiliates, cannot in principle make up more than one third of the board.
- In relation to the board of directors, the draft Guidelines propose:
- the board of directors must set up specialised committees, such as strategy, audit, risk management, related-party transactions, nomination and remuneration committees. These committees can be separate or combined depending on the circumstances of the bank;
- in principle, the chairman or CEO of a bank cannot simultaneously serve as the chairman of a company in which the bank has invested, unless otherwise approved by the CBRC;
- the articles of association must provide that major matters (including approval of dividend distribution, material investments or disposals, restructuring and employment of senior management personnel) cannot be voted on by way of written resolution. In addition, such matters require the approval of at least two thirds of the board.
- The draft Guidelines propose to clarify the rules on nomination and selection of directors:
- generally, director candidates may be nominated by the nomination committee of the outgoing board; shareholders who individually or jointly hold 3% or more of the voting shares of the bank can also nominate director candidates;
- the nomination committee will conduct a preliminary review of the nominated candidates and submit a list of the eligible candidates to the board; following board approval, the candidates will be put to the general meeting of shareholders for approval;
- candidates for independent director positions may be nominated by the nomination committee and by shareholders who individually or jointly hold 1% or more of the voting shares of the bank, but a shareholder who has already nominated a director is precluded from nominating an independent director;
- an independent director cannot cumulatively serve on the board of directors of a bank for more than six years and cannot simultaneously serve on the boards of more than two banks.
- Similar to independent directors, the draft Guidelines propose that an external supervisor cannot cumulatively serve on the supervisory board of a bank for more than six years.
- Once officially issued, the Guidelines will replace the existing (i) Guidelines on Corporate Governance and Related Supervision of Stated-owned Commercial Banks, (ii) Guidelines on Corporate Governance of Joint Stock Commercial Banks, (iii) Guidelines on the Independent Director and External Supervisor Regimes of Joint Stock Commercial Banks, (iv) Guidelines on Due Diligence of Board of Directors in Joint Stock Commercial Banks, (v) Guidelines on Corporate Governance of Foreign-funded Banks and (vi) Guidance Opinion on Further Perfecting the Corporate Governance of Small to Medium Commercial Banks.
If you would like to discuss anything regarding this Alert please contact Fang Jian (Shanghai/Beijing), Nicola Mayo (Shanghai), Simon Poh (Shanghai), or Betty Yap (Hong Kong).
