China’s CBRC to harmonise regulation for foreign banks and Chinese-funded banks

To further implement President Xi Jinping’s pledges for China to open up its financial sectors to foreign investment, the new China Banking and Insurance Regulatory Commission (“CBIRC”), which was established on 8 April 2018 through the merger of functions between the China Banking Regulatory Commission and the China Insurance Regulatory Commission, has recently announced several reform measures which provide further detail of this milestone reform in China.

The reform measures, as published on CBIRC’s website on 27 April 2018, outline the key policy priorities summarised below.

Ease of establishment: To make it easier for foreign banks and insurance companies to set up new presences in China, CBIRC announced that it would pass separate rules to:

  • allow foreign banks to establish and maintain branches and wholly foreign-owned banks at the same time; and 
  • remove the nation-wide requirement for a foreign insurance company to have a representative office in China for two years before being eligible to set up a foreign invested insurance company in China.

Foreign investment reform: CBIRC announced that it would pass separate rules to remove the following caps on foreign ownership in the banking and insurance sectors:

  • removing foreign ownership caps in domestic-funded banks and financial asset management companies;
  • different percentage threshold rules that apply to domestic and foreign shareholdings in domestic-funded banks and financial asset management companies to be harmonised; 
  • removing foreign ownership caps in financial asset investment companies, and wealth management companies, newly established by commercial banks; and
  • liberalising the foreign ownership cap in life insurance companies to 51 per cent. and removing the cap in three years.

Broadening the business scope of foreign-funded banks: CBIRC announced the following measures to broaden the business scope of foreign-funded banks:

  • allowing branches of foreign-funded banks to act as issuance agent, settlement agent and underwriter of government bonds;
  • allowing qualified foreign banks in China to authorise their branches to conduct renminbi (RMB) business and derivatives trading business activities;
  • further rules to be issued to implement the following:
    • abandoning the requirement for foreign-funded banks to have conducted business in China for at least one year before applying to conduct RMB business; and
    • lowering the threshold for branches of foreign-funded banks to accept single RMB retail deposits from RMB1,000,000 to RMB500,000.

Broadening the business scope of foreign invested insurance agencies: Also on the same day, CBIRC announced that all foreign invested insurance agencies in China that possess an insurance agency business permit issued by the China Insurance Regulatory Commission would, with immediate effect, be able to conduct the same insurance agency business activities as their domestic-funded counterparts in China, including:

  • prepare insurance proposals, select insurers and handle the process of buying insurance policies for policyholders;
  • assist insured parties and beneficiaries with the claims process;
  • reinsurance brokerage activities;
  • provide consultancy services in relation to disaster and loss insurance, risk assessment and risk management; and
  • other business activities as may be permitted by CBIRC.

CBIRC also announced that separate measures would be adopted to broaden the range of permitted business activities open to foreign investors in China, including enabling qualified foreign investors to conduct insurance agency and insurance loss adjustment business in China.