PRC FINANCIAL
REGULATION

2022

Annual Report

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lawyers. We are not responsible for any results of any actions (whether action or omission) taken in reliance upon the whole or any part of the contents of this report. You
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PRC Financial Regulation- Annual Report (2022)
Contents

Contents
01

Preamble

02

General15

Banking

25

Securities and Futures

36

Asset Management / Wealth Management

46

FinTech57

Insurance

67

Authors

PRC Financial Regulation- Annual Report (2022)
Preamble

Preamble
2021 was a year of significance, as in 2021, China embarked on its

as looking ahead to the likely developments in 2022 in financial

Fourteenth Five-Year Plan and marched on from its first centenary

regulations, to provide practical and forward-looking guidance for all

goal towards its second centenary goal of becoming a great modern

those engaged in financial services.

socialist country and achieving the rejuvenation of the Chinese
nation. 2021 was also a year full of challenges, as China faced the

We are dedicated to provide effective, creative and timely legal

recurrent menace of COVID-19 and the volatile intricacies of theservices to meet the commercial needs of our clients. We have beeninternational environment. Against the long-term coexistence ofworking in the financial services sector for many years, advisingsuch opportunities and challenges, the financial regulators, in its

both domestic and overseas clients on their most cutting-edge andregulation, continued to uphold the underlying principle of pursuingcomplex legal issues in China’s financial services sector. We offer anprogress while ensuring stability and the overarching policy of reform

in-depth understanding of the market and considerable transaction

and innovation, in further support of the high-quality development ofexperience to deliver a highly valued service to our clients. We look

China’s economy.

forward to discussing with you the recent reforms in China’s financial
policy and direction of development of financial regulations.

With the deepening of reforms and continuing innovation oftechnology, the concept, framework and system of financial

We welcome and highly appreciate feedback from those working

regulation in China will enter a new phase in 2022. This year is also thedirectly in the financial services industry. Please feel free to get backthird year we present our PRC Financial Regulation Annual Report. For

to us with any comments or suggestions on the content of this report.

this new edition of the PRC Financial Regulation Annual Report (2022)
series, we provide a comprehensive review of the principal themes

To review the old and gain the new, we look forward to stepping intoof 2021 covering milestone events, main regulatory developments

the new journey of 2022 with you!

and key trends in the banking, securities, asset management/ wealthmanagement, financial technology and insurance sectors, as well

FANG Jian

Grace Yu

Siyuan Pan

Ada Zou

Partner, Fangda Partners
jian.fang@fangdalaw.com

Partner, Fangda Partners
grace.yu@fangdalaw.com

Partner, Fangda Partners
siyuan.pan@fangdalaw.com

Partner, Fangda Partners
ada.zou@fangdalaw.com

specializing in cutting-edge M&Atransactions, financial markets
regulations and PE investment.

specializing in legal andregulatory issues of financial
regulations, and M&A.

specializing in M&A and PE
investment.

specializing in financial market
regulation, corporate M&A,
China-related outbound andinbound M&A, and general
corporate matters.

01

>>>>>PRC Financial Regulation:
Annual Report (2022)
General02

PRC Financial Regulation- Annual Report (2022)
General2021 Key Dates
February 7
The Anti-monopoly Commission of the State Council
formulated and issued the Guidelines for Anti-monopoly
in the Field of Platform Economy.

March 1The Amendment (XI) to the Criminal Law was formally
implemented, which introduced much severer criminal
punishment against financial crimes.

June 4
The PBOC accepted the first batch of applications forthe establishment of financial holding companies by
CITIC Group and China Everbright Group.

June 10
The Data Security Law and the Anti-Foreign Sanctions Law
were voted through and announced.

July 6
The General Office of the CPC Central Committee
and the General Office of the State Council issued theOpinion on Tightened Crackdown On Illegal Securities
Activities in accordance with the Law and Regulation.

July 16
The national trading market for carbon emission rights
opened.

September 3
The Beijing Stock Exchange officially opened, andrelated rules were subsequently issued.

September 24
The “South-bound Trading Connect” of bond markets wasofficially launched.

September 30
The PBOC issued the Measures for the Administration ofCredit Reporting Business.

October 19
The businesses of Guangdong-Hong Kong-Macao Greater
Bay Area "cross-border wealth management" werelaunched.

November 1
The Personal Information Protection Law came into effect.

December 8-10
The 2021 Central Economic Work Conference was held,and five new major theoretical and practical issues were
put forward, which would direct the future financial
regulation policies.

03PRC Financial Regulation- Annual Report (2022)
General2021 Regulatory Observations

01

in line with the concept of "green finance" and "rural finance",“Economic Development” served as themain theme and financial regulation
focused more on the real economy

manufacturing enterprises, science and technology innovationenterprises, and small and medium-sized enterprises equippedwith special and sophisticated techniques to produce unique andnovel products ( 专 精 特 新 ) have all received policy support in
2021. Among them, small and medium-sized enterprises that apply

Having the financial sector focus more on financing the “realspecial and sophisticated techniques to produce unique and novel

economy” (as opposed to the “fictitious economy”) and improving

products have enjoyed special treatment after they were granted

the institutional arrangements to provide medium and long-termwith a strategic position to break the global technical foreclosure.

funding to the real economy were set out as one of the long-term

We anticipate there will be more policies in favor such enterprises.

development objectives for the PRC economy in the 14th Five-year
Plan for National Economic and Social Development and the Outline
for Perspective Goals in 2035 (《十四五规划和 2035 年远景目标纲要》). This served as the principal guide for regulators in 2021.

02

In the 2021 Government Work Report (《2021 年 政 府 工 作 报告 》), the State Council pointed out that we needed to give more
prominence to the real economy, and the relationship between

Stringent regulation maintained andheightened law enforcement remained

economic recovery and risk prevention needed to be well managed.
The specific measures promulgated in 2021 echoed the above

There are increasingly stringent regulations applying to the financial

policy:sector, a process that began a few years ago and showed no sign ofeasing in 2021.

• continuing to strictly control the real estate sector (to avoid
the real economy's fund resources being squeezed by the real

In terms of legislation, the Administrative Penalties Law (《estate sector),行

政 处 罚 法 》) revised in July 2021 extended the time period for• guaranteeing sufficient supply and stable prices of bulk

punishing illegal acts "involving financial security and causing

commodities

harmful consequences" to five years (the general time period for• reducing transaction fees charged by payment agencies andadministrative penalties is two years), reflecting the trend thatbanks

regulatory actions against illegal financial conduct are gradually• increasing credit loans and first-time loans

being strengthened. New regulations such as the Measures for• promoting the pay-as-you-go lending model

Administrative Penalties against Illegal Activities relating to Securities• developing new models for providing supply chain financial

and Futures (《 证 券 期 货 违 法 行 为 行 政 处 罚 办 法》) have been

services

issued to provide support for law enforcement by financial• deferring repayment of loans granted to micro, small andregulators.

medium-sized enterprises, and increasing credit loans to micro,
small and medium-sized enterprises

In terms of law enforcement, regulators are imposing heavier fines
for transgressions. In the first nine months of 2021, CBIRC and its

These policies underlined the approach taken by decision-makers

branches levied administrative fines of RMB1.9 billion (comparedand regulators to give more support to the real economy and thatwith RMB 2.3 billion for the whole of 2020). In May, the CBIRC

the financial system should be geared more towards benefitting theimposed a total fine of RMB366 million on five major banks (including

real economy.

state-owned banks, foreign banks and joint-stock banks). Eleven trust
companies were fined in total RMB45 million in 2021, an indication

In terms of the groups who will benefit from the changing policythat the authorities are addressing failings in the trust sector.

and regulatory focus, in addition to the traditional "inclusive
finance" entities (small and micro enterprises and individual

The capital markets (which are mainly governed by CSRC) havebusinesses), “green development entities” and agricultural entities

04

PRC Financial Regulation- Annual Report (2022)
Generalalso been subject to more stringent regulation. At the start of 2021,

in the capital markets, consisting of the Ministry of Public Security,

the CSRC noted that there were quite a few problems in PRC’s

the Supreme Court and the Supreme Procuratorate. Subsequently,

capital markets, such as the increasing frequency of financial fraud,

the Supreme Procuratorate set up a procuratorial office branch inmarket manipulation, insider trading and lack of due diligence by

the CSRC, and the CSRC, together with public security authorities

intermediaries. Zero tolerance was shown to a number of financial

and procuratorial authorities, investigated 19 major cases in 2021,

institutions for violating laws and regulations, including Since LeTV,

including several major cases involving market manipulation

Brilliance Bonds, and Yongmei Bonds.

(including Nanling Minbao, KTK Group and Haozhi Industrial).

The CSRC expanded its scope of regulation and has started toregulate overseas listings of Chinese companies and the use of(Variable-Interest Entity) VIE structures. The delisting of Kangdexin

03

and the verdict rendered against Kangmei Pharmaceutical for its
accounting fraud and false disclosure are further indications that the
CSRC is taking a tough line on securities-related violations.

Governance of local financial institutions
strengthened and new structure emerged
between central and local financial
regulations

Over the past year, we have seen a greater focus on data protection
and consumer protection. Because of the nature of the businessIn 2021, the central government introduced differentiated financial

conducted by financial services companies, both data protection

regulations from one locality to another, significantly strengthened

and consumer protection are key concerns because of the volumes

the regulation of local financial markets and institutions, and furtherof data processed. Regulators have come down hard on those founddelineated the responsibilities of local regulators.

to have been in breach of data protection and consumer protection
laws. For example, the Ministry of Industry and Information

The central government lent greater encouragement and support

Technology (MIIT) has repeatedly issued reprimands on mobile APPs

towards local financial activities and financial innovation. As a result,for "illegal collection of personal information", and a number of banks

many policies favorable to local financial institutions (including

and internet financial institutions (e.g., WeChat, PPDai, WeLab) havequasi-financial institutions) were introduced:

been publicly criticized.

• the innovation policies in Hainan and Guangdong-Hong KongMacao Greater Bay Area effectively broadened the policy

At the start of 2021, the PBOC set out a number of further measures

frameworks for local pilot financial activities;

that it proposed to introduce to boost data and consumer protection• the Standing Committee of the National People's Congress

for the benefit of financial service consumers. These concerned

made an exceptional delegation for the Shanghai Municipal

financial advertisements and a better system for reporting

People's Congress to independently formulate regulations

complaints. Among the transgressions reported by the CBIRC in 2021

specifically for Pudong New Area, positioning Pudong New Area

are illegal tied sales (where consumers were forced to buy linked

as a quasi-Special Economic Zone;

financial products), excessive charges, standard form contracts, non-

• Hainan, Chongqing, Guangdong (outside Shenzhen) andcompliance in providing joint loans, and inadequate management of

Jiangsu were all approved to carry out Qualified Domesticcollections.

Limited Partners ("QDLP") business and were each approved
with an overseas investment quota of US$5 billion;

There has been closer cooperation between administrative• Qingdao was once again approved with an overseas investment

authorities and criminal judicial authorities in securities-related

quota of US$3 billion

activities in law enforcement. In September 2021, the CSRC,• Shenzhen Qualified Domestic Investment Enterprise (QDIE)

according to the Opinions on Strictly Cracking Down on Securities-

pilot system was updated and restarted;

related Illegal Activities (《关于依法从严打击证券违法活动的意见》)• Guangdong-Hong Kong-Macao Greater Bay Area “Cross-Borderissued by the General Office of the Central Committee of the CPC and

Wealth Management Connect” had its first batch of businesses;

the General Office of the State Council, took the lead in establishing• Shanghai was approved to pilot a regional equity market fora coordination working group for cracking down on illegal activities

transfer of interest in private equity funds and venture funds.

05

PRC Financial Regulation- Annual Report (2022)
GeneralAt the same time, local licensed financial institutions became subject

With the increasingly strict enforcement of policy governing theto greater regulation.While granting more flexible disposal tools,

financial services sector, small and medium banks have been required

greater responsibilities were put on local regulatory authorities.

to support local businesses and been restricted from conducting
business outside their localities, including accepting deposits fromFirstly, local governments are responsible for dealing with, andthose outside their area. In this connection, the Regulations on Local

disposing of, financial risk. At the meeting of the Political Bureau of

Financial Supervision and Administration(《地方金融监督管理条例》),

the Central Committee on July 30, the implementation of “the fiscal

were also published at the end of the year to invite public comment.

and financial risks disposal mechanism under the responsibility of
local governmental leaders" was specifically introduced. The special
local government bonds specifically for capital replenishment ofsmall and medium-sized banks is a good example. Many provincial

04

governments have injected capital into small and medium-sizedbanks by virtue of issuing such bonds (for example, Henan Province
invested RMB 25.7 billion into18 rural credit cooperatives and 22

Targeted regulation on FinTech applied
while applicable measures adopted topromote and regulate the sectorrural commercial banks). As of September 2021, the RMB200 billion
quota of special local government bonds provided by the Ministry of
Financial technology (FinTech) businesses have seen a twin-tracked

Finance had been nearly exhausted.

approach in 2021. On the one hand, the authorities have clamped
Secondly, the principle of "one institution, one policy" and "onedown on financial activities using internet platforms, while on the otherplace, one policy" was put forward to encourage the merger andhand, they have been encouraging licensed institutions which wererestructuring of small and medium-sized financial institutions.

traditionally trusted by the regulators to continue with innovation.

The CBIRC issued the Notice on Further Promoting the Reform and
Restructuring of Township and Village Banks to Resolve Risks (《 关 于As was the case in 2020, regulators continued to operate on the basis that进一步推动村镇银行化解风险改革重组有关事项的通知》) at thethe "the essential attribute of FinTech is finance" and that "the conduct

beginning of 2021. On April 8, the Financial Stability Board calledof financial business must be licensed". They continued to rein in internet

on well-performing institutions to merge with risky institutions.

companies attempting to break into the financial sector under the banner

Examples of this include Sichuan Bank, Shanxi Bank and Liaoshen

of FinTech. The 2021 government work meeting called for "strengtheningBank.

the regulation on financial holding companies and FinTech to ensure
financial innovation to be carried out under the premise of prudent

The corporate governance of local financial institutions was anotherregulation". The meeting further required Internet companies to operatearea to which regulators paid attention and was the subject of a

FinTech with necessary financial licenses (including the licenses ofmeeting held on April 8 by the Financial Stability Board. At that

financial holding company or licenses of credit rating).

meeting, there was a discussion about the financial weaknesses ofa number of financial institutions, poor internal governance and aThose internet companies carrying out financial technology businessneed to enforce regulations against leaders of such institutions who

have been required by the regulations to comply with regulations

had been in breach of the law - the regulations obviously focused on

governing data security, anti-monopoly, protection of financial

the major violations of laws and regulations caused by insider control

consumers' rights and interests, and clarification of the boundaries

that were common in local financial institutions.. We understand thatbetween different financial products on the Internet platform. Other

further reform of local small and medium-sized financial institutions

controls were placed on specific FinTech products, for example:• the STAR Market in April explicitly restricted FinTech companies fromhas been put on the agenda. In addition, the meeting of the Financial

listing;

Stability Board decreed that it was necessary to “support and guide• prohibitions from carrying out cryptocurrency-related business; andlocal financial institutions to focus on their main business, establish• cutting off the direct information connection ( 信息断直连 )their business based on local conditions, return to their roots, andbetween internet platforms and financial institutions proposed inserve local small and micro-sized businesses”.

mid-2021

06

PRC Financial Regulation- Annual Report (2022)
General

In 2021, there were a number of regulations introduced to coverencouraged the use of regulatory sandboxes in respect of innovations in

distribution of financial products on Internet platforms (including deposit

the capital markets, again securities companies and fund managementloans, wealth management products and insurance):companies are the primary applicants.

• Internet deposits: the regulators issued the Notice on Regulating
the Relevant Matters of Commercial Banks' Personal Deposit Business

Second, the CBIRC at its annual work meeting in January also encouraged(《关于规范商业银行通过互联网开展个人存款业务有关事项的

large banks to pass on their FinTech knowledge to small and medium-通知》) through the Internet on January 13 2011, putting an end

sized banks so as to reduce the dependence of small and medium-sized

to the practice by commercial banks of soliciting deposits throughbanks on Internet companies engaged in FinTech.

third-party Internet channels;• Internet loans: the Interim Measures for the Administration of Internet

Third, in addition to relying on licensed institutions such as large banks

Loans of Commercial Banks (《商业银行互联网贷款管理暂行办

to carry out FinTech business, the regulators have also been active in法》) promulgated at the end of 2020 and the Notice on Further

helping to develop FinTech. For example, the digital currency researchStandardizing Internet Loan Business of Commercial Banks (《关于institute of the PBOC has set up a number of FinTech subsidiaries all进一步规范商业银行互联网贷款业务的通知》)promulgated onover the country. In addition to its continued promotion of research andFebruary 19 prohibited locally incorporated banks from conducting

development of digital currency and electronic payments, it will be worth

Internet loan business "beyond the place of registration";watching whether the PBOC will leverage its FinTech subsidiaries in• Wealth management products of banks: The Interim Measuresvarious localities for regulation.

for Sales Management of Wealth Management Companies' WealthManagement Products (《理财公司理财产品销售管理暂行办法》), officially released on May 27 limited the institutions qualified to
distribute wealth management products to wealth management
subsidiaries of banks and banks. Neither Internet platforms nor

05

third-party distribution institutions were allowed to distributewealth management products. Although the CBIRC also proposed
to extend the scope of qualified distributors of wealth management

Regulators remained determined todissolve risks while facing increasing
challenges

products to cover other financial institutions on an informal basis,
it is expected that such institutions will only include professional
In 2020, there were a number of high-profile restructurings or

financial institutions such as securities companies.

disposals of financial institutions, such as Jinzhou Bank and• Internet insurance business; the Measures for the Supervision ofInternet Insurance Business (《互联网保险业务监管办法》) came

Baoshang Bank, as the authorities endeavored to remove high-risk

into effect in February, abolishing the “client diverting cooperation

institutions. This process continued in 2021 as regulators continued

mode between insurance institutions and third-party network

to eliminate risk from the system. A number of actions were taken:

platforms in the previous rules, and instead requiring the Internet• certain institutions such as Dajia Insurance were constantly
soliciting strategic investors;

insurance product distribution and service platforms to be the self-• risk dissolution in respect of a few trust companies, including

operated platforms of the insurance companies themselves.

Sichuan Trust, was closely planned or implemented;• the 1-year takeover period of the nine members of the

At the same time, the regulators have been keen to promote FinTech
innovation by traditional financial institutions (such as banks), in several

Tomorrow Group (which was taken over in July 2020 by CBIRC

ways.

and CSRC) was prolonged after the asset audits and capital
verification was completed;• certain large private enterprises at risk of default on repaying

First, there was good progress in the use of “regulatory sandboxes”. Moredebts had their situations resolved;

than 90% of the innovative applications of nearly 120 PBOC regulated• the remediation of financial exchanges was delayed due to thesandboxes announced as of November 2021 were initiated by banks or

impact of COVID-19, but restarted in December 2021.

jointly by banks and third parties; all seven participants in the "out-ofbox" projects announced as of November 2021 were banks. As regulators

07

PRC Financial Regulation- Annual Report (2022)
General06

As mentioned in the 2020 PBOC Work Conference, the focus of
regulators is now shifting to prevention, control and managementof financial risk on a regular basis. As a result, some certain areas
thought to be of high risk continued to be closely monitored.
First, regulators addressed a number of activities that wereMore reforms introduced to the capital
markets, and remarkable developments
for derivatives occurred

In 2021, regulators made a number of significant changes to theconsidered to be high-risk. These included reducing the number of

way in which capital markets operate with a view to making themshadow banks, targeting “irregularities” in the trust sector, stepping

operate more efficiently. This was additional to the continued

up the disposal of non-performing assets, and cooperating with

enforcement against securities violations. There have been moves

local governments to resolve hidden debt risks;

to simplify administrative procedures, fill in regulatory gaps, andpromote market-oriented reforms in the regulatory regimes andSecond, in order to prevent the spread of risks from large enterprises

law enforcement . A “white list” of quality securities companies was(such as HNA and Evergrande) spreading to the financial sector,

introduced, regulations on listing companies were consolidated,financial regulators have also been closely involved in helping debt-

and administration on equity management of securities companies

ridden enterprises to manage their debts;

was relaxed to some extent, reflecting the regulators’ determination
to “simplify administration, delegate power, improve regulation and

Third, regulators aimed to improve financial institutions’ ability to

upgrade services”.

handle risks by themselves. Regulators stepped up their supervisionof “systemically important” financial institutions to ensure they

The gaps in regulation were being filled in. The draft of Futures

manage risks properly and enhance their capability to resolve risks

and Derivatives Law (《 期 货 和 衍 生 品 法（ 草 案 ）》) wentby themselves, while also putting in place a frame on banks andthrough a second review, the draft of Interim Regulations on theinsurers formulating their resolution and recovery plans;

Administration of Private Equity Investment Funds was nearly readyto start the review process, the credit rating system was substantially

Fourth, regulators were remorseless in targeting internet financerestructured and there will be new regulations covering overseas

and illegal fundraising. The primary target of the Regulations on thelistings by companies with VIE structures.

Prevention and Disposal of Illegal Fundraising (《 防 范 和 处 置 非 法
集 资 条 例 》) issued in 2021 was illegal fundraising in the guise of

The CSRC demonstrated its determination to reform its securities“internet finance” or “financial technology”. Other activities such as

regulation. The scope of pilot projects covering fund investment

P2P, blockchain, cryptocurrencies, mutual insurance, crowdfunding

advisory businesses was widened, 10 securities companies wereand pension finance were also included in the risk prevention

approved to carry out lead underwriting services for the issue oftargets, and regulators adopted the approach of preventing or

corporate credit bonds in the interbank market, new delisting rules

addressing stage problem areas at an early stage in respect of illegal

were frequently put into practice, and the first Securities Arbitration

fund-raising.

Center was established in Shenzhen – all these actions help to shapea more market-oriented capital market.
Meanwhile, the Measures for the Implementation of the Rules for
the Undertakings Made by the Parties to Securities and Futures
Administrative Law Enforcement (《证券期货行政执法当事人承诺
制度实施办法》) and the detailed implementation rules came into
effect. The tenor of these rules is to encourage compliance rather
than penalizing those in breach, pointing to the direction of marketoriented law enforcement and civil law enforcement.
Added to the various reforming measures, special attention should
be given to the following developments in the derivatives regime:08

PRC Financial Regulation- Annual Report (2022)
General07• the draft of Futures and Derivatives Law (《期货和衍生品法（草案）》) underwent second review;• in October, three new types of financial derivatives transactions
were open to QFIs;

Regulatory regime for new financial areas
such as Green Finance and Rural Financewere further established and launched• in November, support was given to the concept of close-out
netting in applicable regulations with the aim of promoting

As an important part of the 14th Five-Year Plan, new financial

China as a applicable jurisdiction to the close-out netting inconcepts such as carbon neutrality, green finance, rural revitalization

the international market;

and common prosperity were gradually landed in 2021, becoming• in December, the consultation draft of Guiding Opinions on

more and more systematic.

Promoting the Standardized Development of Derivatives Business(《关于促进衍生品业务规范发展的指导意见》的征求意见The blueprint for green finance and rural finance was depicted in

稿 ) was published to seek public comment, with the goal of

the Guiding Opinions on Accelerating the Establishment of a Sound

unifying regulatory requirements for OTC derivatives.

Economic System with Green, Low-carbon and Circular Development(《关于加快建立健全绿色低碳循环发展经济体系的指导意见》)

It is therefore quite likely that the above rules will provide a

promulgated on 2 February and the Opinions on Comprehensively

foundation for financial institutions to participate in derivatives

Promoting Rural Revitalization and Accelerating Agricultural and Ruraltransactions and promote the development of the OTC derivatives

Modernization (《关于全面推进乡村振兴加快农业农村现代化的意

market.

见 》) promulgated on 21 February. The Government Work Reportpublished on 5 March stated that the beneficiaries of government’s

In response to the problems that emerged in the wake of previous

benefit concessions should include green development, small

reforms designed to boost the market, the CSRC revisited details ofand micro enterprises, individual businesses and new agriculturalsome of the previous reform measures. In 2021 March, the Chairman

operators. The Law on the Promotion of Revitalization of Rural Areasof CSRC publicly pointed out the market and intermediary agencies(《 乡 村 振 兴 促 进 法》) promulgated in April directly defined thewere “unprepared” for the “registration-based IPO”, and emphasized

responsibility framework of financial institutions in rural financethat the quality of companies listing should not be compromised

from legal level. The Financial Stability Committee meeting heldby the implementation of the registration-based IPO regime. The

on 21 May emphasized the direction of “deepening the reform

authorities subsequently slowed down the process of promotingof financial institutions” and encouraging financial institutions to

the registration-based IPO regime. The CSRC took remedial actions“return to the origin, adhere to their positioning, and follow a green

against the previous fast-paced reform by imposing on the STARapproach in investment and financing”. Meanwhile, a series of newmarket more stringent qualifications for “Sci-tech” and “innovative”

regulations on rural revitalization bills (inheriting poverty alleviation

issuers, promulgating new information disclosure rules, andbills) and carbon neutrality debt products were issued in 2021.

prolonging the lock-up period for new shareholders who invest
within certain period before IPO. The CSRC stated again that smooth

The above new financial concepts have been gradually transformed

reforms to IPO registration require solid and careful political,

from abstract policies into specific implementing rules. Take

ideological, professional and technical preparations.

"carbon neutrality" as an example, traditional green financial
products mainly include green credit products, with few capital
market products or tools for green finance. In 2021, green bonds,
green funds and carbon futures boomed, highlighting the gradualintroduction and improvement of green finance in the capital
market system. And more regulatory initiatives are expected tofollow (such as opening a convenient channel for green enterprises
to get prioritized listing guidance, guiding the reduction of green
stock fees, and so on.). The concept of “common prosperity” subtly
influencing the asset management/wealth management industry is
also worth noting. This concept originated in the 1990s as a national

09

PRC Financial Regulation- Annual Report (2022)
Generalpolicy, and was reintroduced in 2021 in encouraging developments

by the U.S. Department of Treasury's Office of Foreign Assetsof financial products tailored to household wealth management

Control ("OFAC") (SDN, CSL, etc.) have long been recognized asneeds and emphasizing the importance of financial products

an important compliance guideline for conducting cross-borderinvolving individuals.

businesses, while with the introduction of the Anti-foreign Sanctions
Law, the Blocking Rules and the Provisions on the Unreliable Entity

According to the 2022 PBOC Work Conference held on 27 December

List, financial institutions now have to consider both the PRC and2021, financial support for the "four key areas - small and micro

overseas sanctions-related legislation, and may even face a dilemma

enterprises, science and innovation, green economy and ruralin certain situations.

economy" will still be increased in 2022. We anticipate that thedirections of the above policies will become increasingly clear

The existing anti-sanctions laws and regulations are, to ain 2022 and beyond, prompting the regulatory authorities tocertain extent, more declarative than for intended for actual

introduce more specific regulations to achieve policy alignment. As

implementation, so there still exists uncertainty in the specificthe opening year for the 14th Five-Year Plan, 2021 is undoubtedly aapplication by financial institutions in practice. For example, thestarting point for relevant regulatory efforts.

issues that are subject to further detailed provisions include but
are not limited to the detailed procedures for issuing or revoking
relevant countermeasures or injunction, the reconciliation between
the sanctioned persons listed by the Ministry of Foreign Affairs
and the AML, anti-terrorism and anti-tax evasion lists maintained08

by the PBOC, and the specific scope of the affiliates of sanctioned

A preliminary anti-foreign sanctions legal
framework was in place, new fields offinancial compliance emerged

persons (e.g. "organizations actually controlled by, or establishedand operated by, any individual or organization on the counterchecklist") that are subject to restriction measures.

Following the promulgation of the Provisions on the Unreliable Entity
List《不可靠实体清单规定》(), the Export Control Law《出口管制法》()
and other relevant laws and regulations in the second half of 2020,
the Rules on Blocking Unjustified Extra-territorial Application of Foreign
Legislation and Measures (《阻断外国法律与措施不当域外适用办
法》)(the “Blocking Rules”) and the Anti-foreign Sanctions Law (《反外国制裁法》) came into force in 2021, which together constitutethe preliminary framework of China's anti-foreign sanctions laws
and regulations.
On the whole, China's anti-foreign sanctions laws and regulations
are “countermeasures”-oriented, the starting point of which is
to oppose “hegemonism and power politics”, especially to takecountermeasures against the abuse of sanctions and long-arm
jurisdiction by other countries, rather than taking initiatives toimpose long-arm jurisdiction over various cross-border transactions.
Despite that, there is still much to be clarified, the overall framework
is in place as can be seen from the laws and regulations that havebeen promulgated so far. For financial institutions (especiallythose operating in a multinational jurisdiction), U.S. and European
sanctions-related laws,, including sanctions lists established10

PRC Financial Regulation- Annual Report (2022)
General2022 Regulatory Outlook01

of traditional policies to some small or new financial institutions

Construction of financial rule of law will bestrengthened, and financial regulatory policies
will seek progress while keeping stable

which previously were not covered, such as establishing risk isolation
mechanism between wealth management subsidiaries and parent
companies, improving quantitative regulatory requirements for nonbanking financial institutions, and continuously improving microgovernance of local small and medium-sized financial institutions. In

The 2021 Central Economic Work Conference called for strengthening

addition, the related systems of traditional large financial institutions

the construction of financial rule of law and set the tone of "seeking

will also usher in innovation. In addition to the Financial Stability Law

progress while keeping stable ", which means that the financial

to be promulgated as mentioned above, the revised drafts of theregulatory policies in 2022 will maintain full continuity on each major

Commercial Bank Law (《商业银行法》), the Law of the People’s Bank

policy, but will also be improved and adjusted on the micro level.

of China (《中国人民银行法》) and the Anti-Money Laundering Law(《反洗钱法》), which have been specified in the legislative plan of

Financial risk disposal will progress in an orderly way, and shift to

the National People's Congress in 2021, have sought public opinions"organically combining risk disposal and reform and development".

and been effectively reviewed in 2021, and are highly expected to

From the legislative perspective, in 2022, the Financial Stability

come into effect in 2022. And the revised draft of the Insurance Law

Law (《 金 融 稳 定 法 》) is expected to be issued, the measures for(《保险法》) is expected to be published for public comments. The

identification and assessment of systemically important insurance

promulgation of several "fundamental laws" in the financial industry is

and securities institutions and additional regulations applicable toexpected to change the fundamental regime governing the financial

such institutions are expected to be released, and the formulationindustry, and 2022 is be expected to be a new "year of rule of law inof regulations related to the market-oriented bankruptcy or

financial regulation".

reorganization of financial institutions will also be initiated. Fromthe perspective of law enforcement, systems such as major financial

In 2022, the opening-up of the financial industry will be more focusedrisk accountability and financial risk notification will be further

on "institutionalization" and "high level". As far as "institutionalization"

implemented and play a more important role, conforming to theis concerned, the existing market access for individual foreign

position of "compacting the responsibilities of local authorities,

institutions, commodities and other elements has reached afinancial regulatory authorities, industry authorities and other parties,

considerable magnitude. On this basis, it will undoubtedly becomeand compacting the self-rescue responsibility of enterprises" of thea new direction to "institutionalize" the opening-up which would

2021 Central Economic Work Conference.

primarily involve conforming with the international high-standard
market rules and systems. As far as "high level" is concerned,

It is also worth mentioning that, according to the 2021 Central

considering the saturation of the market by foreign institutions, "high-Economic Work Conference, from the regulatory perspective, risk

quality introduction" will be to actively introduce high-quality foreign

disposal is no longer just a passive crisis response, instead, regulators

institutions with professional advantages to operate in China. And

are seeking to "combine risk disposal with deepening reform andthe CSRC has repeatedly mentioned that it will strictly regulate "fakepromoting high-quality development". Sole risk prevention will

foreign investments". In terms of cross-border regulatory cooperation,

gradually give way to promoting risk disposal through reform, so as toSino-US audit regulation cooperation is expected to make substantial

achieve "fundamentally prevent and resolve various risks with high-progress.

quality development" (from Vice Premier Liu He, Must Achieve HighQuality Development (《必须实现高质量发展》), in November).

With RMB internationalization (through international monetary
cooperation and the development of offshore RMB market) andIn respect of financial institutions system reform, after the intensive

deepening of interconnection between the mainland and Hong Kong

rectification of corporate governance of banking, insurance andmarkets and other relevant matters progressing smoothly, 2022 willsecurities institutions in the past two years, the focus in 2022 will

see the start of strict regulation of cross-border financial services.

be summarizing the previous experience, solidifying relevant
rules, and solving problems relating to diversified incentives for
employees. At the same time, one of the cores of reforming financial
institutions regulated by the CBIRC lies in the continuous application

11

PRC Financial Regulation- Annual Report (2022)
General02

market, financial fraud, illegal private equity, cross-border financial

Cracking down on Illegal Financial
Activities under "Administrative andCriminal Cooperation"

services and virtual currencies.
In terms of judicial system, issues such as the liability of intermediaries
in the capital market are still controversial (for example, there is a viewthat the criteria applied in the Kangmei case and the previous WuyangThis current crackdown on illegal financial activities has been fullycase are not consistent). In 2022, more precedents will surface in theimplemented with the parameters of the current regulatory system,judicial practice of investors' litigation related to securities related

and continuous legislative improvements and judicial safeguards haveillegal activities, making it a more mature and foreseeable judicial

provided systemic protection and new ”weapons” for cracking down

system.

on illegal financial activities. It is expected that in 2022, the legislative,
law enforcement and judicial systems will continue to go hand in handto crack down on relevant financial illegal activities including illegal
activities related to securities and futures.

03

In terms of legislation, the reconciliation and integration of the
Administrative Penalty Law (《 行 政 处 罚 法 》) into the existing
financial regulatory measures will be an important agenda for financial

Continuous Promotion of Governanceover Financial Institutions

regulation legislation. However, this should not prevent financial
regulators from invoking the provisions of the Administrative Penalty

High-quality, scientific and modern corporate governance is the

Law to enforce financial irregularities on a wider scale than before.

basis for financial institutions to control risks. Since 2020, regulatory
authorities have issued a large number of policy documents on

In terms of law enforcement, after the promulgation of thecorporate governance and other matters, including corporate

Amendment (XI) to the Criminal Law ( 刑 法 十 一 修 正 案 ), the CBIRC

governance guidelines for banking and insurance institutions,and the CSRC have also publicly stated that they will cooperate withregulation of behaviors of major shareholders, management of

the implementation of the Amendment (XI) to the Criminal Law andrelated-party transactions, remuneration kickback, performancestrengthen the coordination of law enforcement and justice. In lightevaluation of directors and supervisors, etc. (some of which are stillof the focus on the imposition of criminal liability in the Opinions ondraft for comment). The CBIRC has released four batches of lists

Strictly Cracking Down On Illegal Securities Activities in accordance withof shareholders who have seriously violated laws and regulations

the Law and the Regulation (《关于依法从严打击证券违法活动的意

in 2021, and completed the regulatory assessment of corporate见 》) on the Prevention and Treatment of Illegal Fund-raising (《 防 范governance of banking and insurance institutions for 2021 in

和处置非法集资条例》), it is expected that the enforcement efforts

November. The CSRC launched a special campaign to improveto impose criminal penalties on illegal financial activities constituting

governance of securities, futures and fund management institutions

crimes will be further strengthened, and more joint enforcement

in August.

actions are on the way. In terms of specific law enforcement, the 2021
Central Economic Work Conference proposed for the first time to "set a

The year 2022 will be the completion year of the Three-year Action Plan

'traffic light' for the capital". On this basis, the CSRC further proposed tofor Improving Corporate Governance in Banking and Insurance Sectors"strictly supervise the financing and M&A activities in specific sensitive(2020- 2022) （《健全银行业保险业公司治理三年行动方案（2020-

areas, and work with relevant parties to establish and perfect the2022 年 ）》）. The CBIRC disclosed on December 2 that althoughinstitutional mechanism to prevent disorderly expansion of capital".

initial achievements have been made in the corporate governance of

We believe in 2022 the CSRC will take this as the general principle

banking and insurance institutions, the situation is still complex andof having a targeted and strengthening supervision over the capitalsevere, and some typical corporate governance problems such as

markets. In addition to traditional capital markets illegal activities suchmajor shareholder manipulation and insider control still exist in someas fraudulent issuance, false statement and market manipulation, we

institutions. The CSRC also pointed out that important rules governing

understand that the regulatory authorities will also crack down on

the equity management, internal control and senior management ofillegal activities in specific areas such as M&A, debt evasion in the bond

12

PRC Financial Regulation- Annual Report (2022)
General04

the CSRC regulated institutions, such as fund companies and futurescompanies, are expected to be released or will be further modified.
Therefore, we believe that the year 2022 is still in the strong regulatory
cycle, and continuous improvement in the laws and regulations

More Refined Regulations for Financial
Consumer Protection

and further rectification activities for the relevant industries suchas self-examinations by institutions and on- site inspections by the

Financial consumer protection has become an increasing focus of

regulatory authorities are likely to occur in 2022.

financial regulation in recent years. The Financial Stability Report(2021) (《 金 融 稳 定 报 告（2021）》) points out that protecting the

In the “new stage” of enhancing governance of financial institutions,legitimate rights and interests of financial consumers is an objective

the regulatory emphasis on the governance of financial institutions

requirement in the era of Fintech, and the importance of financial

will be different. The CBIRC and the CSRC will further requireconsumer protection has become increasingly prominent in theinstitutions to strengthen the organic integration of the Party's

internet wave. In addition, financial consumer protection inspections

leadership and corporate governance. The follow-up micro-

have been frequent in recent years and often accompanied by penalties

governance of financial institutions is likely to focus on close

along with a public criticism, making it a clear regulatory focus. Against

supervision and high-pressure supervision of local financial

this backdrop, it is expected to witness a considerable development

institutions, and adopt more specific and targeted measures such aswith more refined regulations for financial consumer protection in

restricting the behaviors of "top officers". In addition, the diversified

2022.

employee incentive mechanisms of financial institutions will havea progress in 2022, however, against the political background of

From the legislative perspective, the CBIRC Notice on Promulgation ofemphasizing the goal of “common prosperity” ( 共 同 富 裕 ) andthe Measures for Regulatory Evaluation of Protection of Consumer Rights"reasonably adjusting excessively high income", the compensation

and Interests by Banking or Insurance Institutions (《 中 国 银 保 监 会

system and incentive mechanism of financial institutions may关于印发银行保险机构消费者权益保护监管评价办法的通知》)

face stronger regulatory pressure. We believe the “unreasonableissued in July 2021 replaced the previous version, further clarified theassessment mechanism”, guaranteed stable income, excessive

specific evaluation system for annual supervisory inspections, andincentive and other problems may be subject to strict inspection andprovided more operational guidance for financial institutions to deal

regulation.

with supervision and make corresponding rectification. It is expectedthat more guidance will be issued in 2022. In August 2021, Liu Guiping,
deputy governor of the People's Bank of China, stated in a related
meeting that "We should link with the State Administration of Market
Supervision and strengthen special legislation to promote financial
consumer protection... which should be supported by superordinate
laws", signaling that high-level integrated regulations for financial
consumer protection may be forthcoming. In addition, as the financial
consumer protection field continues to be subdivided, it is possiblethat the financial consumer protection will be jointly promoted by thegeneral provisions of the People's Bank of China and the detailed rulesof other regulatory authorities. Moreover, The Measures for the Protectionof Consumer Rights and Interests by Banking or Insurance Institutions (《银行保险机构消费者权益保护管理办法》), which was originally listed
in the legislative plan of the CBIRC in 2021 (which means it should havecome out in 2021), is expected to come out in 2022.
In terms of financial products, in 2022, the regulatory system andcompliance review of financial products will further focus on productsthat are "closely related to the average people". In October 2021, the13PRC Financial Regulation- Annual Report (2022)
General

CBIRC stated in a press conference of the State Information Officewill be further refined. For financial institutions, especially thosethat the next step in the financial product structure would be tolarge financial institutions with cross-border business or foreign"continue to support commercial insurance institutions to meet thefinancial institutions requiring support from their parent companies,

people's multi-level and personalized health protection needs throughthe progressively stricter legal requirements may overturn thediversified product services." Further, in December 2021 when the pilot

past practice of relatively lenient data cross-border regulationof pension financial products was conducted, the regulator stressed theand prompt them to re-structure their customary group dataneed to properly design the products and protect investors, as well as

governance framework. In fact, several foreign financial institutions

to continually clean up financial products with the disguised name ofhave already been required to provide more details in 2021 about"pension" but did not actually serve the purpose. The above regulatory

the arrangements for cross-border integrated deployment of

direction is also in line with the grand mission of "Inclusive Finance" andsystems and cross-border data transmission, in their applications for"Common Prosperity", and should continue to be implemented in 2022.

financial licenses.
While strengthening the supervision and management of data,
local pilot programs to promote cross-border data transmission are

05

getting underway, such as the opening of a dedicated international

Increasingly tightening regulation of
Financial Data and Data Regulatory
Framework becoming further matured

Internet data channel in Hainan Free Trade Port in 2021, and theannouncement of Shanghai's plan to build an international data
port. We believe that in 2022, there will be a breakthrough in the
supporting infrastructure and industrial system for the safe crossborder transmission of data, and China will continue to explore

With the promulgation and implementation of the Data Security Law

the global transmission of data under the premise of ensuring(《数据安全法》) and the Personal Information Protection Law (《个data security and controllability with some pilot programs to be

人信息保护法》) in 2021, data compliance regulation is becoming

extended to financial institutions.

increasingly stringent.
In addition, as the digital economy industry continues to develop
At the general law level, The Measures for the Security Assessment ofand mature, local legislation in some regions has started to provide

Outbound Data (《 数 据 出 境 安 全 评 估 办 法》) and Network Data

top-level design guidelines for "Data Elementization", "Data

Security Management Regulation (《网络数据安全管理条例》) are

Assetization", "Data Rights Confirmation" and "Data Trading" in 2021,

expected to be issued in 2022. Detailed regulations of financial

and data trading models have been explored in the data exchanges

data protection such as the Financial Data Security-Data Security

established in Beijing and Shanghai. To meet the practical needs

Assessment Regulation (《 金 融 数 据 安 全 数 据 安 全 评 估 规 范》),

of data application, it is expected that national and local laws andwhich has been under consultation for a long time, and the Pilot

regulations along with the supporting systems for data ownership

Measures for Personal Financial Information (Data) Protection (《 个identification and data trading will be gradually issued in 2022. With人 金 融 信 息（ 数 据） 保 护 试 行 办 法》), which is included in thethe development of above legislation as well as further promotion

legislative work plan of the People's Bank of China in 2021, are also

and application of digital currency, it is expected that financial

expected to come out. At the same time, we believe that financial

services and financial products related to data assets such as data

regulatory authorities and data security management authorities

asset pledged financing, data asset insurance, data asset security

will form an efficient and coordinated working mechanism on

and data asset-backed securities will come into being.

data protection in financial activities and give clearer guidance tofinancial institutions on their daily activities related to data.
As for cross-border data transmission, with the promulgationof regulations related to data exporting, the circumstances ofcross-border data transmission that should be subject to security
assessment will soon be clarified and the relevant provisions14

>>>>>PRC Financial Regulation:
Annual Report (2022)
Banking¹

1.“Banking Sector” as discussed in this Chapter includes commercial banks, rural cooperative banks, rural credit cooperatives, policy banks andthe China Development Bank and financial asset management companies, trust companies, enterprise group finance companies, financial leasing
companies, auto finance companies, money brokerage companies, consumer finance companies and other financial institutions as approved by
the banking regulatory authorities and established in the People’s Republic of China.

15

PRC Financial Regulation- Annual Report (2022)
Banking

2021 Key Dates
January 7
January 13

The General Office of the China Banking and Insurance
Regulatory Commission (CBIRC) published the Noticeon Launching the Pilot Program for the Transfer of Nonperforming Loans, implementing the transfer of singlehousehold corporate non-performing loans (NPLs) andbatch transfer of personal non-performing loans on apilot basis.

The General Office of the CBIRC and the General Office of
the People's Bank of China (PBOC) published the Notice on
Issues Concerning Regulating the Personal Deposit Service
Provided by Commercial Banks via the Internet.

March 26

February 19

The General Office of the CBIRC, the General Office ofthe Ministry of Housing and Urban-Rural Development
and the General Office of the PBOC jointly published the
Notice on Preventing the flow of Loans for Business Purposes
illegally into the Real Estate Industry, to strengthen the
supervision over the illegal inflow of loans for businesspurposes into real estate.

The General Office of the CBIRC published the Noticeon Further Regulating the Internet Loan Business ofCommercial Banks, specifying the requirement that thecapital contributed by the cooperative party of the banks
in a single internet loan should be no less than 30% of
the total loan amount.

April 16

April 20

The PBOC published the Measures for the Supervision and
Administration of Anti-money Laundering and Counterterrorism Financing of Financial Institutions, which follows
the Guidelines for Self-assessment of Money Laundering andTerrorist Financing Risks by Corporate Financial Institutions
and the Guidelines for Anti-money Laundering and Counterterrorism Financing in Cross-border Business of Banks (For
Trial Implementation) by the PBOC released in mid-January,continuing the regulation over anti-money laundering
activities of financial institutions.

CBIRC Shenzhen Office approved the subscription by DBS
Bank (Singapore) of about 13% of shares in Shenzhen
Rural Commercial Bank, which makes DBS Bank thefirst foreign bank to invest in small and medium-sized
domestic banks since 2010.

June 3
The CBIRC published the Interim Measures for
Implementation of the Recovery and Disposal Plan for
Banking and Insurance Institutions, which sets out thesteps institutions need to take in the event of major risks,
increasing the need for financial institutions to operate
prudently and as part of the overall desire to reduce riskin the system.

May 25The Supreme People's Court published the Provisions on
Several Issues concerning the Trial of Cases for Civil Disputes
over Bank Cards, specifying the no-fault liability for losses
incurred after a bank card is stolen and used without cardowner’s permission to support consumers' claims against
the card-issuing banks. In December 2021, the CBIRC soughtcomments from the public on the Notice on Further Promoting
the Standardization and Healthy Development of Credit Card
Business, tightening the regulation on interest charges andfees, excessive granting of credit and other issues of credit
cards, and strengthening consumer protection.

June 8The CBIRC published the Notice on Launching the Activity of "Yearfor Developing Internal Control and Compliance Management"
in Banking and Insurance Sectors. In the same month, the CBIRC
issued the Guidelines on Corporate Governance of Banking andInsurance Institutions and also sought public comments on theRegulatory Measures on Behavior of Main Shareholders of Banking
and Insurance Institutions (For Trial Implementation) (Consultation
Paper) (officially released on September 30, 2021) and theAdministrative Measures on Related-party Transactions of Banking
and Insurance Institutions (Consultation Paper)”(officially releasedon January 14, 2022) which overcame some systematicconstraints and all aimed at ensuring banks have better internal
controls and effective compliance management rather thanmerely focusing on compliance of their business operations.

September 15
The PBOC published the Notice on Further Preventing andDisposing of Speculation Risks in Virtual Currency Trading,specifying that financial institutions and non-banking
payment institutions are not allowed to provide services forvirtual currency-related business activities.

September 30
The PBOC and the CBIRC jointly published the Provisions on
Additional Regulation on Systemically Important Banks (For Trial
Implementation) and promulgated the list of “Systemically
Important Banks” and the Administrative Measures on Total
Loss-absorbing Capacity of Global Systemically Important
Banks on October 15 and October 27, respectively, in order tostrengthen the regulation of systemically important banks andimprove the macroprudential policy framework.

November 20
The State Administration for Market Regulation imposed
the most severe penalties on Fujian Baidu Borui Network
Technology Co., Ltd. and China CITIC Bank because of theirfailure to fulfill their reporting obligations under the AntiMonopoly Law when establishing the first direct selling bank,Baixin Bank. This is the first anti-monopoly punishment taken in
the banking sector.

16

PRC Financial Regulation- Annual Report (2022)
Banking

2021 Banking Industry Regulatory Observations

01

Banking sector continues to open up,
cross-border businesses expand

Bay Area has increased the number of cross-border channels forbanks' wealth management business. The Provisions on Matters
Related to Overseas Loan Business of Banking Financial Institutions(Consultation Paper) may, in future, offer more scope for domesticbanking financial institutions to conduct overseas loan businesses.

In 2021, there were further refinements of regulatory policies aimed
at further opening up of China’s banking sector and improving
supervision of foreign investment. In April, the CBIRC issued the02

Notice by the General Office of the CBIRC on Specifying the Regulatory
Requirements on Large Exposures of Foreign-invested Banks to Parent
Bank Groups, exempting foreign-invested banks from then-applying
regulatory ratio requirements relating to large exposure to theirparent bank groups.

Tighter regulation of banking sector, erraticand disorderly events in the market further
addressed and stricter enforcement of rules
and internal accountability

In 2021, banking regulators reviewed the progress made since

In November, the government of Hainan province issued the 14th

2017 in addressing the “erratic and disorderly” events in the market

Five-year Plan for the Development of Hainan's Financial Sector,

and were very active in dealing with repeated failings. In 2021, thisspecifically supporting financial institutions incorporated in Hainan

focused mainly on failings in ordinary loans as well as perceived

province to attract foreign strategic investors.

failings in wealth management, interbank business, internal controls
and compliance, related party transaction management, andEncouraged by these policies, foreign capital continued to flow into

financial consumer protection, among others.

the China banking market in 2021. Examples include:(i) Schroder in alliance with the wealth management subsidiary of

So far as the reasons for penalties were concerned, the CBIRC paid

Bank of Communications getting approval to establish their wealthparticular attention to a number of recurring activities and activities

management joint venture, which is the third foreign-controlledthat were felt to have “profound negative social impacts”. Among

wealth management company in China;

the particular transgressions were those covering abuse of poor(ii) J.P. Morgan Asset Management making its strategic investment

management of credit lines, non-compliance in wealth management

into the wealth management subsidiary of China Merchants Bank

business, illegal inflow of funds into the real estate sector, poor

Co;

corporate governance, and unjustified charging of fees. As well(iii) BlackRock CCB Wealth Management (the wealth management

as introducing reforms to the operation of wealth management

joint venture of BlackRock and China Construction Bank) beingby banks, banking regulators stepped up the enforcement on

approved to start its business; andthose falling foul of the regulations. Some types of penalties were(iv) DBS Bank making its strategic investment into Shenzhen Rural

introduced for the first time in 2021, such as penalties imposed

Commercial Bank.

for issuing structured deposits where there is no real underlying
transaction, imposing unfair trading terms for derivative products,

In terms of cross-border businesses, the Notice on Further Optimizing

inaccurate valuation of wealth management products, and failure to

Cross-border RMB Policy to Support Stable Foreign Trade and Stable

report those with whom banks have been collaborating on business.

Foreign Investment (effective February 2021) simplified cross-border
RMB business in terms of settlement, investment and financing

So far as the level of penalties is concerned, according to incomplete

management, account use and other different perspectives, while

information published by the CBIRC, as of September 30, 2021,

at the same time removing some inconsistencies between the RMB

the total amount of fines imposed on banking institutions by thepolicy and foreign currency policy and generally making it easier to

CBIRC reached about RMB1.5 billion, which has already exceeded

conduct cross-border business.

the total amount of fines imposed for comparable offences in2020 (about RMB1.4 billion). Further analysis on fines imposed on

The implementation of the Cross-boundary Wealth Management

senior management/key position personnel shows that fines were

Connect Pilot Scheme in Guangdong-Hong Kong-Macao Greater

17

PRC Financial Regulation- Annual Report (2022)
Banking

imposed on people operating at a senior level of organizations, theof all their shareholders, especially knowing who holds shares on

number of penalty cases is larger and the amount for fines imposed

the “look-through” basis (i.e. who the real beneficial shareholders

is larger. For example, the CBRIC Shanxi Office banned a formerare) and strengthen the management of related party transactions.

executive officer of the Taiyuan branch of a commercial bank fromThe clear objective is to prevent the company’s main shareholders

working in the banking sector for life because the bank illegallymanipulating companies, illegitimate transfer of interests orprovided an undertaking of return guarantees, which are forbidden.

interfering with the operation and management of banking and

It is relatively rare to witness a c-suite officer of a bank receiving a

insurance institutions beyond their authority.

lifetime ban. Previously, the CBIRC only tended to impose lifelongbans from working in the banking sector on those of relatively low

Accordingly, in 2021 the CBIRC enacted a series of new rules and/seniority.

or consultation papers, including the Guidelines on Corporate
Governance of Banking and Insurance Institutions, the Regulatory

Over and above this, in November 2021, the CBIRC noted in the

Measures on Behavior of Main Shareholders of Banking and Insurance

Notice by the General Office of the CBIRC on Continuously Implementing

Institutions (For Trial Implementation), and the Administrative

Work in relation to Year of Internal Control and Compliance

Measures on Related-Party Transactions of Banking and InsuranceManagement for Banking Institutions that it tended to be relatively

Institutions (Consultation Paper)(officially released on January

low-level officials who were held accountable for transgressions. The

14, 2022), to emphasize the responsibility of those in charge

Notice required banks to step up their accountability controls, toof governance to carry out their duties fully and efficiently, toestablish satisfactory procedures to increase accountability, and toprevent embezzlement by main shareholders and manipulation

have accountability extend from headquarters to all bank branches.

of operations by insiders, and to reinforce the need for absolutecompliance.

From this, we can easily conclude that the CBIRC is serious in its
determination to break through long held operating practices of the

The CBIRC defined for the first time the term “main shareholder

banking sector and to make banking institutions fully aware of their( 大 股 东 in Chinese)” and imposed on main shareholders higher

need to comply with all regulations.

obligations to restrain “irregular behavior” of shareholders ingeneral.
The CBIRC reported on its annual review of corporate governance03

across the sector in the Year of Internal Control Compliance

Focus on corporate governance continues,
with some progress made but further to
go to stop unwarranted activity; regulators
address issues relating to equity-relatedtransactions and related party transactions

Management. There have been improvements when it comes tocorporate governance. However, the regulators say there is stillsome way to go, particularly when it comes to the behavior of main
shareholders, management of related party transactions and theoverall management by the board of directors. We can expect the
CBIRC to continue to compel banking institutions to set up more

There has been a greater focus on internal corporate governanceeffective internal controls.

since a campaign began in 2017 to “rectify erratic and disorderly
events” in the market. In 2021, the CBIRC took a closer look at theequity interests held in banks and related party transactions. Banks
were instructed that they needed to review shareholder (equity)interests annually and to ensure they reduced or eliminated therisks of regular equity transactions being bypassed, for example
illegitimately transferring interests to shareholders via interbank
operations, wealth management transactions, and off-balance sheetbusiness or fraudulently through shell businesses. The CBIRC also
expressly mentioned that banks must ensure they know the identity

18

PRC Financial Regulation- Annual Report (2022)
Banking04

the sector as determined by local regulators.

Regulations covering online deposits
and loans at central and local levels
address a problem area

Regulators have come down hard on those who do not comply
with regulations relating to non-compliant online deposits and loan
products. For example: in March, the CBIRC made public the breachof regulations by Xinwang Bank in connection with internet auto

In 2021, rules relating to online deposits were implemented and theloans. In April, the financial regulators held regulatory talks withregulatory authorities continued to take a firm line on internet financial

the representatives and de facto controllers of 13 enterprises which

products.

operate internet deposit and loan product platforms such as Tencent,
Duxiaoman Finance, and Jingdong Finance. In November, the StateAt the central government level:

Administration for Market Regulation announced the first case of antimonopoly penalties in the banking sector, which also covered the(i) in January the CBIRC and the General Office of the PBOC issued

internet business.

the Notice on Issues Concerning Regulating the Personal Deposit
Service Provided by Commercial Banks via the Internet, specifying that

The regulators are moving to a position where internet products

commercial banks are not allowed to offer time deposits through online

and services will be classified as "licensed" and "non-licensed" and toplatforms that are not operated by the banks themselves;eliminate the scope for regulatory arbitrage. When this happens, thisshould offer both opportunities and challenges for banking financial(ii) in February, the General Office of the CBIRC released the Notice

institutions.

on Further Regulating the Internet Loan Business of Commercial Banks,
specifically setting the strict requirements on the minimum funding
ratio of any collaborating party in a single loan case, the balance ofinternet loans, and the scope of permitted business; and05(iii) in February, the CBIRC issued the Notice on Further Regulating theAdministration of Internet Consumer Loans for College Students, requiring
banking financial institutions to act more prudently in extending

Financial consumer protection remains thefocus of regulators, with banks having to be
more diligent in light of new changes

student loans via the internet, for example by carrying out better due
diligence.

Protecting consumers buying or taking out financial products
remains a top priority of the PBOC and the CBIRC. Many regulatory

At the local level:

rules were issued in 2021. These included:

Central government regulations have been supported at the local level.

(i) the Measures for Regulatory Evaluation on Financial Consumer

There are different types of supervision for different types of banks,Protection of Banking and Insurance Institutions, which laid down

and some of these policies impose more strict requirements thanevaluation procedures required for commercial banks, wealththose of the CBIRC. For example, in the Specific Implementation Rules

management companies, trust companies, auto financingof Jiangxi Province on Regulating Internet Loan Business of Commercial

companies, and consumer finance companies in respect ofBanks released by the CBIRC Jiangxi Office on May 18, the regulatory

consumer protection. The regulations set out what steps would befunding ratio of the collaborating party in a single loan of rural small

taken against institutions with poor evaluation results (e.g. Band 3

and medium-sized banks in the province was raised to 40%, comparedor Band 4);

with the 30% threshold set by the CBIRC. Instead of the requirement set
by the CBIRC that the balance of loans issued by a bank with a single(ii) in March, the CBIRC promulgated the Notice on Effectively Solving

collaborating party (including its affiliates) should not exceed 25% of

the Difficulties of the Elderly in Using Intelligent Technology by Banking

the bank's tier 1 net capital, in Jiangxi this ratio was set at 20% for urban

and Insurance Institutions, guiding the banking industry to focus oncommercial banks and privately owned banks and 15% for small andproviding services suitable for the elderly, proposing 16 measures

medium-sized rural banks. These differences reflect the actual nature of19PRC Financial Regulation- Annual Report (2022)
Bankingand establishing a "list of prohibited behaviors";

fault liability applies to losses incurred after a bank card is stolen
and used without the cardholder’s permission. These provisions(iii) in November, the CBIRC invited comments from the public onprovided the means for consumers to reclaim such losses against

the Guidance on Standardizing the Management of Market Adjustment

the bank, while also imposing the burden of proof and notification

Prices for Banking Services, reiterating that for financing businesses,

on banks rather than consumers when determining such claims.

fees should not be charged without providing substantive services

Such judicial interpretation was further applied and confirmed in aand that banks are encouraged to cater specifically to the elderly

guiding case (Guiding Case No. 169) issued by the Supreme People's

and disabled with more favorable terms relating to accountCourt in November (where a card issuing bank was held liable formanagement, deposits and withdrawals, and payment andthe loss caused by misappropriation of funds in bank account due

remittance services, and to provide appropriate fee discounts or

to its failure to provide evidence proving that the account holder

exemptions based on their own business strategies; andviolated the obligation of proper handling of information).

(iv) in December, the CBIRC sought comments on the Notice on

In addition, a series of laws and regulations related to personal

Further Promoting the Standardization and Healthy Development

information protection and credit reporting were issued andof Credit Card Business with the aim of cutting down on easy andimplemented in 2021, under which financial institutions are required

excessive credit.

to adapt how they process consumer information.

Stepping up punishments
In 2021, the PBOC and the CBIRC punished and circulated notices

06

of criticism on several banking financial institutions for constantviolations of consumer rights. Transgressions included: exaggerated
and misleading advertising, illegitimately increasing financing

Diversified methods help to reducematerial risk in the systemcosts, heavy-handed debt collection, failing to check for suitability
when extending products and tie-in sales. The PBOC and the CBIRC
imposed large fines on financial institutions found to have harmed

Effectively forestalling major financial risks was one of the two

consumer rights. For example, in August, the PBOC issued fines

themes of the 10th Meeting of the Financial and Economic

adding up to more than RMB1 million to several banks, mainly for

Commission in the Central Committee of the Communist Party

failing adequately to collect credit information.

of China in August, which was also one of the core objectives offinancial regulation in banking sector in 2021. On the one hand,

In addition, the regulatory authorities took steps to make consumers

work continues to restructure those banks deemed to be at risk. For

more aware of their rights. In March, the PBOC branches had aexample:publicity campaign to explain consumer rights. In November,(i) the restructuring of Hengfeng Bank was all but completed;

the CBIRC issued the Tips about Preventing the Risks of Insurance
Surrender and Others by Agents, to alert consumers to hidden traps
in advertisements of agency service for financial products and the(ii) in February, Beijing No. 1 Intermediate People's Court issued its

potential for fraud by unregulated agents and to guide consumers

verdict on Baoshang Bank’s liquidation, which marked the end of

to strengthen their awareness of risk management and financial

the bank’s risk restructuring process;product investment and to safeguard their own rights in proper andOn the other hand, the measures of risk mitigation at an earlier

legitimate ways.

stage served to address potential problems before they may
Changes in court decisions and regulatory rules gave consumers

manifest themselves. For example, Shanxi Bank, Liaoshen Bank

additional benefits. In May, the Supreme People’s Court issued

and Zhongyuan Bank each merged several local urban commercial

the Provisions on Several Issues Concerning the Trial of Cases for Civil

banks within their provinces, helping to take risk out of the system.

Disputes over Bank Cards, stipulating that the principle of non-

20

PRC Financial Regulation- Annual Report (2022)
Banking

In October, the PBOC and the CBIRC issued the Provisions on

for Business Purposes illegally into the Real Estate Industry in March

Additional Regulation on Systemically Important Banks (For Trial

2021 to strengthen regulation preventing loans being made illegally

Implementation) and released a list of the first batch of 19 domestic

into the real estate sector. Several banks were fined for illegal realsystemically important banks, setting out higher capital standards

estate loans, while genuine real estate loans which are for properand imposing more stringent leverage ratios on those banks,

commercial needs in the industry still met with official approval.

while requiring them to put in place responses to a range of risk
management scenarios. The CBIRC also issued the Interim Measures

In November, the PBOC issued a report emphasizing the importancefor Implementation of the Recovery and Disposal Plan for Banking andof stabilizing land and house prices, encouraging prudent financial

Insurance Institutions and the Notice on Matters Related to Further

management of the real estate market and increasing financial

Promoting the Reform and Restructuring of Rural Banks to Forestall

support for the house rental market. In December, the Central

Risks, and other rules regulating the advance risk mitigation andEconomic Work Conference put forward suggestions to nurturemanagement work of banking institutions.

a market by way of “guiding the expectation in the industry andexploring new development models” on the basis that “property is

Additionally, in January, the CBIRC issued the Notice on Launchingintended for living in and not for speculation”.

the Pilot Program for the Transfer of Non-performing Loans, lifting the
restrictions on the transfer of single-household corporate NPLs andOn the other hand, in order to meet the "30-60" goal (i.e. the goal

the batch transfer of personal NPLs for the banks named in the pilot

for China to achieve no increase of carbon emission on and after

list. From March, when the first personal NPL transfer transaction

2030 and carbon neutrality on and after 2060), in November thewas completed, to mid-November, 365 banks and their branches,

PBOC launched a monetary policy tool to support carbon emission

108 national asset management companies and their branches,

reduction. This encourages national financial institutions to grantand 4 financial asset investment companies opened accounts toloans to businesses that qualify for “carbon emission reduction

operate NPL transfers with the Banking Credit Assets Registrationloans”. Banks and financial institutions can, in turn, borrow up to

and Circulation Center. This pilot is significant as it indicates another

60% of carbon reduction loans from the PBOC at a favorable interest

means for dealing with NPLs to take more risk out of the system

rate of 1.75% to cover these loans. Combined with the further cut

and improves the capability of banks to operate and manage theirin the reserve ratio required to be adopted by banks by the end of

capital and business.

2021, the aim is to extend preferential policies to relevant green
and low-carbon industries and real economy, and to support theissuance of green bonds and financial products.

07

In April, the PBOC, together with the National Development

Macroeconomic controls geared towards
supporting the real economy and green
financeand Reform Commission and the China Securities Regulatory
Commission (CSRC), issued the Catalogue for Endorsed Projects ofGreen Bond (2021 Edition), which unified the standards of green
bonds in the domestic market and deleted coal from eligible
projects in order to align with international standards. In June, theAgainst the background of global inflation, properly guiding the

PBOC issued the Green Finance Evaluation Plan for Banking Financial

development of banking sector and relevant services is one of theInstitutions with both quantitative and qualitative indicators,

keys in regulatory policies In 2021, and there were further moves

which standardized the evaluation of green finance business of

towards supply-side structural reforms of finance.

banking institutions to reduce the room for “green-washing( 漂绿 )”. In
December, Shenzhen announced that it would pilot local standards

On the one hand, the regulatory policies geared towards supportingfor green finance, and gradually enforce such standards in thethe real economy, away from real estate speculation and away

Guangdong-Hong Kong-Macao Greater Bay Area. In short, China's

from the coal and electricity industries. After the action to limit thegreen finance standards are gradually becoming more stringent andlevels of real estate loans that banks could extend in 2020, many

are transitioning toward international standards.

authorities were party to the Notice on Preventing the flow of Loans

21

PRC Financial Regulation- Annual Report (2022)
Banking

In December, the General Office of the State Council stressed thesource and nature of criminal gains and benefits by various

importance of enhancing sharing credit information to facilitatemeans". In addition, the consultation paper specifies the system forfinance for SMEs. In the same month, the PBOC promulgated thereporting and sharing "beneficiary information", sets up processes

Measures for the Unified Registration of Movables and Rights forfor reporting receipt and payment of large amounts of cash, andGuarantee, further clarifying the rules for the registration of movable

increases the levels of administrative penalties imposed under theassets and rights as collateral when borrowing money. This shows

Anti-Money Laundering Law, and generally switches the regulation

the PBOC's growing support for the real economy and small andof anti-money laundering from a rules-based approach (which is

micro finance.

prescriptive and specific) to a more flexible risk-based approach.
In addition, the Amendment XI to the Criminal Law, which tookeffect in 2021, recognizes that the act of covering up or concealing08

the source and nature of criminal gains after committing a crime

Anti-money laundering (AML) regulation
on financial institutions upgraded in linewith international standards

independently constitutes the crime of money laundering. In thesame month, the Supreme People's Procuratorate and the PBOC
jointly released typical cases on punishing money laundering
crimes, revealing through six typical cases the means of money
laundering used in various crimes and indicating that those who

In 2021, a series of AML-related regulations were promulgated,breach these laws will be severely punished.

which addressed certain issues reflected in the fourth round of
mutual assessment by the Financial Action Task Force on Money

There continue to be severe penalties imposed on those found to

Laundering (FATF) in 2019 and also made AML rules in China more

have been in breach of AML regulations. According to incomplete

systematic:

statistics, fines exceeding RMB400 million were imposed in 2021
against AML transgressors, mostly on banks. China continues to(i) in March, the PBOC, the CBIRC and the CSRC issued theput in place tight AML regulations and to fine those in breach, with

Administrative Measures for Due Diligence and Preservation of Clients'

the aim of opening up the finance sector and bringing China in line

Identity Data and Transaction Records by Financial Institutions

with global AML governance, which will also bring challenges to the(Consultation Paper), providing more detailed and stricter regulatorycompliance practice of financial institutions in the future.

provisions on the anti-money laundering responsibilities of financial
institutions and payment institutions;(ii) in April, the PBOC promulgated the Measures for the Supervision
and Administration of Anti-money Laundering and Counter-terrorism
Financing of Financial Institutions, improving the provisions on
regulation scope, risk assessment and regulatory measures,increasing the requirements for financial institutions to manage
their overseas branches and controlling subsidiaries, and extending
the applicable scope to non-banking payment institutions andonline small-loan companies, as well as to consumer financecompanies, loan companies, wealth management subsidiaries ofbanks and other institutions;(iii) in June, the PBOC published the Anti-money Laundering Law(Revised Consultation Paper), which changes the previous narrow
definition of “money laundering” and expands money laundering
activities to include "activities of disguising and concealing the22

PRC Financial Regulation- Annual Report (2022)
Banking

2022 Banking Industry Regulatory Outlook

01

In light of various measures taken by regulators in 2021, theThe banking sector will continue toopen up and cross-border business will
become easieremphasis on strict regulation of financial institutions will continue
through 2022. Following the spirit of the Central Economic Work
Conference, regulators will continue to look closely at how banks
manage their operations and to ensure full compliance withregulations. Key risk areas that regulators are sure to focus on

Despite the pandemic and the uncertain global economic

are enforcement of macro policies, shadow banking, high-risk/

environment, the Chinese government is still keen to attract foreignintersecting risk businesses, and new business models.

capital to enter and invest in China's financial market. We expect
this process to continue in 2022. China will fully implement the

The regulatory rating of commercial banks will be closely tied toprinciple of pre-establishment national treatment (i.e. granting to

how good their corporate governance are and the evaluation systemforeign investors and their investments, at the point of investment,

for corporate governance will be amended. Regulatory approaches

treatment no less favorable than that granted to domestic investors

which were used in the practice of some equity transactions andand their investments) plus negative list management (i.e. special

related party transactions and found to be of help will be reflectedadministrative measures restricting access of foreign investmentin the rules. Banks will be encouraged to take on professionalin some specific fields as stipulated by the State) in the regime ofmanagers. Further consideration will be given to the appointment offoreign investment, while encouraging the steady development of

employee directors. There will be further examination of bankruptcy

foreign-invested banking institutions in China. Foreign investors willprocedures and the rights of creditors as related to banks andcontinue participating in the investment in China banking sector by

insurance companies.

investing in domestic banks and investing in/establishing wealthmanagement subsidiaries.

In the meanwhile, the regulatory authorities will continue to explore
different ways of taking risk out of the system and accountability

The Provisions on Matters Related to Overseas Loan Business of Banking

and correction will be enforced from different aspects. Market

Financial Institutions may be officially published, as cross-border

players have been given a grace period to address failings overbusiness and capital flows are encouraged. There will be more cross-the last three years. Those that continue to fail to comply withborder business channels and opportunities such as Cross-boundary

regulations (e.g. those falling foul of online lending restrictions),

Wealth Management Connect. Market entry qualifications, accountcan expect to be severely punished, both at the institutional andmanagement and other regulatory requirements will be simplified

individual level.

to encourage the participation of more market players.

02

03

Market failings will be addressed, all market
participants will be required to improve
compliance and institutional risk tackled

Market players will be encouraged to serve
the real economy and increase support forgreen finance, inclusive finance, and elderly
care financial products

Although the CBIRC has made good progress in tackling the “erratic

It is expected that the supply-side structural reform of finance willand disorderly events” in the market, there are still issues that need

continue in 2022, and the State Council's requirement of "giving

addressing, such as clearing the illegitimate practice of poolingmore prominence to serving the real economy" will continue toand mixture of funds from different asset management products

be uppermost in regulators’ approach. Banks will be directed to(“cash pooling”), achieving proper asset valuation, completing

lend to support manufacturing, SMEs, and private enterprises. As

abolition of guaranteed return arrangements in asset management

the pandemic continues, the government will support SMEs withproducts, the screening and clearing of high-risk institutions, andfinancial relief. For real estate, energy and heavy industry, banks will

establishment and improvement of financial infrastructure.

tend to provide service on premise of reasonable demand rather

23

PRC Financial Regulation- Annual Report (2022)
Banking05

than imposing “one size fits all” restrictions. Affordable housing
and infrastructure and other financial services might bring mosteconomic growth in these areas.

More protection for financial consumers
which may reshape existing practices

At the same time, banks will be encouraged to lend to green andlow-carbon transport, environmentally sustainable buildings,

Following the enforcement of the Implementation Measures of therenewable energy, innovative models of power system andPeople's Bank of China for Protecting Financial Consumers' Rights andcarbon emission reduction technologies, as China seeks toInterests in 2020, in 2021, the PBOC and the CBIRC have repeatedly

achieve the "30•60" goal. Banking institutions are likely to be

circulated cases of punishment imposed on banking financial

required to establish green-oriented incentive mechanisms, andinstitutions for harming consumer rights, including arbitrary charges,

financial institutions will be likely to be allowed to participate intied sales, and illegal operations on behalf of customers. However,carbon trading. In addition, in order to cope with the long-term

there still remain gaps between the existing market practice and thedemographic changes, regulatory policies will continue to begeneral requirements newly introduced by regulators. It is expected

strengthened in the field of elderly care. It is expected that special

that more rules relating to the protection of consumers' rights

pilot programs for elderly-care deposit businesses will be launched

and interests will be promulgated in 2022, including specific rulesin the near future, and more detailed regulatory rules for elderly

compatible with the Personal Information Protection Law in the fieldcare wealth management products will come out.

of banking regulatory rules and rules involving cross-border flow offinancial information. Enforcement measures for issues of concern
will be taken as well.

04

It is expected that the court will further clarify such controversial

Top-level rules for "quasi-financial
institutions" may be finalized andintroduced

issues as how to assume joint and several liabilities in the case of
personal information rights being violated and how to evaluate
whether a bank has properly performed its obligation of assessing
the suitability of those applying for financial products.

2017 witnessed the transition of regulatory power for “quasi-financial
institutions” (such as small sum loan companies, financing guarantee

The Administrative Measures for the Appropriateness of Banking andcompanies, financial leasing companies, and factoring companies): theInsurance Institutional Consumers, which has been included in the

power to formulate the regulation falling on the CBIRC (central level)

CBIRC's legislative plan for 2021, is expected to be promulgated inwhereas the power to supervise and enforce the regulation falling on

2022.

provisional governments, autonomous regions and centrally-administeredmunicipalities (local level) and local financial regulatory and administrations
bureaus. However, the upper-level law, the Regulations on Non-deposit
Lending Organizations (the "Non-deposit Regulation"), has yet to be
promulgated. This is necessary to address the abuses associated in recent
years with online lending, false internet advertising and aggressive debt
collection. Although the Interim Administrative Measures for Online Small-sum
Lending Business (Consultation Paper) was solicited for public comments in late2020, the CBIRC has made it clear that formal measures will be promulgatedin due course after the Non-deposit Regulation is introduced. In light ofthat, the Non-deposit Regulation is expected to be published or solicitedfor public comment in early 2022, with the goal of improving the multi-level
credit market, regulating private finance and strengthening the protections
concerning the rights and interests of financial consumers. The practices byregulators at local level tend to be uniform as well.

24

>>>>>PRC Financial Regulation:
Annual Report (2022)
Securities and Futures

25

PRC Financial Regulation- Annual Report (2022)
Securities and Futures

2021 Key Dates
March 18
The China Securities Regulatory Commission (CSRC)
issued the Decision on Revising the Administrative Provisions
on Equities of Securities Companies and supporting rules.

April 19
Guangzhou Futures Exchange opened for business.

May 28The CSRC announced the first batch of securities
companies to be included in the “white list”.

July 6
The General Office of the Central Committee of theCommunist Party of China (CPC) and the General Office of
the State Council issued the Opinions on Strictly Cracking
Down on Securities-related Illegal Activities in accordancewith Laws.

August 6
J.P. Morgan announced that the CSRC had approved theregistration of J.P. Morgan International Finance Limited
taking 100% ownership of J.P. Morgan Securities (China)
Company Limited, making it the first foreign firm to fully
own a securities venture in China.

September 24
Southbound trading of the Bond Connect scheme
between the mainland and Hong Kong bond markets wasofficially launched.

October 15
The CSRC and the Ministry of Justice issued the Opinions
on Launching a Pilot Program of Arbitration in the Securities
and Futures Sectors in accordance with Laws.

October 15
The CSRC announced types of financial derivatives open
for qualified foreign investors to trade.

October 23
The Futures and Derivatives Law (Draft for the Second
Reading) was released for public consultation.

November 12
The Guangzhou Intermediate Court handed down afirst instance judgment in the special representative
litigation case against Kangmei Pharmaceutical Company
Limited (Kangmei Pharmaceutical), in which the CSI
Small and Medium Investors Service Center was awarded
approximately RMB2.459 billion on behalf of the investors.

November 15
The Beijing Stock Exchange opened for trading.

November 26
The CSRC issued the Consultation Paper on the Relevant
Rules Involved in the Integration of the Regulatory
Framework of Listed Companies.

26

PRC Financial Regulation- Annual Report (2022)
Securities and Futures

2021 Regulatory Observations

01

With the completion of the merger of the main board and SME

Regulators continue comprehensive sector
reforms, notably the creation of multilevel capital markets with high levels of
integration

board of the Shenzhen Stock Exchange and the establishment of the
Beijing Stock Exchange, China has formed a multi-level capital market
comprising the regional equity trading markets, the NEEQ, the Beijing
Stock Exchange, the Shanghai Stock Exchange and the Shenzhen
Stock Exchange. Functions of these markets such as financing and

As indicated in the 14th Five-Year Plan, the government has set as one

trading are enhanced layer by layer to meet the needs of different types

of its main priorities the creation of multi-level capital markets. Reformsof financing entities and investors, and to keep the capital markets

included establishing a sound process for delisting shares and putting

on course of serving the real economy. As these different levels arein place the administrative infrastructure of the National Equities

simultaneously optimized, we can expect to see greater efficiencies in

Exchange and Quotations (NEEQ, 新 三 板 ). Institutional investors are

China’s capital markets.

being encouraged to make use of capital markets and direct finance isanother avenue of finance that regulators are keen to expand. In short,the process of reforming capital markets continues.

02

In February 2021, the CSRC approved the merger of the main board
and the Small and Medium-sized Enterprise Board (SME board) of theShenzhen Stock Exchange to create one single homogeneous board.
To ensure the stability of the market, the overall arrangement of the

Focused effort on legislation for futuresand derivatives markets is put in place, withaims to both strengthen the supervision ofand further develop China’s capital market

merger involved the unification of business rules and regulations on
the operation of the two boards, and keeping the same:

As an important component of the overall capital markets, there weresignificant developments in the futures and derivatives markets in(i) issuance and listing conditions;

China in 2021 covering the legal framework, products and market(ii) criteria for investors;

operation.

(iii) trading mechanisms; and(iv) stock codes and abbreviations.

The Standing Committee of the National People’s Congress conducted
two readings on the draft futures market legislation in April and

In September 2021, the Beijing Stock Exchange was established,

October 2021, and the second reading draft further highlighted theforming a pattern of synergized, complementary, and interconnectedadvanced legislative concepts including:development with the Shanghai Stock Exchange, the Shenzhen Stock
Exchange and the regional equity markets. The Beijing Stock Exchange(i) changing the proposed name of “Futures Law” (in the first reading

was positioned to serve innovative small and medium-sized enterprises,

draft) to “Futures and Derivatives Law”, adding relevant definitions fortaking in the NEEQ Select Tier as a whole, and maintaining the tiered

futures trading and derivatives trading, further elevating the legal status

structure consisting of the NEEQ Basic Tier, the Innovative Tier (of theof the derivatives market, clarifying the legal enforceability of netting

NEEQ), and the Beijing Stock Exchange.

arrangements meeting certain conditions in the case of the debtor’sbankruptcy (thereby clarifying the critical concept which has long

At the same time, the Beijing Stock Exchange simultaneously piloted

hindered the development of the Over-The-Counter (OTC) derivatives

registration-based IPOs and stimulated extra market trading bymarket); andimplementing less restrictive limits on price fluctuation and lowering
investment thresholds. Eligible companies listed on the Beijing Stock(ii) removing filing requirements for futures service agencies,

Exchange can apply for transfer to the STAR Market of the Shanghaiemphasizing and strengthening the monitoring and control of theStock Exchange or the ChiNext Market of the Shenzhen Stock Exchange,

futures market, and strengthening regulation while fully “delegating

thanks to the connection between the Beijing Stock Exchange, thepower, streamlining administration and optimizing government

Shanghai Stock Exchange and the Shenzhen Stock Exchange atservices”.

institutional level.

27

PRC Financial Regulation- Annual Report (2022)
Securities and Futures

03

Meanwhile, regulators enacted and promulgated applicable regulations
for futures companies and their subsidiaries, including:(i) the "Interim Measures for the Administration of Subsidiaries of Futures

Registration-based system is further
improved, with focus on information
disclosure

Companies (Consultation draft)", to further regulate the business
operation, internal governance and risk management systems of

The implementation of the new IPO process based on registration (differ

futures firms, guide the industry to focus on its main business andfrom the previous approval mechanism) in the STAR Market and theimprove its ability to serve the real economy;

ChiNext Market has made the system of reviewing IPOs much more
efficient. This has reduced the period for reviewing and then registering(ii) in December 2021, the People’s Bank of China (PBOC), the China

IPOs to about 5 months (in approval mechanism, the timeline isBanking and Insurance Regulatory Commission (CBIRC), the CSRC andunpredictable and varies from 1 to 3 years). The Central Economic Workthe State Administration of Foreign Exchange (SAFE) jointly issued

Conference, held from 8 to 10 December 2021 in Beijing, proposed to

the Guiding Opinions on Promoting the Standardized Development offully implement the registration-based IPO system, signaling a new era

Derivatives Business (Consultation Draft) for public consultation, whichof registration for all securities issuance in China.

collected and integrated of the existing regulatory rules and aimed topromote the healthy development of derivatives business rules.

In order to ensure that the registration system works properly in theinterests of creating healthy and balanced capital markets, as well asWith the coming better legal framework, the conditions were right for

the focus on IPOs, regulators have also looked at improving regulara successful futures market. There have been more futures and options

information disclosure, cracked down on illegal acts, and improved

products introduced to the market (totaling more than 90 as of thethe methods for delisting. In other words, they have made sure that allend of November 2021). Qualified foreign institutional investors wereaspects associated with listing shares work efficiently to support theallowed to trade commodity futures, commodity options and stock

process of registration.

index options.

A core regulatory concern has always been information disclosure.

After a suspension of issuing futures license of 20 years, new futures

In March, the CSRC issued the amended Administrative Measurescompanies were once again permitted to be established and open

on Information Disclosure by Listed Companies to improve the basic

for business. The first of these was Shandong Gangxin Futures, whichprinciples and requirements for regular information disclosure by

opened in July.

listed companies. In October, in order to address issues arising inconnection with prospectuses (such as insufficient relevance and weak

China Commodity Indices Co., Ltd, jointly established by major

investment decision-making), the CSRC sought public opinion on the

futures exchanges, opened in Xiong’an New District, Hebei to provide

Guiding Opinions on Improving the Quality of Information Disclosure

specialized data information technology services in relation toin Prospectuses under the Registration-based System (Consultationcommodity indices. The Guangzhou Futures Exchange was opened

Draft). The aim is to improve the quality of information disclosure in

in April, marking another plank in the development of China’s futures

prospectuses.

market.

Another area of concern for regulators has been securities-related illegal

The steady development of the market was reinforced by regulatory

activities by listed companies and intermediary agencies. The policy of

enforcement, covering administrative enforcements, annual"zero tolerance" involving transgressors has helped raise the quality ofclassification ratings of futures companies, promulgation of Opinions onlisted companies, while imposing greater responsibilities on issuers andStrictly Cracking Down on Securities-related Illegal Activities in accordanceintermediaries. Registration and delisting go hand in hand to promotewith Laws, and enforcement actions against securities and futures

efficient, reliable and balanced capital markets which consists of highinstitutions found to have been in breach of regulations.

quality listed companies.
A-share delisting is proceeding apace, and around 15 companies
delisted in the first half of 2021, making such a process normal. In

28

PRC Financial Regulation- Annual Report (2022)
Securities and Futures

November, the Shanghai Stock Exchange and the Shenzhen Stock(iv) In November, the CSRC issued the consultation draft amendments

Exchange issued new delisting regulations, including the Shanghaiof the Guidelines for Working Papers on Sponsor Business for Securities

Stock Exchange Self-Regulatory Guidelines for Listed Companies No.

Issuance and Listing and Due Diligence Guidelines for Sponsors, which

2-Financial Delisting Indicators: Operating Revenue Deduction and thewere intended to further clarify the standards for the sponsors and to

Information Disclosure Business Guidelines for Listed Companies on

promote the high-quality development of the investment banking

the Science and Technology Innovation Board No. 9-Financial Delisting

business of securities companies. In response to this, the stock

Indicators: Operating Revenue Deduction issued by the Shanghai Stockexchanges and the Securities Association of China (SAC) also revised

Exchange. The regulations were oriented towards cracking down on

and issued rules related to securities issuance and underwriting in 2021.

shell companies and achieving “delisting all that should be delisted”. In

Other business rules of securities companies are also being graduallyterms of financial indicators, the rules made clear that “business incomerolled out. For example, the SAC issued the Guidelines on Return Swap

irrelevant to the main business and revenue without commercial

Business of Securities Companies in December to provide more detailed

substance” should be deducted from the calculation of operating

regulations for return swap business.

revenue, which would effectively prevent listed companies from selling
their assets or obtaining governmental subsidies at the end of the year

The corporate governance of securities companies has also been theor in other ways to maintain listed company status.

subject of regulation. In August 2021, the CSRC launched a targeted
enforcement program aimed at securities, futures and funds industries
with the goal of developing the internal policies and procedures,
improving administrative regulation, establishing effective corporate

04

governance and gradually bringing about the market-driven mutual

Regulations on the business of securities
companies continue to be refined, withparticular focus on corporate governancemonitoring system. In the past, companies in these sectors have
put their own market performance ahead of risk management, andregulators are determined to strengthen supervision by following theprinciple of “substance over form”.

In 2021, with the development of registration based system reform,

In addition, regulators have imposed more stringent and detailed

there were further measures introduced to raise the standards by which

requirements on securities companies when it comes to risk

securities companies in the investment banking business field operate.

management. In October, the SAC issued the Guidelines for Reputational
Risk Management of Securities Companies, a special regulation based(i) In February, the CSRC issued the revised Administrative Measures onon the 2016 Regulations on the Comprehensive Risk Management ofIssuance and Trading of Corporate Bonds to clarify lead underwriters’ due

Securities Companies. These guidelines were timely with the prevalence

diligence responsibilities for bond issuance and internal accountability;of Internet-related business and the need for securities businesses tobe more mindful of the dangers of reputational risk. The Guidelines(ii) The Guiding Opinions on Urging Securities Companies Carrying out

on Return Swap Business of Securities Companies issued in December

Investment Banking Business to Fulfill Duties under the Registration-required securities companies to include swap businesses into their risk

based IPO System issued in July pointed out that the responsibilities

control management and to manage all types of risks. At the same time,of investment banks should be clearly assigned and the policy of

the CSRC carried out some special inspections on the risk management“responsibilities upon filing” should be adopted;

covering various businesses of some securities companies andannounced that they would conduct on-site inspections on securities(iii) To urge the investment banks to duly perform their duties, thecompanies to ensure "full coverage" risk management.

Provisions on Supervision of IPO and Pre-Listing Tutoring and theOpinions on Strengthening Regulation on Incorruptibility in Investment
Banking Business of Intermediaries under the Registration-based System(Consultation draft) issued in September detailed the requirements forpre-listing tutoring/counseling, and provided strict rules on tutoring/counseling procedures;

29

PRC Financial Regulation- Annual Report (2022)
Securities and Futures

05

Other dispute resolution mechanisms are available to investors looking

Representative litigations in securities
disputes became more common, andalternative dispute resolution mechanisms
for securities and futures disputes developed

to protect their interests. On October 15, 2021, the CSRC issued theOpinions on Launching a Pilot Program of Arbitration in the Securities andFutures Sectors in accordance with Laws to add arbitration as anotherway of adjudicating on securities disputes. In November, China’s first
securities arbitration center was launched in Shenzhen.

Courts in all regions and at all levels adopted a number of new
measures for the settlement of securities disputes, following the

The expansion of new dispute resolution mechanisms was supported

guidance as set out for investor mediation and litigation system

by securities and futures enforcement activities.

provided in the Securities Law.

(i) In November, the State Council issued the Implementing Measures

Representative litigation is now increasingly used. There is a distinction

for the System of Commitment by the Accused to Securities and Futures-

between “ordinary” representative litigation, which requires investors

related Administrative Enforcement, which established an "administrative

to actively express intention to participate, and “special” representative

reconciliation" system with commitment by the defendant at its core;litigation, where all affected are joined into the litigation without having

andto give express intention but they must actively withdraw if they don’t
want to participate in the litigation. This latter category is considered(ii) The Ministry of Justice and the CSRC drafted the Implementing Rules formore conducive to protect the interests of investors.

the System of Commitments by the Accused to Securities and Futures-related
Administrative Enforcement (Consultation draft) drawing together the

The concept of representative litigation is a useful method forexperience of the administrative reconciliation pilot.

adjudicating on securities disputes. Special representative litigation issimilar to the "class action" in the United States and other jurisdictions.
The CSRC has said that it will promote special representative litigation
more widely, which may serve to deter those from breaching securities

06

laws and regulations.
(i) Representative was used for the first time in March 2020 by theHangzhou Intermediate Court in the Wuyang bond fraudulent

Crackdown on securities-related
violations

issuance case;
The authorities stepped up their enforcement against those in(ii) In July 2020, the Supreme People’s Court adopted the Provisions on

breach of China’s securities laws and regulations in 2021. With the

Several Issues regarding Representative Litigation in Securities Disputes,

implementation of the amended Securities Law, the availability offormally implementing securities representative litigation, which cameadministrative regulations and clearer criminal prosecution standards,

into operation fully in 2021;

there was greater scope to crack down on transgressors.

(iii) On May 11, 2021, the Shanghai Financial Court awarded a total of

In July 2021, the Opinions on Strictly Cracking down on Securities-related

RMB123 million to 315 investors in the Feilo Acoustics case (the first

Illegal Activities in accordance with Laws (Opinions) issued by the Generalexample of ordinary representative litigation since the practice was

Office of the CPC Central Committee and the General Office of theformally launched);

State Council integrated all the aforementioned regulations. This was
the first time the General Office of the CPC Central Committee and(iv) On November 12, 2021, the Guangzhou Intermediate Court issued

the General Office of the State Council had issued a paper relating toa judgment against Kangmei Pharmaceuticals, awarding investors

securities violations, demonstrating the authorities’ “zero tolerance”

RMB2.5 billion for losses they had sustained because of the false

approach to those in breach of laws. The Opinions provided some 27

statements made by Kangmei. Additionally, those held responsible formeasures to improve the efficiency and intensity of cracking down on

the liabilities were held jointly and severally liable.

securities-related activities. Although the Opinions covered all aspects

30

PRC Financial Regulation- Annual Report (2022)
Securities and Futures

07of the securities and futures markets, the main focus of regulators has
been on illegal activities of listed companies and investors. In particular,
the Opinions proposed an arrangement in which the Securities Crimes
Investigation Bureau of the Ministry of Public Security was based in theMarkets further opened up tointernational investors, and closer
international cooperation establishedwith other countries’ regulators

CSRC and “a working mechanism for stationing procurators in the CSRC"
which will build up a smooth link between the administrative penalties

The securities market continued to open up through 2021, as regulators

imposed by the CSRC and criminal liability pursued by the procurators.

worked to establish a well-functioning market and market access was

By linking criminal enforcement agencies with securities regulators, theincreased.

aim is to strengthen enforcement against securities-related violations
and crimes.

More foreign securities companies set up or expanded China-based
businesses. JPM Securities became the first wholly foreign-owned

In 2021, more than half the penalties imposed for breaching securities

securities company in the PRC, followed by Goldman Sachs (China)

regulations were levied on investment banking and brokerage

Securities. BNP Paribas, Warburg Pincus, Sumitomo Mitsui and Citigroupbusinesses. The penalties were severe. For example, Haitong Securities

all submitted applications for the establishment of foreign-invested

and Haitong Asset Management were required to suspend part of theirsecurities companies. CSRC accepted the application by Standard

businesses for up to 12 months for governance failures and lack of risk

Chartered Securities to set up a securities business. Daiwa Securities andcontrols in their investment advisory business. Those individuals found

DBS Securities had commenced their business operation with approvalto have been responsible were banned from holding professionalfrom the CSRC.

positions for two years. In the Kangmei case, the former chairman of
the board and general manager Ma Xingtian and five other directly

Regarding cross-border investment and trading, in August, the Hongresponsible people, as well as certified public accountants, were held toKong Securities and Futures Commission announced the launch of

be jointly and severally liable; and 13 others, including the independent

A-share-related stock index futures to further attract overseas long-term

directors, were also held to be partly responsible for the breaches. These

funds to invest in A-shares. In September, the Southbound Bond Connect

were high-profile punishments, which received much public attention.

was officially launched, marking the two-way opening-up of the BondThe regulatory authorities have also been more proactive when it

Connect. In October, QFI was allowed to invest in commodity futures

comes to law enforcement. For example, the CSRC preemptively

and other financial derivatives products. In November, international

reviewed the auditing practices of Shenzhen Tangtang Certified Public

copper, as a futures products launched in China, became a benchmark

Accountants and the annual reports of several companies whose

for trade pricing under several cross-border trade transactions, and FTSE

accounts had been audited by Shenzhen Tangtang. Many problems

Russell officially included China government bonds in the FTSE World

were discovered.

Government Bond Index (WGBI). All these changes helped to make
China’s securities and futures markets more competitive internationally.

In the judicial branch, the court’s reliance on the precedingadministrative procedure was abolished to give the courts greater

In terms of international regulatory cooperation, in January 2021, thefreedom to reach their own judgments and not to be bound by pre-International Organization of Securities Commissions (IOSCO) approved

decision of the CSRC. For example, in the Baoqianli case, although thethe documents to be used to file complaints by public investors,

Northeast Securities and BDO Shu Lun Pan Certified Public Accountants

proposed by the CSRC and commented on by regulatory agencies

did not receive administrative penalties for breaches, the court stillfrom 14 countries, including the United Kingdom, the United Statesfound them liable for failure “to diligently perform their duties” and shalland France. This was the first time that China had taken the lead in theundertake the responsibility of compensation.

formulation of international documents in the field of investor protection.
In addition, in 2021, the CSRC strengthened its communication with theoffshore regulatory agencies (such as the US Securities and Exchange
Commission) on the issue of Chinese companies’ listing in the US.
Progress was made on issues such as information disclosure and audit
supervision, which will help eliminate the regulatory barriers to Chinesecompanies’ outward expansion.

31

PRC Financial Regulation- Annual Report (2022)
Securities and Futures

08

Regulators tighten controls overunlicensed securities business in the digital
environment, and correct data complianceproblems in cross-border securities business

As the world experiences digital transformation, the boundaries between
activities of licensed and unlicensed institutions and between countries
have become increasingly blurred. This is particularly the case in the
securities sector, drawing the attention of regulators. In 2021, regulators
have sought to encourage securities companies to take advantage of
new technology while, at the same time, imposing controls to stamp out
unlicensed businesses and ensure data compliance.
In 2021, a particular challenge for regulators was dealing with the newpractice of securities companies to use third-party online platforms
to carry out securities business, involving live webcasts and customer
solicitation activities in cooperation with key opinion leaders in financial
sector. Consumers were offered links to securities companies via thewebsites of unlicensed financial advisers to open accounts. Online
comments and investor recommendations were also seen as being
disguised and therefore unlicensed investment advisory services. The
CSRC responded to stop such unauthorized activity. In early November,the Department of Securities and Funds Regulation of CSRC issued anotice which stated clearly that the social media influencers’ receipt ofaccount opening rewards were against the regulations and forbade
the securities companies from setting up these online links. Securities
companies were also told they must act to stop unlicensed persons frommaking market comments.
Another issue requiring regulators’ attention was the ability of offshore
securities companies engaging with domestic investors through theInternet. The regulators emphasized that the financial licenses could only
operate within national boundaries. Any business conducted onshore
by institutions only holding offshore licenses would be considered illegal
financial activities.
Along with the issuance of Data Security Law and Personal Information
Protection Law, regulators also addressed the issue of compliance ofthe data transmission in cross-border business operations, particularly
concerning personal data protection.

32

PRC Financial Regulation- Annual Report (2022)
Securities and Futures

2022 Regulatory Outlook01

The establishment of the so-called "traffic light" system (clear

Registration-based system for securities
issuance may be fully implemented, andclear rules (i.e. “traffic light” system) for thecapital market activities will be establishedpositive and negative authorizations) on the capital markets was
repeatedly mentioned in 2021, and was finally affirmed at theCentral Economic Work Conference in December and repeatedby the CSRC. “Red light” means that regulators will not allow therelevant capital market activities or of certain players such as after

Since the announcement of the establishment, and the piloting

detecting failings in anti-competitive behavior or insider trading,of, the “registration-based” IPO system on the STAR Market of thewhich might lead to the “disorderly expansion of capital”. "Green

Shanghai Stock Exchange in November 2018, the changes havelight" means the regulators signal that certain activities will bebeen seen to work well.

allowed and encouraged so as to guide the development and flowof capital and stimulate the vitality of market players.

(i) In June 2019, the STAR Market and the pilot registration-based
IPO system were officially launched;

We expect in 2022 there will be closer coordination between thefinancial regulatory authorities and other relevant authorities and(ii) In August 2020, the first batch of companies were listed underclearer rules on the establishment of “traffic lights” will be issued.

the registration-based system on the ChiNext Market;

For example, investment may be supported in fields such as scienceand technology innovation, manufacturing, and to small and(iii) In September 2021, the Beijing Stock Exchange completed

medium-sized enterprises. Against that, monopolistic platforms

business registration and implemented the registration-based IPO

and entities who conduct cutthroat competition may be prohibited

system; andfrom launching IPOs. The "traffic light" rules, together with theregistration-based IPO system, will lay the foundation for future(iv) In April 2021, the main board and the SME board of thecapital market regulation.

Shenzhen Stock Exchange were merged, leaving only the mainboard of the Shanghai and Shenzhen Stock Exchanges not yet using
the registration-based system for IPOs.

02

The registration-based system will be extended to all stock
issuances. Such intention has been included in the 14th Five-Year
Plan, and the 2021 Report on the Work of the Government specified
that the reform of the registration-based system should be steadily

Violators will be more strictly punished
as individuals’ liability is reviewed

promoted to create “multi-level” capital markets.
In 2021, the regulators had a number of ways at their disposal to

The Central Economic Work Conference, held in December 2021 toimpose sanctions on those acting illegally or criminally in the capitalassign the main tasks for 2022, required full implementation of themarkets. The courts also played a part, as representative litigation

registration-based system for stock issuance. The CSRC said that the(in which multiple claims could be heard at the same time) helped

next steps would be to adopt registration as the basis for all capitalaccelerate claims by those seeking redress against illegal activity

markets transactions, improving the quality of listed companies,

and the courts increased the fines imposed on those breaching

improving the process of delisting, and putting more obligations onlaws (as was seen in the Kangmei Pharmaceutical case). Based on

the part of intermediaries.

these developments, we expect that there will continue to be toughadministrative penalties imposed in 2022. With the development

As the Central Economic Work Conference sounded the clarion callof fintech, the regulators will also adopt more novel and regular

for the comprehensive registration-based system reform, and themonitoring methods in daily work. Courts across the country will

CSRC also expressed its high emphasis on this reform, we expect

gradually implement representative litigation to tighten the criminalthat the registration-based system for stock issuance will be adopted

consequences of securities violations.

by the main boards in 2022.

33

PRC Financial Regulation- Annual Report (2022)
Securities and Futures

In the coming year, we can expect to see enforcement by theoffers development opportunities for small and medium-sized

regulators and the courts working closely together, to ensure asecurities companies.

consistent approach to liability. There is likely to be more judicial
interpretation of the criminal law as it applies to securities-(iii) Furthermore, the securities companies will continue to makerelated crimes in relation to Amendment (XI) to the Criminal Law.

efforts in the custody business in sub-fields, especially serving as

The cooperation between public security agencies and financial

custodian for passive index funds.

regulators will likely lead to more criminal offences being punished.
Punishments for illegal activity will also be spelt out in new

The amended Securities Law (which took effect in 2020) also

regulations for listed companies and related to the NEEQ.

indicated regulation of market making businesses would follow atsome point. It may be that in 2022 those in that line of business will

The Kangmei Pharmaceuticals case exposed “failings” in China’s

need to have an independent license of market making to operate.

independent director system. On the one hand, independent directors

If this were to happen, there will certainly be securities companies

were not able to access internal information to enable them to makewhich focus their efforts on developing market making businessinformed decisions and to participate properly in the company’s

in the stock and bond markets, which will further increase market

daily operation and management; on the other hand, prior to theliquidity.

promulgation of the new Securities Law, it was not clear what theirfiduciary duties were. These problems were not fully resolved in the

The Company Law may undergo further amendments in 2022, andKangmei Pharmaceuticals case. We can expect to see further clarification

the clauses on corporate governance and equity structure will

about the extent of independent directors’ duties and liabilities, andbe further developed. Securities companies and other financial

development of directors’ liability insurance, in the coming year.

institutions may seek further possibilities in corporate governanceand equity structure design.

03

Securities companies will divide up theirbusinesses into different areas

04

Green businesses and those helping toachieve carbon neutrality will be given
greater access to financeIn 2022, regulators will continue to encourage securities companies
to compete on different tracks to increase specialization in different

Developing a green economy and achieving carbon neutrality

business areas, with supporting measures being rolled out.

are key planks in China's 14th Five Year Plan. In 2021, a number ofpolicies and measures were introduced to support the achievement(i) The Over-the-Counter Business Development Report publishedof carbon peaking and carbon neutrality goals in both financeby the SAC showed a huge increase in OTC financial derivatives

and taxation areas. For example, the General Office of the CPC

business in 2020, in which securities companies played a vital

Central Committee and the General Office of the State Councilrole. In 2021, a number of securities companies announced thejointly proposed expanding the range of financing channels

contribution of OTC derivatives to their proprietary business andavailable to enterprises engaged in ecological protection and green

said they would transform their proprietary business. The generaldevelopment, establishing a green stock index, and encouraging

expectation is that securities companies will grow their derivatives

qualified non-financial enterprises and institutions to issue green

business. Many of the top securities companies already have strong

bonds.

derivatives businesses in place, complementing investment and
The PBOC, the National Development and Reform Commission andresearch capabilities, capital strength and risk pricing capabilities.

the CSRC issued the Catalogue of Projects Supported by Green Bonds(2021), detailing rules related to green bonds. The vice chairman of(ii) The establishment and opening of the Beijing Stock Exchange

34

PRC Financial Regulation- Annual Report (2022)
Securities and Futures

the CSRC, Fang Xinghai, disclosed that the CSRC had been studying

have to file with the CSRC and comply with laws and regulations onand formulating policies and measures supporting the achievement

foreign investment, network security, and data security, and so on. Thoseof carbon peaking and carbon neutrality goals by: 1) increasing

forbidden from listing overseas include those expressly prohibited fromfinancing support for green and low-carbon enterprises; 2) requiring

financing by listing under laws and regulations, endangering Statelisted companies to disclose appropriate environmental information;

security, being involved in major ownership disputes, or being involved3) encouraging leading market participants to develop the concept

in illegal and criminal activities. If a securities company fails to strictlyof green investment; and 4) actively participating in the work related

perform its duties or fails to urge the enterprise to comply with relevant

to sustainable finance of the International Organization of Securities

regulations, it may be subject to warning or being fined by up to RMB5

Commissions (IOSCO).

million. The Filing Measures further clarified the requirements on thescope of application for filing, filing applicants and filing procedures, andWe expect that in 2022, more enterprises will issue green bonds, andprovided that overseas securities company engaging in the sponsoring

the green bond market will continue to expand; there will be morebusiness of overseas issuance and listing of domestic enterprises orindex investment products constructed based on listed companies

acting as the lead underwriter shall follow filing procedures with thein green industries, to guide the green investment concept ofCSRC, and submit annual reports on its engagement in such business to

the whole market; the CSRC will step up information disclosure

the CSRC.

requirements related to carbon emissions and environmental
protection of listed companies; and financing instruments based on

We expect that the regulatory rules for overseas listing will be formallyenvironmental rights such as water-taking rights, emission rights

implemented in 2022. The direct overseas issuance and listing (H shares,

and carbon emission rights will also be launched in due course.

and so on) of domestic enterprises and indirect overseas issuance andlisting (red chips and via VIEs) of domestic enterprises will be subject toCurrently, the nation-wide carbon trading market is not active

uniform regulatory requirements, and relevant “full floating” rules (i.e. alland participants are limited. In 2022, when conditions are right,

stocks of the listed companies will be publicly tradable) may be issued.

institutional investors, including securities companies, may beallowed to participate in trading of the nation-wide carbon market.

With the amendment of the Company Law, it will become possible toset up a weighted voting rights structure (WVR) in such overseas listed
domestic enterprises. There will be more stringent requirements ondata security, cross-border data flow, and state secrets management of05

overseas listed enterprises. In addition, regulation of overseas securities

Regulations covering overseas listings
may come into force, and cross-borderregulation will be strengthened

companies engaging in the sponsoring business of overseas issuanceand listing of domestic enterprises will also be significantly strengthened.
There will be more cross-border law enforcement cooperation, as the
CSRC works with regulatory departments in other jurisdictions to crack

In July 2021, the General Office of the CPC Central Committee and thedown on illegal acts such as corporate financial fraud and to protect theGeneral Office of the State Council clearly required in the Opinions torights and interests of investors.

strengthen the regulate for China concepts stocks, to take practicalmeasures to deal with the risks and emergencies of China concepts

There may be more regulations covering cross-border securities activities

stocks, and to put appropriate regulations in place. In December, thein 2022. The CSRC may also formally issue the Several Provisions on the

CSRC sought public opinion on the Administrative Provisions of the State

Stock Connect Schemes between Mainland China and Hong Kong Stock

Council on the Overseas Issuance and Listing of Securities by Domestic

Markets, which prohibits mainland citizens from purchasing A-shareEnterprises (Administrative Provisions) and the Administrative Measures

shares through the Shanghai-Hong Kong and Shenzhen-Hong Kongfor the Filing of Overseas Issuance and Listing of Domestic Enterprises

Stock Connect.

(Filing Measures), which proposed the regulation of indirect overseas
issuance and listing (in red chips and via VIE structures) by domestic

We hope that the regulatory authorities of China and the United Statesenterprises. Domestic enterprises issuing securities and listing overseas

agree on audit supervision as they continue to negotiate.

35

>>>>>PRC Financial Regulation:
Annual Report (2022)
Asset Management /Wealth Management

36

PRC Financial Regulation- Annual Report (2022)
Asset Management / Wealth Management

2021 Key Dates
January 8
The CSRC published the Cer tain Provisions on
Strengthening the Supervision of Private Investment
Funds, summarizing regulatory experience and refining
regulatory requirements.

March 30
Th e O p i n i o n s o n Fi n a n c i a l S u p p o r t f o r H a i n a n' s
Comprehensive Deepening of Reform and Opening-Up was
promulgated, aiming to explore the introduction of thecross-border asset management business pilot scheme
to issue RMB-denominated asset management products
in offshore markets, and to launch Qualified Domestic
Limited Partnership (“QDLP”) and Qualified Foreign
Limited Partnership (“QFLP”) pilot schemes in Hainan
Province.

May 11The CBIRC published the Provisional Measures for
Administration of Distribution of Bank Wealth Management
Products by Bank Wealth Management Companies.

May 14The Several Opinions on Accelerating Building Shanghai
into a Global Asset Management Center was promulgated,raising the initiative of an international financial asset
trading platform, and exploring the feasibility ofusing one platform to conduct QDLP and WFOE PFM
businesses; on the same day, the first batch of public
Real Estate Investment Trusts (“REITs”) (9 in total) wereapproved by the Shanghai Stock Exchange (“SSE”) or theShenzhen Stock Exchange (“SZSE”).

May 27The CBIRC published the Circular on Matters Related to theRegulation of the Management of Cash-management Bank
Wealth Management Products.

June 1The opening ceremony of Shanghai-Hong Kong ETF
Connect was held and one ETF product from each of
SSE and the Hong Kong Exchanges and Clearing Limited(“HKEX”) was listed and traded on both markets.

June 29
The NDRC published the Circular on Further Improving the
Pilot Scheme of the Infrastructure Sector REITs.

July 27
The first wholly foreign- owned insurance asset
management company, Allianz I nsurance AssetManagement Company Limited, was approved tocommence business.

September 10
The regulators on the mainland, Hong Kong and Macau
respectively released the implementation details of the
Cross-Border Wealth Management Connect in the Greater
Bay Area (“WM Connect”). Thereafter, the Hong Kong
Monetary Authority, the Macau Monetary Authority,
the Guangzhou Branch of the PBOC, and the Shenzhen
Central Sub-branch of the PBOC announced the firstbatch of banks permitted to conduct WM Connectbusiness on October 18, and such business was launchedon the following day.

September 24
The Southbound Trading under Bond Connect was
officially launched four years after Northbound Trading
was implemented.

October 13
The CSRC announced to allow Qualified Foreign Investors(“QFIs”) to invest in commodity futures, commodity
options and stock index options.

December 10
The CBIRC published the consultation paper of theRegulations on the Administration of Insurance AssetManagement Companies, which clarified the positionof insurance asset management companies as “aiming
to achieve long-term value maintenance and asset
appreciation”; the Measures for the Administration of theLiquidity Risk of the Bank Wealth Management Products ofBank Wealth Management Companies was promulgated.

37

PRC Financial Regulation- Annual Report (2022)
Asset Management / Wealth Management

2021 Regulatory Observations

01

products are still based on the types of product manufacturers.

Post-Asset Management New Rules
Era: the regulatory systems of the
CBIRC and the CSRC move towards
consistency while characteristics ofdifferent institutions are taken into
consideration, and financial institutions
endeavor to take challenge to finish the“last mile” of the transitional period

For example, the distribution channels of WMSs are still limited tobanking institutions. And the consultation paper of the Regulations
on the Administration of Insurance Asset Management Companies
emphasizes that insurance asset management companies still need
to be anchored in long-term and steady investment strategies
to achieve the goal of long-term value maintenance and asset
appreciation.
With the end of the transitional period approaching, financial
institutions have been stepping up their efforts to make all

The year 2021 is the last year of the transitional period of the Assetchanges to meet the requirements of regulators to upgrade their

Management New Rules (issued by multiple financial regulators inoperations (“Rectification”), such as clearing out the principal-

2018), and the regulatory systems of asset management gradually

protected or non-compliant asset management/bank wealthbecome well bedded in. Various supporting rules of the Assetmanagement products. Although most institutions are said to be

Management New Rules have been gradually put in place (except

able to accomplish the Rectification on time, the work of somefor the Provisional Measures for Administration of Cash Trust of

institutions is more of “form over substance”, and some products are

Trust Companies in the trust sector, which has not been officiallystill being secured by the credit of financial institutions while thepromulgated following public consultation), and the regulatory

Asset Management New Rules requires the financial institutions shallsystems of bank wealth management (i.e. asset management

not provide any direct or indirect, explicit or implicit guarantees,

ser vices offered by commercial banks or their dedicatedrepurchases and other commitments to bear risk on behalf of thesubsidiaries. The industry tends to continue to use this terminology

asset management products. After the expiration of the transitional

even though the “wealth management ( 理 财 in Chinese)” service

period, the regulators will promptly deal with assets that are notin most contexts is asset management in nature), funds, securities“rectified” by financial institutions on a case-by-case basis. The

asset management, insurance asset management, and other related

regulator may take additional measures against any financial

industries and products are becoming unified.

institutions still not in compliance with new regulations, including
but not limited to suspension of new business and adjustment of

Taking the bank wealth management business as an example, inregulatory ratings until such assets have been fully “rectified”. In

2021, the CBIRC published the Provisional Measures for Administration

addition, new issues and challenges have emerged in the processof Distribution of Bank Wealth Management Products by Bank Wealthof strictly implementing the requirements of the Asset Management

Management Companies, the Circular on Matters Related to the

New Rules. For example, the requirement of net worth management

Regulation of the Management of Cash-management Bank Wealth(which means that the actual value and the return on assets shallManagement Products, and the Measures for the Administration of

be reflected in the net worth of the asset management product)

the Liquidity Risk of the Bank Wealth Management Products of Bank

has caused financial institutions to rethink the importance of their

Wealth Management Companies. Additionally, according to theinvestment and research capabilities in order to produce more

2022 legislative plan released by the CBIRC, it intends to issue thecompetitive asset management products.

Measures on Consumer Appropriateness Management of Banking andInsurance Institutions in 2022.
The system and rules for bank wealth management companies(including wealth management subsidiaries (“WMSs”) and othernon-bank financial institutions approved by the CBIRC which mainly
conduct bank wealth management business, such as the bankwealth management companies controlled by foreign shareholders)are gradually converging with the CSRC system. At the same time,
the regulatory authorities’ approaches towards asset management

38

PRC Financial Regulation- Annual Report (2022)
Asset Management / Wealth Management

02

earlier this year, the Beijing Equity Trading Center took the lead

Regulatory approaches have beenfurther refined to cover the full life
cycle (i.e. fundraising, investment,
management, and exit) of asset
management products

in implementing applicable supporting rules of equity transfers
relating to PE/VC investments. In November, the CSRC approved thepilot transfer of PE/VC investments in the Shanghai regional equity
market. Other regions in China such as Sanya, Hainan Province
have also proposed to actively explore the establishment of similar
mechanisms.

In 2021, regulators continued to refine their regulatory approacheswith regard to individual asset management products, with new
regulatory requirements covering the entire life cycle of asset

03

management products, including “fundraising, investment,
management, and exit”. Regulators also began to pay special
attention to key fields and high-risk transaction scenarios.
(1) “Fundraising”: The regulators have stressed that the online
distribution by internet platforms has to be licensed and those thatare not licensed need to rectify.

Taking fund investment advisory
service as an opportunity, both
domestic and foreign institutions havemade comprehensive arrangementsin the wealth management sector,
and the overall regulatory system over
the wealth management sector has
gradually taken shape(2) “Investment”: In recent years, the regulators have regulated
investment behaviors from multiple perspectives, such asconcentration restriction on investments (i.e. the regulators impose

In the post-coronavirus era, the transformation of asset management

upper limits on underlying assets an asset management product caninstitutions has begun, and wealth management is one of theinvest in from different perspectives), investment scope, and market

market’s key concerns (unlike the bank wealth management service,misconduct prohibitions. However, the regulators rarely mention

the wealth management service ( 财富管理 in Chinese) refers to thespecific investment/trading activities from a micro perspective. It iscomprehensive buy-side advisory services and tailored investment

worth pointing out that new trading models such as quantitativeand financing solutions to clients, which is close to the term as used

trading and high-frequency trading have recently developedin most offshore jurisdictions).

rapidly in the Chinese market. Regulators have tentatively imposed
information reporting requirements on these special trading models

In the first half of the year 2021, several institutions obtained thein 2021, laying the groundwork for future regulation.

public fund investment advisory pilot qualification, which may
provide a catalyst for the transformation of the wealth management(3) “Management”: In September 2021, the General Office ofbusiness. After assessing the actual situation in the wealththe Ministry of Finance published the consultation paper of the

management sector and gathering regulatory experience, in theRegulations on Accounting Treatment Related to Asset Management

second half of the year 2021, the CSRC and the AMAC focused on

Products. The proposed unified accounting treatment will promotefurther regulation of fund investment advisory businesses. For

the implementation of the principle of net worth management

example, the CSRC publicly issued the draft of the Circular on theand prevent financial risks. In addition, the official of the Market

Regulations of Fund Portfolio Strategy Advisory Activities in November

Department of the CSRC mentioned in 2021 that the CSRC will

2021, which aims to differentiate and regulate fund investment

facilitate the issuance of the Regulations on Supervision andadvisory services (which is regarded as buy-side service) from

Administration of Private Investment Funds as soon as possible.

investment advisory services ancillary to fund distribution (which
is more from the perspective of sellers). In addition, the AMAC

(4) “Exit”: The importance of diversity of exit routes for private

issued guidelines on the content and format of legal documents

equity/venture capital (“PE/VC”) products cannot be overstated. In

for fund investment advisory services for public consultation, and2021, the establishment of the Beijing Stock Exchange has provided

the CSRC issued guidelines on service performance and client asset

a new way for domestic companies to go public. Added to that,

presentation for public consultation. As a result, the regulatory

39

PRC Financial Regulation- Annual Report (2022)
Asset Management / Wealth Management04

regime for fund investment advisory business is gradually taking
shape, and the standardization of the investment advisory market isalso expected.

Mutual market access between themainland and Hong Kong/Macau
deepens with greater range of products

Meanwhile, foreign institutions have started to become actively
involved in wealth management businesses in China. In 2021,

Based on the experience gained from Stock Connect and Bond Connect,several foreign financial institutions, such as Credit Suisse, havethe mutual market access concept is being consistently exploredbeen preparing for, or have submitted, applications for businessand deepened. Four years after the introduction of the Northboundqualifications covering important segments of wealth management

Trading under the Bond Connect, Southbound Trading was launched inservices, such as product distribution, investment advisory service,

September 2021. As one of the channels by which onshore institutions

and securities brokerage.

are allowed to make offshore investment in the overseas bond market,
Southbound Trading further accelerates the pace of internationalization

Trust companies have also been actively developing investmentof the PRC bond market.

trusts (mainly securities-based investments) and family trust
businesses, to fall in line with regulatory pressure. As for bank wealth

After nearly two years of preparation since the announcement of the

management products provided by bank wealth management

Greater Bay Area Construction Leading Group in November 2019 tocompanies, the official release of the Provisional Measures for

explore the establishment of the WM Connect in the Greater Bay Area,

Administration of Distribution of Bank Wealth Management Products

the first batch of business of the WM Connect was officially launchedby Bank Wealth Management Companies added another piece ofin October 2021. The approach in the early stage of the WM Connect

the puzzle to the supporting regulatory system for bank wealth

was to proceed cautiously with proper risk controls, involving low-riskmanagement business. Currently, bank wealth management

products, closed-loop funds flow, careful regard for investor protection

products are only allowed to be sold by bank wealth management

and methods introduced for resolving disputes, among other measures.

companies themselves and banking institutions, which has an
impact on the ability of acquiring consumers through internet

Unlike previous mutual market access programs, the WM Connect allows

platforms, brokers and other sophisticated distribution channels.

retail customers to open investment accounts and make investments

However, for small and medium-sized banks that have not yet set

directly across the border for the first time, providing investors in the

up WMSs, such restrictions on distribution channels may offer themGreater Bay Area with a wider degree of flexibility in choosing investment

an opportunity to approach their existing customers directly to

products. According to the Guangzhou Branch of the PBOC, a total of 20

develop their wealth management business.

banks provided services to individual investors in November, leading to7,517 new investors. Of these, a total of 5,100 people from Hong Kongand Macau participated in the Northbound Connect, and a total of 2,417
people from the mainland participated in the Southbound Connect.
In addition to the Southbound Trading under Bond Connect and the
WM Connect, the mainland and Hong Kong are also actively exploring
the cooperation mechanism of ETF Connect. SSE, SZSE and HKEX havelisted ETF products respectively under ETF Connect. Given the different
regulatory regimes of the mainland and Hong Kong and other practicalreasons, ETF Connect is still mainly achieved through the QDII/QFII
channel by way of "mutual investment". HKEX, SSE, SZSE, and China
Securities Depository and Clearing Corporation (“CSDC”) reached ahigh-level agreement at the end of December 2021 on the availability of
eligible ETFs under Stock Connect. As the next step, HKEX, SSE, SZSE, and
CSDC will work closely on the details of inclusion, including business andtechnical preparations such as amendments to applicable rules.

40

PRC Financial Regulation- Annual Report (2022)
Asset Management / Wealth Management

05· The bank wealth management joint ventures between Schroders andSteady progress in further opening-up
and integration into the global financial
systemBank of Communications and between Goldman Sachs and ICBC wereapproved for their respective establishments;· The first wholly foreign-owned public fund company, BlackRock FundManagement Limited Company, was approved to open for business

Since the new QFI regulations came into effect in 2020, the hurdle forand promptly launched its first public product;hedge funds to apply for QFI qualification was removed and several
hedge fund managers already successfully obtained a QFI qualification· Both Fidelity and Neuberger Berman were approved to establish theirin 2021. In addition, on October 13, 2021, the CSRC issued a regulation

wholly foreign-owned public fund companies;that allows QFIs to invest in commodity futures, commodity options andstock index options, which is a further implementation of the new QFI· JP Morgan announced it would acquire 10% equity interest of China

regulations (but specific transactions are subject to upcoming rules ofMerchants Bank's WMS; andexchanges). Besides, in 2021, quota approvals for QDIIs tend to be seen
more often.

· Bridgewater became the first WFOE PFM with assets under management(“AuM”) reaching RMB10 billion.

On March 30, 2021, the PBOC, the CBIRC, the CSRC, and the SAFE jointly
issued the Opinions on Financial Support for Hainan's Comprehensive

These foreign institutions are likely to bring new developments to the

Deepening of Reform and Opening-up, proposing to explore theasset management market in China.

development of the pilot scheme of cross-border asset management
and to support foreign investors to invest in various types of asset
management products issued by financial institutions in the Hainan Free
Trade Zone. This has become one of the financial pilot schemes that the06market is viewing with great interest to see how it works in practice. In
May 2021, the Shanghai Municipal Government released Several Opinions
on Accelerating Building Shanghai into a Global Asset Management Center,
an indication of the Shanghai government’s determination to asset
management sector to put in place a good system to support bank

The asset management sector contributes
to the reform of the pension system, while,in turn, the pension system introduces
new long-term funds into the asset
management sector

wealth management, trusts, securities, funds, insurance, private equity
and futures in order to build a global asset management center. Shanghai
Lingang District also intends to build an international financial asset

China’s reform of pensions continued. Compared with the first pillar

trading platform with both issuance and trading functions. Furthermore,(public pensions) and second pillar (annuities and other pensions

the SAFE has approved multiple regions to carry out cross-borderserving similar purposes and functions), the development of thebusiness such as those conducted through QDLP and QFLP schemes.

third pillar (individuals contributing to their own pensions through,The Sino-French Financial Dialogue also mentions that China welcomesfor example, personal savings and commercial pension insurance)

French asset management institutions to set up joint venture bankhas lagged behind. Faced with the pressure of an aging society,wealth management companies with WMSs of Chinese banks.

the reform of the pension system is essential. Regulators are also
actively exploring other ways to develop the third pillar (apart fromcommercial insurance).

At the same time, foreign investors continue to be enthusiastic about theasset management market in China and are entering the market:

Pilot pension bank wealth management products made their debut· Allianz became the first wholly foreign-owned insurance asset

in 2021. Unlike the pension-target funds under the CSRC system,

management company;

the pension bank wealth management products issued by the
WMSs are equipped with more “pension” features, such as: (1) the· The bank wealth management joint venture of BlackRock, CCB andproducts come under closed-ended operation, but supports early

Fullerton was approved to open for business and issued its first product;

redemption when certain conditions are met (e.g., major diseases);41

PRC Financial Regulation- Annual Report (2022)
Asset Management / Wealth Management(2) the products adopt the “income-smoothing funds” mechanism

mandatory repayment-related provisions shall be deemed invalid

to ensure regular investment return (a certain percentage of excess

has also been signaled by judges. For instance, in the Zenith Steelincome over the benchmark is distributed to the income-smoothing

Group vs. Sandu Xinghe case, the court of second instance upheld

fund to cope with the situation where the return of the product isthe first instance judgment, holding that, despite the general

uneven).

principle that violation of regulations would not affect the validityof a contract, a contract should be considered invalid if the content

Bank wealth management companies have certain advantages inof such regulations involves financial security, market order, national

carrying out pension asset management: (1) commercial banks havemacroeconomic policy, and other public policies. Accordingly, thean extensive base of savings clients; (2) bank wealth management

court held in this case that the contract on mandatory repayment

has extensive experience in asset allocation and the offering ofshould be invalid. The court of the first instance also mentioned thatlow- and medium-risk products; (3) regulators intend to guide theif Zenith Steel Group considered that the manager was at fault fordevelopment of professional products with real pension-saving

the investor’s loss, the investor could claim damages separately once

functions. In a speech in October 2020, CBIRC Chairman Guo

the amount of loss had been determined. This also confirmed the

Shuqing said that the regulators should explore uniform standards

principle that the manager with management responsibility shouldfor pension financial products and should abolish products that do

be liable for losses caused by their fault (at least to some extent).

not live up to their names.
Furthermore, in recent trials, it was held that a distributor (or a nonThe pension system is also closely linked to the asset management

licensed institution that substantially performs the distributionsector. For a long time, institutional investors, represented byand related functions), as the agent of the manager, may be heldsocial security funds, pension funds and enterprise annuities, havejointly and severally liable, in accordance with the Minutes of theargued for the sound development of the asset management

National Courts' Ninth Conference on Civil and Commercial Trial Work.

sector. The reason is, compared with retail investors who pursue

For example, in the Ju Pai case, the controlling shareholder of theshort-term interests, they are more concerned to achieve long-

manager was substantially involved in the promotion, distribution,

term investments. Pension bank wealth management products areinvestment, and management of the private fund, and therefore

conducive to the transferring of individual investors' “deposits” into

in essence constituted the agent of the manager, and thus theinvestments with the aim of achieving a balance of risks.

shareholder should be jointly and severally liable with the manager.

07

08

While emphasizing the elimination of
mandatory repayment, the principle ofcaveat venditor (“seller beware”) andcaveat emptor (“buyer beware”), clearlystated in the Minutes of the National
Courts' Ninth Conference on Civil andCommercial Trial Work, has been carriedthrough in judicial practiceCarbon trading system gradually improved
to promote the development of thegreen asset management business

The year 2021 is the first year of the 14th Five-Year Plan, out of which
emerged a number of key goals so far as the promotion of theenvironmental industry is concerned.
· In March, the State Council issued the 14th Five-year Plan for China's

The core purpose of the Asset Management New Rules is to put an

National Economic and Social Development (2021-2025) and theend to mandatory repayment to investors and to let the investors

Outline of Perspective Goals for 2035, proposing to promote green

bear the investment risks. Regulators have enforced this strongly.

development and the harmonious coexistence of human beings

For example, Sichuan Trust was fined RMB34.9 million for, amongst

and nature, build a green development policy system, strengthen

others, promising zero principal loss or minimum investment return.

the legal and policy guarantees for green development, andAt the same time, in recent trials, the regulatory directive that the42

PRC Financial Regulation- Annual Report (2022)
Asset Management / Wealth Management

vigorously develop green finance.
· In February, the Management Rules of Carbon Emissions Trading(for Trial Implementation) came into effect; and in July, the national
carbon emissions trading was officially launched in the Shanghai
Environment and Energy Trade Exchange.
· In November, the Guiding Opinions on Strengthening the Integrationof Industry to Promote the Green Development of Industry were
promulgated, proposing to innovate green financial products andservices and to support the orderly transfer of production capacity,
relocate hazardous chemical production enterprises, and build
advanced manufacturing clusters with a comprehensive packageof financial tools such as M&A loans and asset management.
The green policies and market practice represented by peaking
carbon dioxide emissions and achieving carbon neutrality (the socalled “30-60” objective) progressed steadily in 2021.
Along with the high-level policy support from the regulators, green
asset management products with the theme of peaking carbon
dioxide emissions and achieving carbon neutrality have emerged invarious forms in the market this year. For example, the first domestic"carbon neutrality" asset securitization product issued by Yingda
Trust, the first carbon-neutral service trust established by Zhonghai
Trust with Chinese Certified Emission Reduction (CCER) as theunderlying asset, and several ESG ETFs have been approved. It is
not difficult to find that green asset management products with thetheme of peaking carbon dioxide emissions and achieving carbon
neutrality play a role in value discovery and value investment in thefield of energy conservation and environmental protection.

43

PRC Financial Regulation- Annual Report (2022)
Asset Management / Wealth Management

2022 Regulatory Outlook

01

02

Asset management institutions will pay
more attention to specialized positioning,with less-sophisticated players expected
to exit the market

From commission fee-first to clientinterest-first, the wealth management
sector will undergo profound changes

The Asset Management New Rules and its supporting provisions will

We expect that the consultation paper of the investment advisory business

continue to promote the sound development of the asset management

qualification issued by the CSRC will probably be formally promulgatedsector. With the asset management business gradually returningand implemented in 2022, and the approval of fund investment advisory

to its original purpose (i.e. active management), the importancequalification (currently only on a pilot basis) will become more commonof professional operation and compliance has become more andin the future. The importance of buy-side advisory business will be further

more pronounced. We expect that regulators will continue to build ahighlighted, particularly when it comes to fund investment advisory

regulatory system for asset management to guide the healthy, long-services. The wealth management market will gradually move from a seller-

term development of the sector.

led one to a more mature model, i.e. being closer to the needs of investors
and relying on the professional capabilities of financial institutions to

In addition to the banks’ splitting bank wealth management businessprovide multi-category and multi-dimensional advisory services.

from their banking businesses, securities companies have also set up
specialized asset management subsidiaries, which is an important

The regulatory approaches of the regulators will put more emphasis on

measure to implement the Asset Management New Rules on risk

the different fiduciary responsibilities of service providers to the productsegregation of legal persons and represents a further specialization

issuers and to the investors, and discussions over the boundaries of theof the asset management business. However, since 2021, the pace of

responsibilities of service providers from different perspectives, as well as

license approvals for WMSs has slowed significantly, which we believe isthe prevention and handling of conflicts of interest.

related to the CBIRC's mindset of urging the transformation of the bankasset management business and emphasizing compliance.

On this basis, the provision of integrated and customized services willfurther lead to growth opportunities in a series of businesses such as

We also expect that regulators will be more cautious in approving thebrokerage, private products and structured products. No single financial

splitting of asset management business or the new qualification of asset

institution can yet provide comprehensive and full process wealthmanagement business, and the approval of new licenses for WMSs or

management services under PRC law. The advantages of a group company

other bank wealth management companies might be tightened. For

will be shown at this stage and the intra-group cooperation model will becommercial banks that cannot achieve a "clean start", regulators might

further explored. We expect that the leading experience in this regard may

suspend or even not approve the establishment of WMSs. Under suchshed new light on the regulation of intra-group collaboration.

circumstances, these commercial banks will not be able to continue
their bank wealth management business after the terms of their
existing self-manufactured products expire. With this trend, the lesssophisticated players will cease to exist, and the phenomena of asset

03

management institutions being “large in quantity but undesirable inquality”, or “large in AuM but undesirable in return” will be improved.
In addition to the above, as part of growing professionalism that is

Cross-border regulation and enforcement
issues may be highlighted as asset
management and wealth management
markets go global

being encouraged, we expect that the regulation of the third-party
service sector will be strengthened. The regulator's attention will be

Along with the deepening of the mutual market access regime andextended to cover other aspects of the business, such as custody,

the steady progress of financial opening-up, the wealth management

FATA, distribution, valuation and IT, as it will be the responsibilities ofsector and the asset management sector will continue to promote global

managers to ensure that the asset management institutions focus on

operation, and bringing new opportunities for global asset allocation

their core business and risk management.

for global and Chinese investors. On this basis, the wealth management
sector and asset management sector may usher in a new development

44

PRC Financial Regulation- Annual Report (2022)
Asset Management / Wealth Management

boom. We expect that regulators will continue to promote theproducts. It will become an important issue for bank wealth management

development and improvement of policies and systems related to cross-to gain investors' understanding and continue to win their investment.

border asset management, such as further expanding the scope of QFIWe expect that the CBIRC will continue the regulatory focus on protecting

investment and issuing supporting implementation rules, expanding theconsumer rights, with more emphasis on making sure that investors

QDLP/QFLP pilot schemes, and promoting pilot cross-border investmentof asset management products are suitable and investor education inby private equity funds. In addition, regulators will also focus more on

the overall process of issuance and distribution of asset management/

practical issues, such as how to regulate the cross-border transmission of

wealth management products. So far as keeping investors well informed

financial services related data.

is concerned, bank wealth management businesses could learn frommutual funds.

As the global financial system becomes more closely integrated, theimportance of cross-border regulatory supervision and enforcement

Domestic and foreign institutions need to put themselves in their clients'

cooperation becomes all the more important. How to strengthen theshoes and assist "non-professional" investors (represented by individuals,

collaboration and information sharing between regulators, prevent theor “retail” investors) to select suitable products which are best suited torisks arising from cross-border capital flows, and cope with the different

their own needs and conform to their risk appetite. In addition to general

financial supervision requirements of different jurisdictions will become

educational content such as risk disclosure and elimination of “guaranteed

new challenges for regulators. We believe that the implementation of therepayment”, we expect that regulators may place more emphasis on"place of business segment" principle established by the WM Connect

the introduction of offshore products (especially those that are more

will bring fresh ideas to solve these challenges. We expect that, while theinnovative and complex in structure compared to asset management

possibility of introducing specific implementation rules on cross-borderproducts available in the onshore market).

regulations and enforcement in the near term is low, the regulators willcontinue to gain experience and lay the groundwork for future rules.

04

05

More efforts to be devoted to investor
education

The theme of “green” may become an
important direction for the transformationof the asset management sector

In recent years, the green finance business in the PRC has laid a goodfoundation, with green credit and green bonds performing very well.

In the era following the introduction of the Asset Management New

Financial regulators have made clear their encouraging and supportive

Rules, there is likely to be a reversion to the position where investors

attitude towards green finance businesses and products in the Guiding

have greater influence. For example, how individual investors canOpinions on Strengthening the Cooperation of Industry and Financing

further release the funds in their savings accounts to diversify asset

to Promote the Green Development of Industries. Currently, the asset

allocation, how institutional investors should invest to maximize returns

management sector has started to actively issue green products. We

by balancing the risks, and how government investors can balance

believe that the green theme will be an important direction for the

maximizing returns with the benchmarking role of the government willtransformation of the asset management sector in the coming year.

all come to the fore. In this process, sound investor education will help
investors gain a deeper understanding of how the asset management

We expect that supporting policies will clarify the meaning of "green

sector works and how they can best work out what investments are best

theme", provide clearer identification criteria, improve the framework

for them.

and standards for information disclosure of applicable entities anddefine the legal responsibilities of managers. Accordingly, regulators

The “net worth transformation” of bank wealth management businessmight also issue relevant preferential or supportive policies to provide

and the elimination of “mandatory repayment” will overturn thethe impetus for the development of green asset management.

traditional perceptions of investors of bank wealth management45

>>>>>PRC Financial Regulation:
Annual Report (2022)
FinTech46

PRC Financial Regulation- Annual Report (2022)
FinTech2021 Key Dates
January 13 / February 19
The China Banking and Insurance Regulatory Commission(CBIRC) and the People’s Bank of China (PBOC) issued the
Notice on Matters Concerning the Regulation of Internetbased Personal Deposits of Commercial Banks, and the
CBIRC issued the Notice on Further Regulating the Internet
Lending Business of Commercial Banks.

January 20
The PBOC issued the Regulations on Non-bank Payment
Institutions (Consultation draft).

February 7
The Anti-monopoly Commission of the State Council
issued the Anti-monopoly Guidelines on Platform Economy.

April 29
The financial regulatory authorities summoned 13
internet platform enterprises and imposed sevenrequirements to change their practices.

June 10 / August 20
The Standing Committee of the National People's
Congress passed the Data Security Law and the Personal
Information Protection Law (PIPL).

July 6 / November 25
The Shenzhen Municipal People's Congress issued theData Regulations of Shenzhen Special Economic Zone;
the Shanghai Data Exchange was officially launched in
Shanghai, 8 types of data products relating to financial
industries and other industries were listed, and theShanghai Municipal People’s Congress passed theShanghai Data Regulations.

July 30
The State Council issued the Regulations for Security
Protection of Critical Information Infrastructure.

September 27
The PBOC issued the Administrative Measures on Credit
Investigation Business.

September 28
The Beijing Financial Technology Innovation Supervision
Working Group and the Shenzhen Financial Technology
Innovation Supervision Working Group both announced
the completion of the tests on “the innovative applicationsof financial technology innovation supervision tools”. The
first batch of applications "exiting the sandbox" came out.

October 29 / November 14
The CAC issued the Measures for the Security Assessmentof Data Outbound Transfer (Consultation draft) andthe Network Data Security Management Regulations(Consultation draft).

December 2
Pudao Credit Co. completed the filing of corporate credit
investigation business, becoming the second credit
investment institution after Baihang Credit Co. Bothhave licenses to provide individual and corporate credit
business.

December 28
The CAC and 12 other authorities issued the amendment
to the Cybersecurity Review Measures.

47

PRC Financial Regulation- Annual Report (2022)
FinTech2021 Regulatory Observations

01

services operating under the name of “credit information services”, “credit

Fintech regulatory framework developed,
strengthening the requirement that
financial businesses must operate
under license

services”, “credit scoring”, “credit rating” and “credit repair”, is necessary.
The PBOC made it clear that those engaging in personal credit
investigation business without the PBOC approval under the façade of
big data companies, fintech companies, and so on, will be acted against
the law. The measures further clarified that financial institutions shall

On March 5, 2021, Premier Li Keqiang stated in the government work

not be permitted to cooperate with market entities that have not yetreport that the supervisions of financial holding companies and fintech

obtained a proper credit investigation license.

companies should be reinforced to ensure that financial innovation iscarried out under prudential regulation. In 2021, financial regulators

On April 29, the PBOC, the CBIRC, the China Securities Regulatory

further emphasized that all types of institutions that are substantially

Commission (CSRC), the State Administration of Foreign Exchange (SAFE),

involved in financial business in the form of platform cooperation andand other financial regulators held talks with 13 leading online platforms

technological innovation should be licensed and subject to unified

to raise “rectification” requirements they needed to fulfil with regard toregulation. Following the momentum of 2020, regulators continued

the issues such as licensed operation of financial services, shareholder

to issue a series of rules to strengthen fintech regulation. By the end of

qualifications, shareholding structure, capital, risk segregation, related

2021, fintech-related regulations or consultation papers were releasedtransactions, improving corporate governance, and implementing

in all major areas covering banking, securities, insurance, funds,“two participation/one control” shareholding limitations in banking

microcredit, and credit investigation, bringing both financial and non-and insurance institutions. In October, Guo Shuqing, the chairman of

financial institutions under the purview of regulation, and applying

the CBIRC, further stated that similar businesses and entities should beequivalent standards to the similar financial activities.

treated alike and regulatory arbitrage should be eliminated.

With respect to financial institutions, the regulators issued
new regulations addressing financial institutions’ violations or

02

circumventions of regulations in deposit and loan businesses thatwere conducted via the internet, collaborating with third parties, andso on. In January 2021, the CBIRC and the PBOC issued the Notice on
Matters Concerning the Regulation of Internet-based Personal Deposits
of Commercial Banks, emphasizing that commercial banks conducting

Evaluation and assessment of consumers’
financial rights gained further attention,prioritizing the prohibition of inducing
consumers to take on too much debt

deposit business through the internet should strictly comply with laws
and regulations, and they must not violate or circumvent any regulatory

Financial consumer protection has been repeatedly strengthened

requirements by means such as online operations. The Notice also

by the financial regulators in recent years. Regulators effectively

clarifies that commercial banks should not operate time deposit or

urged fintech-related institutions, including commercial banks, totime-demand deposit businesses through non-self-operated online

establish and improve financial consumer protection mechanisms

platforms. In February 2021, the CBIRC issued the Notice on Further

by incorporating consumer protection into their assessment criteria

Regulating the Internet Lending Business of Commercial Banks, setting

for financial institutions, and by sanctioning and investigating theirout the regulatory requirements on the funding proportion between

behavior regarding consumer right infringements. For example,

commercial banks and their cooperating agencies when granting

the Measures for the Regulatory Evaluation of Banking or Insuranceinternet loans.

Institutions' Protection of Consumer Rights and Interests, promulgatedby the CBIRC on July 5, 2021, established annual supervisory

With respect to non-financial institutions, the financial regulators haveevaluations for consumer protection, prompting affected financial

continued the strong regulatory position they have taken about theinstitutions to include consumer protection as a key aspect of theiroperation of online platforms businesses. The Administrative Measuresinternal compliance; and the CBIRC Beijing Branch set out standard

on Credit Investigation Business issued by the PBOC on September 27,

requirements for auto finance companies and consumer finance2021 stated the licensing requirement to carry out credit investigations,companies within its jurisdiction with regard to the protection ofwhich also includes the provision of de facto credit investigation

financial consumer rights in a number of ways, such as corporate

48

PRC Financial Regulation- Annual Report (2022)
FinTechgovernance, price management and contract management.

for personal information protection such as “the principle of consent”,
improved the system of rights and obligations related to personal

Prohibiting the inducement of consumer over-indebtedness has been

information protection, and restricted certain conduct such as "big data

the focal points of the regulators' consumer protection endeavors.

discriminatory pricing" and illegal processing of personal information.

The 2021 PBOC Working Meeting required that excessive marketing ofIn short, the PIPL has laid the legal foundation for governing the digitalfinancial products and inducing over-indebtedness should be strictly

society.

prohibited. On February 24, 2021, the CBIRC, the CAC, the Ministry of
Education, the Ministry of Public Security, and the PBOC jointly issued

For all financial institutions and fintech companies, who invariably

the Notice on Further Regulating the Supervision and Administration ofprocess people’s personal information, protecting personal information

Online Consumer Loans for College Students, prohibiting the inducement

will become a critical part of the legal obligations in their operations.

for college students to take on too much debt, which might lead them

Violating such obligations under certain circumstances will constitute

to becoming over-burdened with debt.

a criminal offence, as well incurring administrative penalties and giving
rise to potential civil liabilities.

Since 2021, the financial regulators have launched several “rectification
movements” for financial consumer protection in the fintech sector,

So far as law enforcement is concerned, national and local regulators

criticizing some financial institutions for infringing consumer rights. The

have identified the major applications (apps) and online platforms that

CBIRC and the Financial Consumer Protection Bureau of the PBOC havewere being used to collect people’s personal information. For example,

circulated critical, in some cases imposing administrative penalties,

on May 10, the CAC issued a circular on the illegal and “abnormal”

on a number of financial institutions and internet companies and/orcollecting and using of personal information by 84 apps; on November

their related personnel for illegally deceiving consumers or seriously

18, the CAC Hainan Branch issued a circular on the illegal usage of

infringing consumers' basic rights, such as the right to information, thepersonal information by 13 apps.

right to independent choice, and the right to being dealt with fairly intransactions. The problems of inadequate consumer rights protection

On top of this, in recent years, banks have been restricted fromsystems are particularly significant when it comes to those cooperating

certain lending collaboration businesses (what are called “channelingwith online platforms. The regulators have adopted a strong regulatory

services”). In July 2021, regulators required online platforms, whenstance and strict enforcement towards the violations of consumer

collaborating with financial institutions in forms of lending channeling,rights and interests.

lending facilitation, joint lending, and so on, must not directly
provide information (including information voluntarily submitted byindividuals, information generated within the platform, and information
externally obtained) to financial institutions in the name of application

03

information, identity information, basic information, and personal

Personal data protection reinforced,
including collection and use of data

profile scoring information. Instead, any such collaboration had to be
conducted through a new form of agency, called "online platformcredit investigation agency-financial institution", which has stricter
controls on the collection and use of personal information.

The promulgation of the PIPL on August 20, 2021 marked the

The courts have also delineated the legal boundaries for personal

establishment of the basic legal framework for personal information

information processing activities of e-commerce platforms. For(which is more commonly referred to as “personal data” outside

example, on October 29, 2021, the Hangzhou Internet Court published

China) protection. As the first special law on personal informationa judgment in which an e-commerce platform's unauthorized provision

protection in the PRC, the PIPL has defined the scope of personalof user information to the platform's built-in payment software has

information and has covered all manner of possessing personal

been identified as constituting a tort (a “wrong” in legal terminology)

information, including collection, storage, use, processing, transfer

and ruled that the platform was liable to compensate individual users.

(including cross-border transfer), provision, disclosure, erasure, and soon. Based on the applicable laws, the PIPL refined principles and rules

49

PRC Financial Regulation- Annual Report (2022)
FinTech04

on Strictly Cracking Down on Illegal Securities Activities in Accordance

Financial data regulation strengthened,
and data trading on the horizon

with the Law, jointly issued by the General Office of the Communist
Party of China Central Committee and the General Office of the StateCouncil, specified the responsibilities of domestic industry supervisors
and regulatory authorities, while strengthening collaboration between
regulatory authorities.

On June 10, 2021, the Data Security Law (DSL) was formally promulgatedas a fundamental law in the field of data security, establishing a multi-

In the first half of 2021, the CBIRC imposed administrative penalties oflayer classification of data protection to enforce a stricter administration

as much as several millions in RMB on a bank for issues including failingof the national core data related to national security, the core economic

to report important information system emergencies and leaking

sectors of the national economy, people's wellbeing, and major public

sensitive information on its internet portal website. The DSL, effective

interests. Regulators formulated a series of supporting rules for thesince September 2021, increased the penalties for violations such as

implementation of data security-related laws. In the second half ofdata leakage, with the maximum fine raised to RMB10 million. Financial

the year, the CAC issued the Measures for the Security Assessment ofinstitutions will face stricter data security regulation and penalties from

Data Outbound Transfer (Consultation draft) and the Network Data

the authorities in the future, and it is imperative for those institutions to

Security Management Regulations (Consultation draft), which are theimprove their internal data security governance procedures. At present,

key supporting regulations for the implementation of the three major

based on the experience of data security projects in the financial sector,

data laws, namely the Cybersecurity Law, the DSL and the PIPL. Those

China Financial Certification Authority (CFCA) has summarized thedraft regulations set out the strict criteria of cross-border data transfer"IPDR" model of data security governance, which might provide a goodrequiring security assessment, refined rules implementing provisions

reference for financial institutions to improve their level of detail onof the major data laws and upgraded obligations for data processors.

data governance and application of data security technology.

Specific to the Network Data Security Management Regulations(Consultation draft), it expanded the scope of network security review to

Property rights associated data first came to be considered at a special

include foreign listings (for those data processors processing personal

meeting of the Financial Stability Committee in October 2020, at

information of more than 1 million people), Hong Kong listings, andwhich it proposed “to establish basic systems and standards for themergers and acquisitions under specific circumstances for online

property rights of data resources and the circulation of transactions". In

platforms.

December 2020, Guo Shuqing, the chairman of the CBIRC, also stated
that, with large technology companies in control of data, the ownership

The Cybersecurity Review Measures issued at the end of 2021 and to beof data rights and interests needed to be clarified. Since 2021, theimplemented in February 2022 also prescribed that any foreign listingleading large technology companies have launched projects related toof an internet platform operator, which had a database of information

privacy computing and data property rights, promoting novel concepts

with more than 1 million people, shall be submitted to the Office ofsuch as "data property rights" and "data property rights trading". Local

Cybersecurity Review for its prior review.

governments such as Shanghai and Shenzhen had already laid out
the framework of regulations in this area. For example, on November

Regulators also addressed the data protection requirements and25, Shanghai promulgated the Shanghai Data Regulations, protecting

obligations that the financial sector need to abide by. For example,"the legal or contractual property rights and interests of natural oron December 3, 2021, the China Financial Standardization Technicallegal persons formed in the use, processing and other data processing

Committee issued the Financial Data Security - Data Security Assessment

activities, as well as the legitimate property rights and interests

Specification (Consultation draft), which provided guidelines on theobtained in relation to data innovative activities in the development ofcircumstances and assessment requirements under which financial

the digital economy".

institutions should conduct data security assessments. In addition,
regulators also clarified the responsibilities of regulatory departments

In addition, these Regulations provide that data trading activities

and regulatory coordination for data security regulation. On January

can be carried out in accordance with the law, and that those market

15, the CBIRC publicly issued the Administrative Measures on Regulatory

players engaged in data trading activities can independently set prices

Data Security (for Trial Implementation), which established how

subject to the law. On the same day, the Shanghai Data Exchange

regulatory data security should be managed. On July 6, the Opinions

50

PRC Financial Regulation- Annual Report (2022)
FinTechwas established, it received and completed applications for listing

sector against a credit investigation company for "engaging in personalof about 100 data products, covering finance, transportation andcredit investigation business activities without approval" and "delaying

communication sectors, among others, and some of the first orderin filing for the appointment of senior management personnel by thedata trading was also concluded. Among these were an "enterpriseenterprise credit investigation institution". The fine and the confiscationelectricity smart-graphing" product and a civil chart service product,of illegal gains amounted to just under RMB20 million, which, so far,between the Industrial and Commercial Bank of China and Shanghaiis the largest fine imposed for breaches of regulations relating toElectric Power Co., which was the first transaction in the banking sector

credit investigation. In July 2021, the PBOC issued a directive saying

and reflected that the traditional financial institutions have alreadythat online platforms could only conduct investigations into people’s

successfully entered the market. However, the central regulators havecreditworthiness through licensed credit investigation institutions. It

not yet clarified rules and arrangements for data property rights andalso demanded that financial institutions could only collaborate with

their protection.

licensed personal credit investigation institutions to deliver personalcredit investigation services.
At the same time, there are opportunities in the credit investigation05

business. In February 2021, China's second licensed national personal

Scope of credit information defined andlimits on license credit investigation
businesses set

credit investigation institution, Pudao Credit Co., opened. Following
that, a number of market participants, such as Shanghai Lujiazui
International Financial Asset Exchange Co. and 360 DigiTech, have also
disclosed their plans to obtain credit investigation licenses.

Regulators have long been concerned by the existence of thousandsof "quasi-credit investigation institutions" that engaged in semilegal or illegal businesses such as online lending and misused data.

06

On September 27, 2021, the PBOC promulgated the Administrative
Measures on Credit Investigation Business, a major new regulation
covering credit investigation businesses (which mean credit checks),
following the 2013 Administrative Regulations on Credit Investigation

Stronger anti-monopoly supervision
measures on the online platform
economy and payment sector adopted

Industry and the Administrative Measures for Credit Investigation
Institutions. The Administrative Measures on Credit Investigation BusinessAt the beginning of 2021, both the PBOC and the CBIRC made it clear

defined "credit information" and has expanded its scope from thethat they would strengthen the supervision of the financial activities of

traditional lending information to include information (such as the basic

online platform companies and steadfastly implement the policies of

information, the lending information, and other relevant information,

the CPC Central Committee and the State Council to strengthen anti-

as well as the analytical and evaluation information based on suchmonopoly regulation and prevent the disorderly expansion of capital.

information) collected in accordance with law for providing financial
services to identify and determine the credit status of enterprises andRegulators have introduced a series of anti-monopoly regulations, andindividuals. All of these collectively helped to set the boundaries ofhave improved the existing rules:

credit investigation businesses.
(i) On January 20, 2021, the PBOC issued the Regulations on Non-bankSince December 2020, regulators have repeatedly signaled theirPayment Institutions (Consultation draft), which defined the scope of “aintention to tighten supervision of credit investigation businesses.

relevant market”, the criteria for determining market dominance andSpecifically, the PBOC has constantly stated that there is a requirement

alter measures , so as to strengthen anti-monopoly regulatory measureswhen carrying out credit investigations that “alternative credit data”

in relation to the payment sector;

outside of the scope of lending data must be used, and any personalcredit investigation business must be licensed. On December 22, 2020,(ii) On February 7, the Anti-monopoly Commission of the State Council

the PBOC issued the first penalty in the personal credit investigation

issued the Anti-monopoly Guidelines on Platform Economy, emphasizing

51

PRC Financial Regulation- Annual Report (2022)
FinTech07

their commitment to prevent and stop monopolies in online platforms
so as to promote the healthy and orderly development of the platform
economy;Regulators confirmed the legal status of
e-CNY, continued to promote researchand development pilot programs, andgradually expanded application scenarios(iii) On September 27, the Administrative Measures on Credit Investigation
Business was promulgated, setting out a number of principles by which
credit investigation businesses should operate, including “fairness” inWith the issuance of the Law on People’s Bank of China (Consultation

providing credit investigation products and services to the public, notdraft) in the second half of 2020, the legal status of e-CNY (the digital

imposing unreasonable commercial conditions to restrict the use ofcurrency) has become increasingly clear: e-CNY will exist as a specificinformation by different users, and not leveraging any dominance toform of the Chinese yuan (CNY) and co-exist with physical CNY insell discriminatory or exclusionary products and services; andthe long term. Currently, the e-CNY system had undergone design,development, function research and development, and joint testing.

(iv) On October 23, the Draft Amendment to the PRC Anti-Monopoly Law

There have been pilot tests and checks undertaken and application

was published for public consultation. The draft amendment also added

scenarios expanded on the security and controllability. The big state-anti-monopoly rules for digital platforms based on the experienceowned commercial banks have participated in the development andof the above-mentioned Guidelines, providing that "operators shallpromotion of e-CNY, and have launched various types of application,

not abuse advantage in data, algorithms, technology, and capital andsuch as e-CNY exchange business and offline payments.

platform rules to exclude or restrict competition”.

As of October 22, 2021, 140 million personal e-CNY wallets and 10

In terms of enforcement, in 2021, the regulatory penalties for market

million e-CNY corporate wallets had been “opened” in China, with 150

players' unfair competition practices became stricter. For example,

million cumulative transactions registering a total of nearly RMB62

the SAMR imposed penalties on several online platforms for thebillion transacted. In addition, 1.5 million merchants have supportedmonopolistic conduct of forcing merchants into "exclusive

e-CNY wallets, used for food and beverages, transportation, shopping,dealing agreements". On April 29, 2021, the PBOC, the CBIRC, theand government services. e-CNY is therefore well on its way to

CSRC, the SAFE, and other financial regulators held regulatory

becoming mainstream legal tender.

talks involving 13 online platforms operating financial business,requiring, among others, the platforms to break the information

However it is worth noting that as e-CNY has not yet been fully

monopoly and carry out personal credit investigation business

implemented, it lacks a “record tracing” mechanism and the generalstrictly through licensed credit investigation institutions. And in Julypublic is still not well informed about how the digital currency works.

2021, the PBOC Credit Information System Bureau issued a notice to

There have been cases of fraud and money laundering using e-CNY

online platforms, requiring them to fully "stop direct connection"in providing personal information for financial institutions.

in Fujian, Guizhou, Jiangsu, Henan, and Hubei. The legislation andOn

enforcement with respect to the prevention of risks relating to e-CNY is

November 18, the State Anti-Monopoly Bureau was officially

expected to be gradually established and developed in 2022.

inaugurated at the SAMR headquarters, which means that China's
anti-monopoly enforcement agencies will be more independent andauthoritative.

52

PRC Financial Regulation- Annual Report (2022)
FinTech08

in Beijing. As of the third quarter of 2021, more than a dozen

Regulators strengthened the applicationof regulatory technology practice,continuing to expand the "regulatory
sandbox" process, and closing the loop
for “entering and exiting the sandbox”

provinces and cities had launched pilot programs, and more than
100 applications had been publicized. Currently, the main applicant
institutions for such programs are financial institutions (with banks
as the most important participants) or technology companies.
Payment institutions and credit investigation institutions are also
involved in the pilot programs.

In the Fintech Development Plan (2019-2021), the PBOC aimed to

In terms of application areas, sectors such as credit, operation

establish a sound process for innovation, have flexible regulation,

management, and payments are the main focal points of theand set out boundaries of compliant fintech innovation. The

fintech innovation regulation. On September 28, 2021, the Beijing"14th Five-Year Plan" stated the goal was to "strengthen the use of

Financial Technology Innovation Supervision Working Group andregulatory technology and financial innovation risk assessment,

the Shenzhen Financial Technology Innovation Supervision Working

and to explore the establishment of innovative products correction

Group announced that the testing of several innovative applications

and suspension mechanism". The Financial Stability Committee

of fintech innovation regulatory tools had been completed within

also stressed at its meeting on April 8 that it should make full use

their respective jurisdictions. What this means is that the first batchof modern information technology to improve the regulation
technology and enhance the efficiency and coverage of regulation.

of innovative applications have "exited the sandbox” thereby closing

To implement the Fintech Development Plan (2019-2021), the PBOC

was an important milestone to strengthen fintech regulation andfor the first time the loop for fintech innovation exploration. This
explore how fintech innovation should and be regulated in practice.

first launched a regulatory pilot program for fintech innovation

53

PRC Financial Regulation- Annual Report (2022)
FinTech2022 Regulatory Outlook

01

02

The 14th Five-year Development Plan will
coordinate the stable development of
fintech and strengthen prudential regulation

Data compliance and protection of consumer
rights and interests continue to be theregulatory focus, and further promotion ofcross-border data transfer is to be expected

By the end of 2021, the fintech-related regulatory rules neared
completion and the implementation of the Fintech Development Plan

In 2021, there was increasingly stringent supervision over data

(2019-2021) issued by the PBOC was all but complete. On January 29,

compliance. Tighter controls have an impact on the management

2021, the FinTech Committee of the PBOC confirmed that it will issueof data by financial institutions, especially those with cross-bordera plan for the new stage of fintech development to accelerate thebusiness or operation. We expect that in 2022 the Measures for thedigital transformation of finance. The supervision over fintech will be

Security Assessment of Data Outbound Transfer, the Network Data Security

oriented towards supporting the real economy, encouraging digital

Management Regulations and supporting rules, and special regulationstransformation, and improving the level of regulatory technology andand related supporting rules for personal information protection intransparency, so as to witness an era of prudence with full-risk covered.

the financial sector, such as the Financial Data Security - Data Security

The supervision over the risks of existing licensed financial institutions

Assessment Specification (Consultation draft), and the Interim Measures

will be strengthened. This will include the supervision over financial

for the Protection of Personal Financial Information (Data) included in theinstitutions in respect of the risk incurred by business cooperation

2021 regulation-making plan of the PBOC, will be promulgated.

arrangements between financial institutions and third parties (such as
internet deposits, internet loans, and credit investigations). Meanwhile,

We also hope that in 2022, financial regulatory authorities and data

the financial business of fintech companies will be regulated insecurity management authorities (such as the CAC) will work together

accordance with the principle of “incorporating all financial activities

to effectively supervise the IT system and data protection of financial

into the regulation framework”.

institutions or that in financial activities and provide more nuanced
guidance for the routine activities of financial institutions.

We expect that in 2022 the Interim Measures for the Protection of Personal
Financial Information (Data), the Anti-Monopoly Law (Draft Amendment),

While supervision is strengthened, there are also in place a number

the Regulations on Non-bank Payment Institutions (Consultation draft)of pilot projects to see the best ways of promoting the cross-borderand other relevant laws and regulations will be promulgated.

flow of data. In April 2021, the Hainan Free Trade Port’s exclusive
international internet data channel was officially opened. In July,

The regulators will continue to look at the best ways of regulating

Shanghai formally included the construction of an international data

the sector, as between “function-based” regulation and “conduct-

port in Shanghai Pilot Free Trade Zone Lingang Special Area in its 14th

based” regulation. They will aim to discourage illegal acts by imposing

Five-Year Plan, in order to explore the cross-border circulation of global

administrative penalties. They will also improve their supervision anddata under the conditions of ensured data security and data control. We

law enforcement capabilities and strengthen the protection of financial

believe that in 2022, there will be developments in the establishments

consumers' rights and interests.

of the supporting infrastructure and industrial systems for the securityof national cross-border data transfer.
In 2021, there was better supervision (both from legislation andenforcement perspectives) of consumer protection in the fintecharea. For example, the Network Data Security Management Regulations(Consultation draft) and the Guidelines for the Implementation of Main
Responsibilities by Internet Platforms (Consultation draft) require internet
platform operators to disclose platform rules, privacy policies, and theiralgorithmic strategy disclosure systems, to protect consumers’ right ofconsent for personal information processing activities, and to prevent
potential data security risks in algorithm services such as "precision

54

PRC Financial Regulation- Annual Report (2022)
FinTechmarketing". The Internet Information Service Algorithm Recommendation

being infringed. In this Notice, the CBIRC puts forward regulatory

Management Regulations specifies user rights protection obligations

requirements for credit card business operation and management,

for the algorithm recommendation service provider. The MIIT regularly

card issuance, credit management, credit card installment, interest andcirculated notices of criticism on the illegal collection of personal

fees collection, and information disclosure. It also encourages qualified

information by financial apps in 2021.

commercial banks to adopt innovative models such as online credit
card business and new technologies to optimize functions of credit

In order to comply with the regulatory requirements, the internet

card service and relevant products, to participate in online credit card

platforms are expected to establish and improve their business rules,

innovation activities and to provide consumers with more convenient,privacy policies and algorithm disclosure systems to be more reader-safe and diversified financial services.

friendly and intelligible for better protection of consumer rights andinterests in 2022.

We expect that in 2022, the regulatory authorities are likely to formulate
special rules for controlling the online credit card business by taking
into account of the experience in supervising over financial institutions’internet business and the characteristics of online business.

03

The framework of internet business offinancial institutions continues to be
adjusted, and innovation of online credit
card business proceeds04

In 2021, the regulatory authorities issued a series of new rules to

Steady and sustainable developmentof the e-CNY with supporting laws andregulations to be promulgatedstrengthen the supervision over internet products such as internet
deposits, loans and insurance, with the aim of prohibiting commercial

The Law on People’s Bank of China (Consultation draft) issued by thebanks from conducting time deposits business and “time-demand

PBOC on October 23, 2020 stipulated that the RMB will have both

optional deposit business” on non-self-operated platforms. They

physical and digital forms, and the legal status of e-CNY will bealso looked to regulate the cooperation between banks and third-

confirmed. In 2021, several public talks by the regulatory authorities,

party agencies when jointly issuing internet loans, and restricting theespecially the issuance of the White Paper of the Progress of Research &qualifications of insurance institutions to conduct online insurance.

Development of E-CNY in China by the PBOC on July 16, have indicatedAfter these regulations were introduced, several platforms removed

that the regulatory framework for e-CNY is already under consideration.

their non-compliant internet deposit products, and insurance
institutions stopped selling personal insurance through the internet. All

We expect that in 2022 the revised Law on People’s Bank of China willof this means there will be big changes in the sale of internet financial

be promulgated and implemented, and separate regulations on andproducts in 2022. Financial institutions will follow the online businesssupervisory measures for e-CNY will also be introduced in due course,

regulations to actively develop new business models.

accompanying with the continuous optimization of the underlying
technology of e-CNY.

The Notice on Further Promoting the Standardized and Healthy
Development of Credit Card Business (Consultation draft) issued by the

In 2021, the e-CNY became a reality. Based on the disclosed local 14th

CBIRC on December 16, 2021 introduced more regulations covering co-Five-Year Plans and fintech construction plans, we expect that in 2022

branded entities and cooperation between banks and their cooperating

the regulator will continue to accelerate the promotion of the pilots foragencies regarding the issuance of co-branded credit cards. It also

e-CNY, to expand domestic retail application scenarios, and to improve

proposed “to explore and develop innovation models such as online

the technical design of e-CNY. It is also expected that the underlying

credit card business via pilot projects”. Though several banks havetechnology will be developed to ensure privacy and anti-counterfeiting

already launched online credit card businesses, some of them failed

functions.

to meet compliance requirements for the management and controlof such businesses with the rights and interests of their customers
55

PRC Financial Regulation- Annual Report (2022)
FinTechIn April 2021, Everbright Wealth Management Co. issued an e-CNY

companies to submit the application. Furthermore, the Guiding

wealth management product and it is expected there will be moreOpinions on Promoting the New Development Pattern of Financial Services

e-CNY-based financial products launched in due course. However,jointly issued by the CBIRC Shenzhen Branch and other two authorities

correspondingly, new types of illegal and criminal activities such as

on November 5 emphasized "strengthening the supervision over the

fraudulent use of e-CNY have sprung up, which need to be tackled.

financial activities of internet platforms, prudently supporting theWe expect that the regulators will gradually establish and improve thedevelopment of fintech companies, and strictly preventing disguised

e-CNY record tracing mechanism and pay close attention to the illegal

financial activities in the name of technology services". Following theand criminal activities through e-CNY, such as money laundering, tax

principle of prudential regulation that requires financial businesses

evasion, gambling and fraud. We can also expect the promotion andto be conducted with licenses, existing internet companies, who arepropaganda of laws and regulations in terms of e-CNY so as to achieve

engaged in financial businesses and in the process of adjusting their

the effectiveness of e-CNY in its security, convenience and inclusiveness.

operations to comply with new regulations, may apply to become
financial holding companies in 2022.

05

Supporting rules for financial holding
companies will be implemented, and theinternet platforms conducting financial
businesses may be transformed into
financial holding companies

Following the release of the Decision of the State Council on
Implementation of Administration of Admission of Financial Holding
Companies and the Tentative Measures for Supervision and Administrationof Financial Holding Companies in 2020, supporting rules for financial
holding companies have been gradually introduced. In March 2021, the
PBOC issued the Interim Provisions on the Administration of Recordation
for the Office-Holding of Directors, Supervisors, and Senior Executives ofFinancial Holding Companies as one of the supporting regulations. With
these improvements, in 2021, the PBOC has accepted applications
for establishing financial holding companies from CITIC Corporation
Limited, China Everbright Group and Beijing Financial Holding Group,though further approval information has yet to be disclosed. We
expect that in 2022, the supporting regulatory systems for financial
holding companies, such as rules on consolidated management, capitalmanagement and related transaction management, may be released.
The internet platforms, which are expanding their business into
the financial sector, are also required by the regulators to apply to
become financial holding companies if they meet the threshold. In
April 2021, the regulators talked with 13 internet platforms, proposing
requirements including “to strengthen the supervision over key
areas such as shareholder qualifications, equity structure, capital,
risk isolation, and related transactions”. The regulators also requiredcompanies meeting the requirements for establishing financial holding56

>>>>>PRC Financial Regulation:
Annual Report (2022)
Insurance

57

PRC Financial Regulation- Annual Report (2022)
Insurance

2021 Key Dates
January 15
The Provisions on the Administration of the Solvency of
Insurance Companies was issued, improving the regulatory
framework of China Risk-Oriented Solvency System(C-ROSS)

February 1

March 10The Measures for the Regulation of the Internet Insurance
Business took effect, as internet insurance businessregulation enters a new era

The CBIRC amended the Detailed Rules for the
Implementation of the Regulation on the Administration of
Foreign-Funded Insurance Companies

April 7The CBIRC issued the Notice of Profoundly Conducting
the Special Work to Address Irregularities in the Personal
Insurance Market, addressing typical issues and key risks
in the market

May 20
The CBIRC issued the Measures for the Evaluation of
Performance of Duties by Directors and Supervisors of
Banking or Insurance Institutions (for Trial Implementation)

June 1

June 2The Pilot Program of Exclusive Commercial Pension
Insurance was launched

The CBIRC issued the Corporate Governance Standards
for Banking or Insurance Institutions, reshaping thesuperstructure of corporate governance of insurance
institutions

July 21

July 27

The Provisions on the Administration of the Reinsurance
Business was issued

Allianz Insurance Asset Management Co., Ltd wasapproved to open for business, becoming the first wholly
foreign-owned insurance asset management company

July 27

August 16

The CBIRC reviewed regulation of insurance in its
mid-year forum, including reviewing inspection andsupervision

The Guiding Opinions on Promoting the Developmentof Shanghai into an International Reinsurance Center
was issued, developing Shanghai into an international
reinsurance center and launching the digital reinsurance
registration and settlement platform

September 2
National Pension Insurance Company received approval
to set up, boosting the “third pillar” of pension insurance

September 30
The CBIRC issued the Measures for the Supervision of theConduct of Principal Shareholders of Banking or InsuranceInstitutions (for Trial Implementation)

October 12
The CBIRC issued the Notice of Issues Concerning Further
Regulating the Internet Personal Insurance Business of
Insurance Institutions, to strengthen the regulation ofinternet personal insurance business

November 12
The transfer of 49% equity in Allianz China Life InsuranceCo., Ltd has received approval, making it the first wholly
foreign-owned life insurance company developed from ajoint venture

November 24
The CBIRC issued the Measures for the Supervision and
Administration of Insurance Group Companies

December 3
The CBIRC issued the Notice of Relevant Measures for
Clarifying the Opening up of the Insurance IntermediaryMarket, loosening investment requirements for insuranceintermediary institutions

December 10
The CBIRC held the (enlarged) meeting of the Party
Committee to convey and study the guiding principlesof the Central Economic Work Conference, and arrange
implementation measures in light of the regulatory work of
the banking and insurance industries actually carried out

58

PRC Financial Regulation- Annual Report (2022)
Insurance

2021 Regulatory Observations

01

Work on the unification of the regulations continues, with the Measures

Gradual unification of banking andinsurance regulatory frameworks

for the Regulation of IT Outsourcing Risks of Banking and InsuranceInstitutions released at the beginning of 2022 and the new regulation
on related party transactions still under public consultation. There still
remain a number of areas where the regulations covering the banking
and insurance sectors are not yet unified, including compliance

Since the merger of the former China Banking Regulatory Commission

management, information disclosure, rules for independent directors,

and China Insurance Regulatory Commission in 2018, the CBIRC

and compensation practices.

has successively launched a centralized cleanup of regulations andregulatory documents for the banking and insurance sectors andgradually unified the two sectors’ regulatory frameworks. In 2021,
multiple regulatory documents applicable to both the banking

02

and insurance sectors were issued, covering corporate governance,
supervision of the conduct of principal shareholders, undertakingsof major shareholder undertaking, license management, recovery
and resolution plans, reputation risk administration, related party

Reshaping corporate governancetransactions (as a consultation paper), evaluation of performanceof duties by directors and supervisors, recourse and deduction of

Guo Shuqing, Secretary of CPC Committee of the PBOC and Chairman

performance-based compensation, protection of consumer rights andof the CBIRC, in his article Improving Corporate Governance is the Top

interests and other key aspects.

Priority of Financial Enterprise Reform, confirmed that there had beensignificant improvements in corporate governance in the banking andIn the new regulations, many of the banking industry standards haveinsurance sectors since the 18th CPC National Congress, highlighting

been transplanted to the insurance industry. The Corporate Governancethe streamlining of the responsibilities of financial enterprises, theStandards for Banking or Insurance Institutions ("Governance Standards")

leadership of the CPC, and cleaning up and regulating the shareholding

issued in June incorporates many corporate governance requirements

relationship of financial enterprises. The issuance of the Governanceof commercial banks and reshapes the rules for nomination of directors

Standards and the Principal Shareholders Measures in 2021

and supervisors, as well as the composition of boards of directors

consolidated these reforms.

and boards of supervisors of insurance institutions. The GovernanceStandards aims to strengthen the set-up of boards of directors,

One of the significant features of the new regulations is thestrengthen the role of boards of supervisors, give greater powers tostrengthening of supervision of shareholders imposing constraints on

independent directors, and ensure that executives carry out their duties

what shareholders are permitted to do. The Governance Standards andmore rigorously.

the Principal Shareholders Measures have added “Major Shareholder”
and “Principal Shareholder” to the classification of shareholders of

The Measures for the Supervision of the Conduct of Principal Shareholders

insurance institutions. Major shareholders are required to provide long-of Banking or Insurance Institutions (for Trial Implementation) ("Principal

term commitments to replenish the capital of insurance institutions andShareholders Measures") issued in September also draws on theto make three types of written undertakings to the regulator: covering

regulations of commercial banks to control the pledging of equity“declaration”, “compliance”, and “due diligence”. Principal Shareholders

interests by shareholders of insurance institutions for the first time,

are required to comply with a series of additional restrictions on theirand to prevent principal shareholders from borrowing excessively or

conduct as set out in the Measures for the Administration of Equities oflimiting their voting rights. In addition, the Measures for the Evaluation of

Insurance Companies.

Performance of Duties by Directors and Supervisors of Banking or InsuranceInstitutions (for Trial Implementation) issued in July transplanted theAnother notable feature of the new regulations is reflected in thecomparable requirements of the banking sector, filling the regulatory

governance of insurance institutions. The Governance Standards limits

gap for insurance institutions in terms of directors’ and supervisors’

the powers of sole shareholders, such that the same shareholder andduties.

its related parties is not able to nominate more than one-third of the59PRC Financial Regulation- Annual Report (2022)
Insurance03

board of directors, may not nominate both independent and nonindependent directors, and may not nominate both directors andsupervisors. Under the changed governance rules, the controlling partyof an insurance institution (whether Chinese-funded or foreign-funded)

New round of insurance sector
regulators, mirrored by a string of new
investment projects

can no longer achieve absolute control over the board of directors
through its nominated directors.

When China joined the World Trade Organization in 2001, insurance
premiums in China were about 3% of those in the world’s largest

The Governance Standards also stipulates, for the first time, the needmarket, the US. Today, China is the second largest insurance market infor special resolutions of the board of directors of insurance institutions

the world. The sector has been gradually opening up since 2018, andwhen effecting some changes of business (some resolutions must

2021 saw a centralization of regulations confirming that opening-up.

be adopted by directors representing more than two-thirds of thevoting rights) to ensure that decisions on such matters do not become

In March, the CBIRC revised the Detailed Rules for the Implementationthe "monopoly" of the controlling party and to protect the rightsof the Regulation of Foreign-Funded Insurance Companies (the “Detailedof minority shareholders to be informed, to make decisions and toRules”) by removing the "tail" of the existing restriction on the

supervise important matters of the company. The new regulation

percentage limit of foreign investment in life insurance companies.

allows for some flexibility by wholly-owned insurance institutions (suchThe newly revised Regulation on the Administration of Foreign-Funded

as wholly-owned subsidiaries of insurance groups or wholly foreign-

Insurance Companies in 2019 allowed "foreign insurance groupowned insurance companies), but the changes in regulations are likely

companies" and "overseas financial institutions" to acquire shares

to have a direct impact on most foreign-owned insurance companies

in foreign-funded insurance companies. On this basis, the Detailed

and Chinese insurance companies which have just a small number ofRules provided the definition of these two types of institutions, butshareholders.

still allowed regulators discretion in practice. Considering that thestandards for classifying the institutions under different financial

In practice, we have already noted that many institutions are planning

regulatory systems are different, and few cases existed where overseas

or have already amended their articles of association to adjust to

non-insurance financial institutions acquired shares in Chinese-funded

the new requirements. Considering the extensive impact of the new

insurance companies, it remains to be explored in practice whether the

regulations, reallocating shareholder rights and improving corporate

non-traditional financial licenses can satisfy the licensing criteria, andgovernance will continue to be high priorities for investors andwhether the insurance investment platform within an integrated groupinsurance companies.

can reach the requirement as a group. In addition, the Detailed Rules
unified the applicable laws and regulations for Chinese-funded and

To date, regulators have been relatively lenient when it comes to theforeign-funded insurance group companies (which are also mentioned

corporate governance of insurance companies, with governancein the Measures for the Supervision and Administration of Insurance

failings being reflected mostly in downgradings of ratings. There haveGroup Companies issued in November). The Detailed Rules also clarify

been improvements with fewer institutions in 2021 being given poorthat investment by overseas non-insurance financial institutions or by

ratings from the year before (although there are no A-rated institutions).

Chinese investors in Chinese-funded and foreign-funded insuranceWith the unification of the regulations and the drawing of red lines, thecompanies applies the same set of rules in relation to the shareholder

regulators may become stricter in enforcing the regulations, including

qualification, which further reflects the important feature of "internal

restricting shareholders' rights and against principal shareholders'and external consistency" in this round of opening-up.

violations). So far as high-risk institutions affected by shareholder
violations are concerned, regulators may favor market-based solutions

There was more good news for those companies in the insurance sector(i.e. acquisition) or even bankruptcy as ways of addressing illegal

looking to develop their business. First, regulators started the process of

behavior.

revising the rules applying to insurance asset management companies(after a lapse of 17 years) in order to remove the 25% shareholding limit
for foreign investors. Second, the regulator issued a notice to lower
the threshold when applying for an insurance brokerage license byoverseas insurance brokerage companies, removing the requirements

60

PRC Financial Regulation- Annual Report (2022)
Insurance

for the number of operating years and total assets of the shareholders,(viii) Ergo Group, which has long been operating in the domestic

as well as getting rid of the requirement for the establishment oflife insurance market, said it planned to become the second largest

representative offices. Changes to regulations also allowed theshareholder of Taishan Property & Casualty Insurance.

establishment of insurance intermediary institutions by foreign
insurance group companies and domestic foreign-invested insurance

Added to these market developments, there were examples ofgroup companies, providing new guidance on foreign funds entering

investment by domestic companies filling gaps left by foreign investors

the businesses of insurance agency, brokerage and assessment. On

withdrawing from the China market. Contrasted with the rush ofremoval of the above-mentioned restrictions on foreign shareholding

foreign investment into China’s insurance sector after China joined

in insurance asset management companies, the “11 Measures” issued

the WTO, this time around foreign investors are more cautious in theirby the State Council in 2019 and a series of measures for opening up

approach to the China market, which is more competitive and more

the insurance sector proposed by the CBIRC from 2018 to 2019 will all

highly regulated. However, we still believe that the scale of foreign

be implemented at the level of laws and regulations.

investment in the domestic insurance market will grow steadily in thenext few years.

Even as the regulatory changes came thick and fast, the newinvestment projects developed in a more orderly fashion.
(i) After obtaining the first foreign-controlled life insurance license, AIA

04

actively prepared to create regional branches;(ii) An investment of RMB12 billion by AIA into China Post Life Insurance

C-ROSS Phase II Project completed,
and insurance companies may haveadditional methods to raise capital

was approved in January 2022;(iii) Allianz set up an insurance asset management company throughIn March, the newly revised Provisions on the Administration of theits domestic insurance group company in 2021, marking a change

Solvency of Insurance Companies came into effect, and the China

from the previous practice whereby foreign investors could only obtain

Risk-Oriented Solvency System (C-ROSS) was officially written into

insurance asset management licenses through subsidiaries of joint

departmental rules. Under C-ROSS, insurance companies have to

ventures;adjust their balance sheets, to make sure their assets are in step with
their liabilities, rather than simply benchmarking assets against their(iv) In November, Allianz gained approval to become the sole owner ofbusiness volume as was the case before. There are three requirements

Sino-German Allianz Life, making Sino-German Allianz Life the second

that an insurance company needs to meet in order to become an

approved foreign-controlled life insurance company after AIA China,“eligible” company for solvency purposes: meeting the core solvency

and the first wholly foreign-owned company developed from a joint

adequacy ratio; meeting the comprehensive solvency adequacy ratio;

venture;and satisfying the comprehensive risk rating. Those companies that areclassified as “ineligible” for solvency purposes may have restrictions on(v) Following Allianz, in December HSBC gained approval fromthe business they can do, on setting up branches, and on how much

regulators increase its shareholding in HSBC Life China to 100%;

they can pay directors, among other restrictions.

(vi) In terms of group companies and property insurance, the Chubb

After going through the initial stage from scratch, regulators launchedGroup announced that it planned once more to increase its investment

the C-ROSS Phase II Project in 2017. The Solvency Regulatory Rules II forin Huatai Insurance Group, just short of becoming the absolute

Insurance Companies (the “Rules II”) issued in December 2021 marked

controller;

the successful completion of the second phase of this project, and the
new rules will apply to the whole insurance sector starting with the(vii) Starr Group also said it intended to increase its investment in thequarterly solvency report in the first quarter of 2022. With experience

property insurance company.

from practice, the regulator has designed the Rules II to be moresuitable for local conditions but based on international standards.

61

PRC Financial Regulation- Annual Report (2022)
Insurance

In respect of how capital is measured, the Rules II incorporate

energy vehicles (NEVs). In December, the Insurance Association of China“exogenous” factors, allocating any future surplus of the policy toissued the New Energy Vehicle Commercial Insurance Exclusive Clauses (fordifferent levels of capital according to the remaining policy term andTrial Implementation), and, following that, a new energy vehicle insurance

adjusting the recognition method of, and accrual requirement for, thetrading platform was launched on the Shanghai Insurance Exchange withvalue of assets such as investment real estate and long-term equity

the first batch of listed products from 12 property insurance companies.

investment in order to filter out "fake" capital. Meanwhile, the Rules II
have imposed new methods for calculating the minimum capital that

Added to this, some insurance companies turned to the non-auto

insurance companies need to maintain and preventing them frominsurance market, particularly to health insurance and accident insurance,

inflating the value of assets held.

both of which grew rapidly in 2021. The CBIRC issued the Notice on Issues
Concerning Regulating the Short-Term Health Insurance Business and the

In terms of risk identification, the Rules II include a new risk

Notice on Effectively Providing Customs Services regarding the Short-term

measurement, calculating the minimum capital based on the

Health Insurance Business in January and May, to regulate the renewal,

underlying assets. Regarding the use of funds and productpricing and loss ratio of short-term health insurance products, as well as

development, the Rules II encourage insurance companies to focus onaddressing problems such as combined sales, and prohibiting automatictheir main business and to be more rigorous when developing newrenewable clauses in the contract.

insurance products.
The Measures for Regulating the Accident Insurance Business issued in
The Rules II will play a positive role in promoting the insurance sector, byOctober unifies the regulation for property and life insurance companies

preventing risk, encouraging insurance companies to concentrate on

operating accident insurance and establishes a product pricing adjustment

their core business and aiding international integration. However, themechanism linked to the insurance claim. In addition, the CBIRC revised

rules will also present some challenges for insurance companies. Because

the Measures for the Administration of the Insurance Clauses and Premium

it may be difficult for some companies to meet the new solvency ratios,

Rates of Property Insurance Companies in August, clarifying the principle of

the regulators have given a grace period, with the Rules II being fully

jurisdictional supervision for property insurance products and improving

implemented by 2025 at the latest. In addition, the regulator also plans to

the application of regulations to product development and the internal

allow insurance companies to inject more capital to boost their balance

rules needed by insurance companies.

sheets. Currently, insurance companies can only raise capital throughcapital replenishment bonds and subordinated bonds. In November, theAnother area that received attention from regulators in 2021 was that

PBOC and the CBIRC sought public consultation on the rules that neededof life insurance, as well as from the insurance sector itself. Customized

to be in place for insurance companies to issue unfixed term capital bonds.

commercial medical insurance products were launched in many cities,

Tools such as perpetual bonds (that have been used in the banking sector)

providing opportunities for patients with pre-existing conditions to gain

are also expected to be introduced as a capital-raising option for insurance

access to insurance, as well as the elderly who would not otherwise meetcompanies in future.

the criteria to be eligible to buy commercial medical insurance. In June,
the CBIRC issued the Notice on Regulating Urban Customized Commercial
Medical Insurance Business of Insurance Companies to regulate the market
for these new types of products. In addition, new regulations were issued

05

for the pilot program covering long-term care insurance as well as critical

Insurers encouraged to develop new
products, especially in healthcare, but
under strict conditions

illness insurance.
The CBIRC also issued a notice in October to encourage insurancecompanies to bring onto the market more life insurance products, toactively develop products with lower thresholds for purchasing, simpler

Auto insurance has undergone significant improvements in recent

underwriting, affordable prices, and with clear protections for such groups

years, leading to lower premiums, greater coverage and higher quality.

as the elderly, farmers, low-income groups, and the disabled.

However, there was a decline in the auto insurance sector in 2021, as there
was in the property insurance market. Some insurance companies are

One other significant development was the end of the mutual aid

diversifying, for example looking at new energy auto insurance for new
62

PRC Financial Regulation- Annual Report (2022)
Insurance

platforms, which had been popular. The regulatory authorities do notmain business. The Notice stipulates that pension insurance institutions

recognize the insurance nature of online mutual aid products. However,shall not engage in asset management and shall reduce and clean up

looking back at the development path of mutual insurance in China, it isexisting pension security management products.

worth reviewing and considering how this business model can really play arole in meeting the needs of the masses for insurance protection.

06

The “third pillar” of pension insurance
continues to develop, althoughproblems still need to be tackled

07

Internet insurance regulation refined

On February 1, the Measures for the Regulation of the Internet Insurance
Business took effect. On the basis of clarifying the nature of Internet

In March 2021, Premier of the State Council Li Keqiang proposed in theinsurance business, the Measures not only intended to prevent risks butreport on the work of the government to "work toward unified national

also supported innovation. A rule system adapting to the development

management of basic pension insurance funds, and develop theof Internet insurance has been established for various market players.

private pensions, as the third pillar, in a well-regulated way”. As China’s

From "zero supervision" to "third-party network platform" and to "self-

population has got older, the demand for elderly care services has

operated network platform", China’s internet insurance regulatory

increased, in turn requiring refinements to pension schemes. A previous

system has entered into a new era. The regulations mainly include

attempt to launch tax-deferred pension insurance failed to achieve

clarifying the nature of internet insurance business, strictly stipulating

the desired result of increasing take-up of pension policies. In 2021,

the requirements on the Internet insurance business operation,

the CBIRC started a pilot program of commercial pension insuranceclassifying the regulations according to the business entities, regulatingin Zhejiang province (including the city of Ningbo) and Chongqing.

Internet insurance marketing and publicity activities, and optimizing

Different from the commercial pension insurance products currently

internet insurance after-sales service, among others.

provided on the market, the pilot products are more flexible in thepayment methods and the fee structures. The products are particularly

The CBIRC started to focus on the Internet personal insurance businesssuitable for those working in new industries or those working flexibly,in 2021. The Notice of Issues Concerning Further Regulating the Internet

and these products have filled a gap in the market.

Personal Insurance Business of Insurance Institutions was issued in
October, and the supporting regulation on product price backtracking

PBOC released the China Financial Stability Report in September andwas issued in November. The Notice clarified the conditions on the

proposed establishing a system which bases on accounts. PBOC further

access and operation of the Internet personal insurance business. At

proposed to expand the range of products in which the “third pillar”

the same time, it specifies the limit to the scope of products, refines

could invest, which would include financial products such as bankthe exclusive regulatory rules for products, strengthens consumer

wealth management products, deposit savings products, commercial

protection, and requires the relevant institutions to complete

pension insurance products, and publicly offered fund products. In“rectification” (i.e. make sure their operations comply with themid-2021, many leading financial institutions, including bank wealthregulations) before the end of 2021. Price tracing should start to be

management subsidiaries, securities companies, insurance companies,

done from 2022. However, various institutions failed to complete theand state-owned capital holding platforms jointly invested in therectification within the specified time limit. In December, many products

establishment of the National Pension Insurance Co., Ltd. This new

were removed from the market, and many life insurance companies

company should play an important part in the next round of reforms.

announced that they would suspend their Internet insurance businessfrom January 2022.

Regulators have also insisted that commercial pension companies
address some key failings. The CBIRC issued the Notice on Regulating

Meanwhile, regulators have also sought to clamp down on mis-selling,

and Promoting the Development of Pension Insurance Institutions inforced tie-in sales, inflated fees and failure to protect user information,

December, requiring pension insurance institutions to focus on their

including fining some of those found to have been in breach.

PRC Financial Regulation- Annual Report (2022)
Insurance

08

Insurance funds benefit from looseningof restrictions on their investments,
coupled with more regulation based ona rating system

the corresponding regulatory requirements for the use of funds.
The higher the evaluation result is, the more investment spaceand flexibility the institution enjoys. This idea of differentiatedsupervision is expected to be used in the follow-up marketoriented reforms of insurance funds.

Insurance funds continued to come under the spotlight ofregulators through 2021, with the goal of improving the quality
and efficiency of insurance funds serving the real economy.
First, the scope of financial products that the insurance funds caninvest in was enlarged. In the middle of the year, the CBIRC issued
the pilot rules for the investment of insurance funds in publicly
offered real estate infrastructure funds (REITs), and allowed
insurance funds to participate in the securities lending business.
Second, regulators scrutinized more closely fund application. In
September, the "registration system" was changed to the "enrollment
system" (i.e., initial approval and subsequent enrollment) for theasset-backed plans and insurance private funds promoted byinsurance asset management companies. While implementing thepolicy of “delegation and decentralization”, insurance companies
had to demonstrate their responsibilities.
Third, investment restrictions were loosened in many ways. The
regulator first cancelled the requirements for the “whitelist” (i.eapproved) of financial enterprise bonds that can be invested
in by insurance funds and the requirements for external credit
ratings. At the end of the year, the regulator provided a seriesof preferential policies relating to insurance funds. Major
adjustments include allowing insurance funds to invest in equity
investment funds that are controlled by non-insurance financial
institutions, and cancelling the limit on the scale of insurance
funds investing in a single venture capital fund. There are nolonger limits on the level of funds contributed by insurance
private fund sponsors and their affiliated insurance institutions.
Regulator y standards will no longer be "one -size -fits-all"for equity investment, investment in financial products or
establishment of asset management products. In early 2021,
insurance asset management companies implemented theregulatory rating management, in which institutions are divided
into four categories: A, B, C, and D. The indicators such as theregulatory rating results of asset management companies, thesolvency level of insurance companies, comprehensive risk
rating, and asset and liability management capability determine

PRC Financial Regulation- Annual Report (2022)
Insurance

2022 Regulatory Outlook

01

Equal attention will be paid to thedevelopment and standardization of
insurance products

2021, and the clean-up work is expected to continue. As the practices
associated with intermediary services mature and the regulators issuefavorable signals, we expect there to be more uptake in the coming
year of those entering this market given the accumulated market
demand.

China’s insurance sector is witnessing adjustment to make sure that
insurance products are more closely aligned with the many needs ofthe public. Regulation in 2022 may encourage insurance companies toinvest more in digital transformation and technology empowerment,
and develop more life insurance products. The regulatory authorities
are formulating supporting policies and measures for individual
pension accounts. The effective supply of commercial endowment
insurance products is an important step in the reform. After several

03

Tougher penalties likely

years of building systems, establishing institutions, issuing licenses andgiving policy instructions, endowment insurance products may usher
in a period of development and innovation. With the proposed goals of"carbon emissions peaking" and "carbon neutrality" (the 30:60 policy),
green insurance may also take off.
In early 2021, CBIRC supplemented the negative list for life insurance
and released a new version. Unreasonable and non-standard
circumstances listed in the "negative list" and previous issue circulars
will be the focus of future inspection and supervision.

The CBIRC is increasingly taking a hard line on enforcing regulations,which includes imposing administrative penalties. The Administrative
Penalties Measures of the CBIRC took effect on August 1, 2020, which not
only marks the official implementation of the Measures, but also speeds
up the implementation of unified standards for administrative penalties
procedures in the banking and insurance sectors. According to theprinciple of "imposing punishment on the higher instead of the lower",more stringent penalties standards previously applied to banking
institutions will also be applied to the insurance sector. It can be
expected that in the coming year, the supervision and penalties metedout in the insurance sector will be stepped up, and the number andamount of penalties will be in line with those imposed in the banking

02

The issuing of intermediary licenses is
expected to be resumed

sector.
According to incomplete data, the number of punishments issued by
the CBIRC and its local branch offices in 2021 increased significantly
compared with that in 2020, and top-level penalties such as suspension

The CBIRC issued the Measures for the Implementation of Administrative
License and Recordation for Insurance Intermediaries, ending the longstanding position where intermediary licenses were separately
regulated, and refining and unifying the administrative approval andfiling requirements of insurance agents, insurance brokers, insurance
assessors and insurance intermediary groups. The new rules haveraised the entry requirements for companies applying for intermediarylicenses, and have set up very strict qualification requirements on thesenior managers of insurance agencies and brokers. We can expect themarket to be enthusiastic about taking up intermediary licenses.
Local branch offices of the CBIRC deregistered thousands of insuranceintermediaries' licenses to conduct insurance agency business inor restriction of business, removal of, or prohibition from, the industry to
persons liable for violations were issued frequently, and the proportionof penalties imposed on liable persons also increased compared withthat imposed last year. Local branches of the CBIRC have also actively
issued regulatory documents to point out the focus and requirementsof compliance management in their respective jurisdictions. It isbelieved that the intensity of inspection and supervision in the future
practice will be correspondingly increased.

PRC Financial Regulation- Annual Report (2022)
Insurance

04

Consumer protection rules are expected
to be released

05

An important year coming for thereinsurance sector, with focus on
Shanghai

In June, the Consumer Protection Bureau of the CBIRC issued a

The year 2021 is an important year for the development of China’s

notification relating one insurance company's infringement of thereinsurance sector. The CBIRC has revised the Provisions on thelegitimate rights and interests of consumers. In July, the CBIRC issued

Administration of the Reinsurance Business after an interval of six

the Measures for the Regulatory Evaluation of Banking or Insurance

years, adjusted many provisions that are no longer applicable with

Institutions' Protection of Consumer Rights and Interests, summing up andthe development of the market, and emphasized the strategic

establishing the best-practice consumer protection and supervision.

management of reinsurance. In the C-ROSS Phase II rules, thecounterparty default risk factors of overseas reinsurance have been

In the next phase, we expect the regulatory authorities may introduce

lowered.

corresponding administrative measures for banking and insurancecompanies in relation to consumer protection. For the moment, theIn August, the CBIRC and the Shanghai Municipal People's Government

regulatory authorities have released the Guidelines for the Sale ofjointly issued the Guiding Opinions on Promoting the Development

Insurance for public consultation. The administrative measures relatedof Shanghai into an International Reinsurance Center, specifying thatto the sale of insurance may be released soon, in which the protection

Shanghai will develop into an international reinsurance center, withof consumers' rights and interests will be an important part.

pilot cross-border reinsurance transactions carried out in the Shanghai
Pudong Free Trade Zone. The digital reinsurance registration andWith the initial establishment of the Internet insurance regulations

settlement platform, together with groundwork laid to build thein 2021, consumer protection in the Internet insurance business isInternational Reinsurance Center, put in place the platform to create

sure to be a high priority in 2022. By reference to the efforts made toa sound reinsurance sector. During the year, several foreign-fundedcrack down on unqualified internet life insurance products, the issues

reinsurance branches were given approval to increase their registeredregarding mis-selling and inadequate after-sales service raised bycapital, which signalled the strong demand for business expansion of

consumers are likely to receive more attention and be solved centrally.

the institutions.

In addition, the protection of personal data of insurance consumers
may also be put on the agenda under the general environment of

It is expected that there will be more policies encouraging cross-borderbuilding and improving the legal system of personal information

reinsurance transactions and investment by cross-border reinsurance

protection.

institutions.

PRC Financial Regulation- Annual Report (2022)
Authors

Authors

FANG Jian

Grace Yu

Siyuan Pan

Ada Zou

Partner, Fangda Partners
jian.fang@fangdalaw.com

Partner, Fangda Partners
grace.yu@fangdalaw.com

Partner, Fangda Partners
siyuan.pan@fangdalaw.com

Partner, Fangda Partners
ada.zou@fangdalaw.com

Yimei Qiao

Sam Wang

Lily Yan

Xiaoying Zhang

Counsel, Fangda Partners
yimei.qiao@fangdalaw.com

Counsel, Fangda Partners
sam.wang@fangdalaw.com

Counsel, Fangda Partners
lily.yan@fangdalaw.com

Counsel, Fangda Partners
xiaoying.zhang@fangdalaw.com

Yao Zhang

Rong Fan

Zihan Fang

Fangkun Hu

Counsel, Fangda Partners
yao.zhang@fangdalaw.com

Fangda Partners

Fangda Partners

Fangda Partners

67PRC Financial Regulation- Annual Report (2022)
Authors

Shiyun Li

Janet Li

Zhao Li

Yunxiang Qiu

Fangda Partners

Fangda Partners

Fangda Partners

Fangda Partners

Marshall Shen

Yiwen Shen

Kristy Tang

Erman Xiang

Fangda Partners

Fangda Partners

Fangda Partners

Fangda Partners

Veronica Yu

Qifei Zhang

Xiaoye Zhao

Jazzy Zhou

Fangda Partners

Fangda Partners

Fangda Partners

Fangda Partners

68PRC Financial Regulation- Annual Report (2022)
Authors

Lawrence Zhu

Molly Zhu

Maria Zhu

Fangda Partners

Fangda Partners

Fangda Partners

69

PRC FINANCIAL
REGULATION

2022

Annual Report

Disclaimer: This report has been prepared for discussion only, and should not in any way be considered as formal legal opinions or advice given by Fangda Partners or its
lawyers. We are not responsible for any results of any actions (whether action or omission) taken in reliance upon the whole or any part of the contents of this report. You
are welcome to contact us for formal legal opinion or legal service on the relevant topic.

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