2023

Contents>>>>>
Preamble

01

General13

Banking

21

Securities and Futures

30

Asset Management and WealthManagement

40

FinTech50

Insurance

59

Green Finance and Carbon Markets

69

AuthorsPreamble>>>>>
We look back into the year 2022 and see both challenges anddevelopments and outlooks in the sectors of banking, securities

opportunities. 2022 would be remembered as a turbulent year,

and futures, asset management/wealth management, FinTech andregrettably and largely for the Russia-Ukraine conflict, global

insurance and a special sector of green finance and carbon markets.

inflation and the impact of the pandemic, negatively affecting themarkets. Despite all these challenges, 2022 would still be celebrated

Finding certainty in the midst of uncertainty and helping our clientsas the year of transition and rebirth, during which uncertainties onto achieve stable and long-term development are the unremitting

certain matters are gradually eliminated, while opportunities are

pursuit of our Financial Industry Group of Fangda Partners. We

gestating amidst challenges with brighter prospects in the nearadvise both domestic and overseas clients on the most cutting-future.

edge and complex legal issues involved in China’s financial service
sector. We are at the forefront of significant initiatives in such sector,

The best way out is always through. Confronted with the complex

leading the market’s most groundbreaking transactions and new

and unpredictable international environment in 2023, we believe

product structures. With our profound understanding of the market,

that Chinese financial industry will stay true to its founding

we are able to provide creative solutions to our clients in a complex

principles, following the general guideline of "prioritizing stability

financial regulatory environment.

while pursuing progress" and adhering to the aim of serving thereal economy. Financial policies will be developed under regulation

We believe that, as market participants, you may have yourto support the "economic recovery" and hold on to the bottom line

comprehensive and practical observation and understanding of theof risk prevention and financial security, continuing to build themarket. If you have any comments or suggestions on the content offinancial regulatory and judicial system with Chinese characteristics.

this report, please feel free to contact us. We have been committed
to China’s financial service sector for many years and are looking

To walk into the future in retrospect, the PRC Financial Regulation:

forward to observing the market, facing the changes and identifying

Annual Report (2023) issued by Financial Industry Group of Fangda

the future trends together with you and are willing to have yourPartners comes in time. We have prepared this PRC Financial

thoughts and feedback!

Regulation: Annual Report (2023) to provide forward-looking
guidance for you, covering milestone events, main regulatory

FANG Jian

Grace Yu

Partner, Fangda Partners
jian.fang@fangdalaw.com

Partner, Fangda Partners
grace.yu@fangdalaw.com

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

specializing in legal and regulatory issues offinancial regulations, and M&A.

Siyuan Pan

Ada Zou

Partner, Fangda Partners
siyuan.pan@fangdalaw.com

Partner, Fangda Partners
ada.zou@fangdalaw.com

specializing in M&A and PE investment.

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

Lily Yan
Partner, Fangda Partners
lily.yan@fangdalaw.com
specializing in corporate M&A, equity financing and financial
industry regulation & compliance, as well as supporting
Chinese enterprises in their outbound investments.

>>>>>PRC Financial Regulation:
Annual Report (2023)

General01

PRC Financial Regulation - Annual Report (2023)
General2022 Regulatory Milestones

January 4
The PBOC released the Financial Technology
Development Plan (2022-2025).

March 17
Approval for CITIC Financial Holdings Limited andBeijing Financial Holding Group Co., Ltd. was granted;
September 2: approval for Shenzhen Zhaorong
Investment Holding Co., Ltd was granted.

April 6
The PBOC introduced the Financial Stability Law(draft for comments); in December, a furtherrevised version was submitted to the National
People's Congress for review.

April 8The Opinions on Promoting the Development of
Personal Pensions was released, establishing a systemfor personal pensions; implementation followed in
November with multiple detailed rules being issued.

April 20
The Futures and Derivatives Law was passed andcame into effect on August 1.

From May onwards
From July onwards

Regulatory authorities issued policies covering thefinancing needs of real estate sector to promote andsupport the recovery and development of real estate
sector.

Regulatory authorities approved the liquidation
and restructurings of financial institutions
including Xinhua Trust, Yi'an Property Insurance
and some small banks.

July 7
August 26

The Data Exit Security Assessment Measures werereleased.

China and the US signed an audit and regulatory
cooperation agreement; on December 15, the US
announced that it could review the audit records ofChinese stocks listed in the US, temporarily liftingthe ‘delisting crisis’ for Chinese stocks listed in the
US.

October
UBS's fund distribution company began to offer
services to the public through its digital wealthmanagement platform.

December 14
The PBOC released the "Financial Infrastructure
Supervision and Management Measures (Draft forComments)".

December 30
The CSRC issued a notice on illegal cross-borderbusiness development of Futu Securities and Tiger
Securities.

02

PRC Financial Regulation - Annual Report (2023)
General2022 Regulatory Mainline Review

01

02

Financial support for the real economy andeconomic recovery was implemented

The legal framework governing disposalof risky business takes shape and disposalof risks of institutions has been steadily
implemented

In order to implement the top-level policy guideline of "stability
in the forefront and progress in the midst of stability", regulators

Throughout 2022, there were a number of milestones aimed athave introduced a series of policies and regulations oriented for

resolving the major financial risks. At the institutional level, proper

real economy in 2022. Since the second half of the year, "promoting

disposal of a number of risky financial institutions was either

economic recovery" has been directly incorporated into policy

realized or achieving significant progress. For example, the risk

discussion and evaluation.

disposal of five small-sized village banks came to a temporary
end; the merger and restructuring of high-risk small and medium-

Reducing direct costs and increasing efficiency are the focus of

sized banks including Liaoshen Bank, Zhongyuan Bank and related

financial policies: the PBOC lowered the reserve ratio of financial

provincial agricultural and commercial banks were also completed;institutions twice in April and December, so as to lower thethe financial licenses of Xinhua Trust, New Era Securities and New

capital cost and comprehensive social financing cost of financial

Era Trust either started afresh or eventually exited the market. Three

institutions; the "Financial 23" issued by the PBOC and the SAFE

financial holding companies were set up in 2022, which represents

aimed directly at pandemic control and financial service for social

the official approval of licenses for financial holding companies

and economic development; the CBIRC has encouraged banks togranted for the purpose of preventing regulatory grey areas. Some

reduce fees and concessions for clients and to strengthen insurance

RMB1.74 trillion of non-performing assets were disposed of between

protection policies to provide relief for small and micro enterprises;

January and August 2022. Financing trusts and shadow banking

and the CSRC has increased direct financing and implemented

businesses were under better control. Financial risks associated withextension policies to help with the country’s economic recovery.

HNA, Founder Group and a number of real estate enterprises havealso been effectively controlled.

Policies to promote economic recovery also focus on targeted
investments in specific sectors. During the course of 2022 regulators

Regulators have also changed their approach to follow the general

have increased support by extending credit and insurance coverage

principle of "achieving overall stability, ensuring coordination,

to individuals adversely affected by the pandemic and to enterprises

implementing category-based policies, and defusing risks throughin industries and sectors that have also been badly hit; there aretargeted efforts".

also various special refinancing loans to support important sectors
such as agricultural production, energy supply, transportation, andIn the past, risk disposal was mostly done on a case-by-case basis,

universal retirement; and there has been support for expansion andtypically finding a solution which weighed up the interests of many

regular issuance of real estate investment trusts (REITs). In addition,

parties. There was no common standard or predictable approach,the loosening of policies related to real estate and "one to one" banksound market-based disposal tools, or clear legal provisions oncooperation with key real-estate enterprises reflects the targeted

liability apportioned among central, local and industry insurance

financial policies.

funds. In April 2022, the regulators issued the draft Financial
Stability Law and submitted it to the SCNPC for consideration in

As a basic financial policy, "moving from virtual to real and serving

December. The draft Financial Stability Law establishes the basic

the real economy" has become even more important and vital as

principles of resolving and disposing of financial risks as determined

China recovers from economic setbacks in 2022.

by the market and governed by the rule of law. The draft alsoemphasizes the responsibilities of financial institutions and therole of the market in allocating resources. The draft also clarifies
the coordination mechanism for stable financial development,
responsibilities of financial institutions, authorities of the central
and regional regulators, fund resources, and tools available for risk
disposal.
The changes were in part brought about by the cases of Baoshang
Bank and Anbang Insurance, where concerns were raised about thesustainability of the risk disposal strategy due to large-scale use of03

PRC Financial Regulation - Annual Report (2023)
Generalindustry insurance funds. The draft proposes setting up a financial

wealth management products, encouraging securities, funds,

stability insurance fund as a "general reserve" under the control ofguarantees and other licensed institutions to reduce fees, andthe central government for responding to major financial risks andintroducing more financial products (including personal pensions)to generate resources for the following risk disposal works.

are all dedicated to enrich safe and steady access for people to
make financial incomes. Taking fund management as an example,

The Financial Stability Insurance Fund, included in the government

in response to the problem of "fund managers making money but

work report in March 2022, has generated RMB 64.6 billion. Therefund investors not making money", the Opinions on Accelerating

have been changes to the rules governing insurance guaranty fundthe High-Quality Development of the Public Offering Fund Industry

and trust guaranty fund. Also, the case of Xinhua Trust, an initial

made it clear that the fund industry should "care all people in thepractice of market-based risk disposal approach, indicates that thenation", and incorporate environmental, social and governanceauthorities are able to use the process of bankruptcy as an option to

responsibilities into all their operations, so as to reconcile economic

reduce risk. We expect to see a sound system to manage risk in the

profits with social benefits. Common prosperity has also impacted

financial services sector.

regulations governing remuneration in state-owned financial
enterprises, securities companies and fund companies.

03

Financial policies increasingly focused on
the people

04

Financial Regulation system steadily
progressed and strict regulation further
developed

The first mention by regulators of "the political and people natureof financial work" happened in 2022, underlining the key idea thatIn 2022, the multi-dimensional financial reform proceeded in an"finance is for the people" and that there should be a "people-

orderly manner.

centered" orientation of financial policies.
The foundations of China’s financial regulatory regime wereThis "people-oriented" nature of financial work can be seen in acontinuously improved. The Futures and Derivatives Law was

number of aspects of "inclusive" finance reforms: more loans forenacted, and the second draft of the amendment to the Company

alleviating poverty; more loans for agriculture; more pilot zones

Law was finally completed at the end of the year after a long

involving "inclusive" finance reform (including Tongchuan ofdeliberation, laying a solid foundation for deepening and innovating

Shaanxi, Lishui of Zhejiang and Chengdu of Sichuan), which aimed

the governance on financial institutions and financial products.

at promoting transformation of resource-exhausted cities, rural

The reform of modern financial institutions is in full swing. The

revitalization and urban-rural integration development; supportive

introduction of new regulations, including the Administrative

tools for loan extension and credit loan supportive plan for micro

Measures on Related-party Transactions of Banking and Insurance

and small enterprises has also been modified to better solve

Institutions, the Administrative Measures on Internal Control ofproblems and support development.

Wealth Management Companies and the Measures for Supervision
and Administration of Publicly Offered Securities Investment Fund

There has been more financial support for solving problems related

Managers, strengthened and improved the modern financial

to the public wellbeing, driven by policy of "ensuring the delivery of

regulation system, setting out the bottom line of compliance forbuildings and stabilizing people's livelihood". There has been morereform of financial institutions.

attention paid to the relief for real estate enterprises’ difficulties
as well as the reasonable housing loan needs of individuals.

Other remarkable developments have happened to form the well-

Government-subsidized rental housing has also developed at a fast

structured financial markets. These include: securities companies

pace, including exclusion of project-related loans out of the real

being granted with market maker licenses on the SSE STAR market;

estate loan concentration and issuance of pilot REITS. In addition,

the mechanism of transfer of listing from the CBEX to the SSE/

there has been a boost of financial services for new urban residents,

SZSE being implemented; the first industrial silicon futures on thereflecting the financial policy’s concern for people's wellbeing in the

Guangzhou Futures Exchange successfully launched; comprehensive

urbanization process.

reform of auto insurance; and the interconnection mechanism in thebond market being further developed.

"Common prosperity" has been a core concept for regulators in
2022. For example, regulatory requirements such as netting of04

PRC Financial Regulation - Annual Report (2023)
General05

While promoting the reform, innovation and development in
the financial sector, the regulatory authorities did not relax theirefforts to crack down on illegal and irregular activities. According
to the Report of the State Council on Financial Work, from January toInstitutional opening-up accelerated andcross-border supervision broke throughSeptember 2022, the PBOC fined regulated institutions 521 times,
with total fines amounting to RMB630 million; the CBIRC fined

The financial sector in 2022 has been showing a "prudently-open"

banking and insurance institutions some 3,200 times, with fines

posture. In terms of domestic market and products, the interbank

totaling RMB2 billion. In contrast, in the whole of 2021, the total

and exchange bond markets are gradually being opened up. The

fines imposed by the PBOC were about RMB540 million and the total

Announcement on Matters Relating to Further Facilitating Investments

fines imposed by the CBIRC about RMB 2.05 billion. As the amountin Chinese Bond Market by Overseas Institutional Investors coordinatedof fine imposed by regulators in the first three quarters of 2022 has

and synchronously advanced the opening-up of interbank

already exceeded or almost amounted to that in 2021, 2022 stilland exchange bond markets, and explored the establishment

witnessed strict financial regulation. Moreover, the law enforcement

and perfection of an inclusive institutional arrangement that isof the regulators has been continuously strengthened, and the mostcompatible with multi-level custody. The promulgation of thesevere penalties were frequently imposed. For example, in March

Amended Administration Measures on Securities Registration and2022, the CSRC revoked the business licenses of two securities

Settlement and the launch of the "delivery versus payment" (DVP)

investment consulting companies. It is also increasingly common

reform in December helped to boost the confidence of international

for individuals to assume liabilities. There were several instances ofinvestors when it comes to efficiency of domestic settlement andindividuals being banned from practicing in relevant industry forsecurity of funds. The futures market is also orderly opening up,

lifetime or serving as senior executives. The regulators also paid

underpinned by the issue of the Futures and Derivatives Law, themore attention to some new businesses in 2022. Fines were imposed

official launch of the system for QFIIs to invest in domestic futures

on wealth management business of banks' wealth management

options in September, and the announcement by CSRC to permit

subsidiaries and credit card repayment policy loan business offoreign traders to participate in the trading of several specificinsurance companies for the first time.

domestic varieties (including soybean meal, soybean oil options andfutures). In August, the PBOC included Deutsche Bank and Société

With the digital transformation of services by financial institutions,Générale into the list of financial institutions under its carbon

regulators have turned their attention to data and internet financeemission reduction supporting instruments, indicating that theregulation. CBIRC imposed a total fine of RMB87.6 million on 21

opening-up of the green finance sector is no less important.

national domestic banking institutions for violating EAST datarules, and the CSRC issued warning letters to both CMB and its

At the institutional level, several foreign investors had theirapplicable personnel in relation to a cyber-security incident, whichapplications accelerated or approved. Schroders BOCOM Wealthboth demonstrate the strong supervision on financial institutions’and Goldman Sachs ICBC Wealth obtained approval for operation indata governance. Policies were introduced to control commercial

the first half of 2022, and the preparation for the establishment ofbanks’ online loan businesses and to stop establishment of new

the joint venture financial management company by ABC and BNP

online microfinance institutions. The aim is to have a sound andParibas obtained approval in October, marking the launch of joint

standardized regulation over online finance, reflecting regulators’

venture financial management business by all the "Big Five Banks".

emphasis on the regulated development of internet finance.

With respect to the fund sector, Manulife TEDA became the firstwholly foreign-owned fund management company, by increasing its
shareholding. Fidelity and Neuberger Berman finally obtained theirbusiness licenses and started operation and the fund distribution
company of UBS officially opened and launched its wealthmanagement online platform. There was also considerable progresswith respect to the approval procedure of foreign investment in thebanking and securities industries.
There has been greater institutional link-up. The domestic andoverseas capital markets have become more closely connected.
Cross-border investment and financing channels were broadened.
A policy framework for banks’ overseas loans featuring integrationof RMB and foreign currencies was established, bringing the banks’05PRC Financial Regulation - Annual Report (2023)
General06

overseas RMB loans and foreign exchange loans under one unified
management. The scope of securities involved in the ShanghaiHong Kong/ Shenzhen-Hong Kong Stock Connect was expanded,
and ETF via Shanghai-Hong Kong Stock Connect were officially

The digital transformation of the financial
sector continues apace, and the strategic
position of regulatory technology confirmed

launched.
Over the past year, the digital transformation of financial
Several Chinese listed companies issued Global Depository Receipts

institutions has continued apace. With the clear instruction from

(GDR) in Switzerland, the United Kingdom and elsewhere in Europe.

Fintech Development Plan (2022- 2025) issued by the PBOC at theend of 2021 to "accelerate the digital transformation of financial

Meanwhile, the integration of China's capital market into theinstitutions", the Guiding Opinions on the Digital Transformation ofinternational market was promoted, and China actively and deeply

Banking and Insurance Industries issued by CBIRC in January 2022

participated in global campaign on governance in respect ofprovided constructive guidance on how these institutions should

financial institutions. On August 26, China and the United States

go about their digital transformation and how banks and insurance

signed a cooperation agreement in relation to the auditing andcompanies should strengthen financial technology support in the

supervision of cross-border listed companies, empowering the US

next few years. According to the Guidance, CBIRC’s local bureaus

Public Company Accounting Oversight Board (PCAOB) to inspect

put forward requirements for banking and insurance institutions inand investigate Chinese companies. This means that the longterms of how they should structure their FinTech operations, how to

outstanding issue of reviewing the audit working papers of listed

put in place risk management controls and so on. In February, theChina concept stocks has finally been settled, which should make it

CSRC, together with the PBOC, the SAMR and CBIRC, jointly issued

easier for Chinese companies to avoid being included on the "pre-the 14th Five-year Development Plan for Financial Standardization,delisting list" by the SEC and facilitate the future listing of Chinese

and issued several financial industry standards to standardize thecompanies in the US.

internal interface of securities and futures business, unify corebusiness terminology, and improve their data security governance.

Along with these developments, macro prudential regulation

The CSRC also actively implemented the 14th Five-Year Plan for theon cross-border financial activities has been strengthened. In

Scientific and Technological Development of the Securities and Futures

December, the CSRC issued formal remedial notices to two cross-Industry released in 2021.

border securities service providers, Futu and Tiger respectively,reflecting the regulator's official action against cross-border financial

Regulatory technology, which encompasses technology used toservices.

monitor and regulate activities in the financial services sector, isanother area that has received a lot of attention over the past year.

Data export remains a major pain point for companies when it"Improving the basic regulatory system for FinTech, and striving tocomes to compliance: the Cybersecurity Review Measures (2021)

create innovative FinTech regulatory tools that are inclusive andand Security Assessment Measures for Outbound Data Transfers

prudent" and "accelerating the all-round application of regulatory(respectively in February and September), and other applicabletechnologies, and enhancing the formation of digital regulatory

rules and guidelines were also published for comment. These

capacity" were statements made in the Financial Technology

indicate the desire by the authorities to refine and improve theDevelopment Plan (2022-2025), which shows an increasingly

regulations surrounding data export. In the offshore listing sector,

important role of regulatory technology. Currently regulatory

national network and data security become the top priority. Manytechnologies have been applied to fields like anti-money laundering,companies planning to list abroad have applied for cyber security

related-party transactions monitoring, regulatory reporting andreview to the CAC under the new rules, following the case of one

the protection of financial consumers’ rights and interests, and weinternet company which had wanted to list and been rejected on

can expect more developments along these lines to broaden the

cyber security grounds by the CAC. The CSRC also again emphasized

activities covered by financial regulation.

the "onshore requirements" for working drafts and archives in theoffshore listing by domestic enterprises, through the publication

The year 2022 also saw greater use of the "regulatory sandbox"of the Provisions on Strengthening Confidentiality and Archives(a regulatory tool for financial technology innovation) as local

Management of Overseas Securities Issuance and Listing by Domestic

authorities issued announcements one after another on theEnterprises (Draft for Comment).

completion of tests of pilot tools (including some products
applicable to online banking) in the previous two years. Morepilots were launched, including those for capital markets, which
is approved by the CSRC and more challenging. The pilots also

06

PRC Financial Regulation - Annual Report (2023)
Generalexpanded to a number of provinces and regions, including

the Central Economic Work Conference all encouraged the healthy

Heilongjiang, Hunan and Yunnan. Compared with the previous tools

development of the platform economy.

that concentrate on the regulations of financial institutions (e.g.
anti-money laundering, risk control, etc.), the new pilot programs

In December, the CSRC clarified its regulatory policy on overseas

have introduced a wider range of matters falling within the ambit

listing of platform enterprises – "to promote the implementation ofof regulations, such as green finance, rural finance and internet

the reform of the overseas listing system of enterprises and to givefinance.

green light to platform enterprises for overseas listing". Meanwhile,
the general principle of "Two Unswerving" (i.e. to support both theRegulators have demonstrated their tolerance to new innovative

public and private sectors) should help to inject confidence into

technology that may be of value to the financial services sector,

platform enterprises, most of which are private enterprises.

including "Web 3", "NFT", "Metaverse" and the like, but still aiming toprevent illegal fundraising. This is in sharp contrast with the straightIn spite of the above, there are still some clear red lines for platformban on crypto currencies reflected in a few rules issued in 2021.

enterprises. They shall obtain relevant regulatory licenses if they
are engaged in all financial activities (including payment services
provided by platform enterprises). The intention is for the platform

07

economy to move from innovation of business model to innovation

P l a t f o r m e c o n o my : " r e c t i f i c a t i o ncampaign" completed, the "normal
supervision" era arrivedof technology. As regulators require a separation of financial services
companies from technology companies, internet companies haverectified and spined-off some of the financial services businesses,
including exiting from certain investments in financial businesses.

The "platform economy", by which is meant the online operations

While the CSRC has given the "green light" to some platform

offering financial services, is also moving into a new phase. In thecompanies to obtain an overseas listing, that also suggests thatpast few years, regulators have launched several "rectification

it will issue a "red light" to prevent those not up to standard from

campaigns" (meaning requiring companies to improve theiroverseas listing.

operations/compliance/internal control through remedial measures
to eliminate bad practices) on the platform economy with respect

Anti-monopoly legislation and enforcement have also been

to financial business, data protection, anti-monopoly and anti-

stepped up through the year. The revised Anti-Monopoly Law

unfair competition. For the purpose of anti-monopoly as well as

prohibits monopolistic conduct through the leveraging of data

prevention of "disorderly" (i.e. uncontrolled) capital expansion, theand algorithms, benefiting from capital strength and technologicalregulators held regulatory talks with 14 leading online platforms insuperiority, and imposing restraints on others. This indicates that

2021, and imposed the largest ever fine in China on a company forsuch regulation has improved to a legislative level.

breach of anti-monopoly regulations. Regulators believe that their"rectification" campaigns have helped to eliminate illegal practices.

08

Following that, the Political Bureau of the CPC Central Committee
has directed to focus more on regular supervision of the platform
economy in future, in a press released on 29 April 2022.

The "third-pillar" pension system inembryonic form

In the past year, there have been many references in national
conferences and regulatory policies to the "orderly promotion and

In 2022, there were several significant developments in terms ofhealthy development of the platform economy". At the end of 2021,

financial regulations and policies for China's private pension system (athe NDRC and other authorities issued Several Opinions on Promoting

scheme similar to the Individual Retirement Account in U.S.): in March,

Orderly, Healthy and Sustainable Development of Platform Economy,

the 14th Five-Year Plan for the Development of China's Undertakings for thewhich called for establishment and improvement of applicable

Aged and Elder Care Service System was released, establishing the generalrules to optimize the environment for the platform economy’s

policy of promoting the whole chain of pension finance products (suchdevelopment. The Government Work Report of 2022 also put theas payment, savings, wealth management, trust schemes, insurance"promotion of healthy development of internet finance" in theand mutual funds) to support pension finance and realize a multi-level

chapter of "coordinating to promote stable economic growth andand multi-pillar pension system over the course of the next five years;

economic structure optimization". Throughout the year, the special

and in April, the Opinions on Promoting the Development of Private

meeting of the Financial Stability and Development Committee

Pensions was released, paving the way for the introduction of the "third-(under the State Council), the State Council executive meeting andpillar" private pension system.

07

PRC Financial Regulation - Annual Report (2023)
GeneralThe Measures for the Implementation of Private Pensions jointly issued
by five governmental departments in November is deemed as amilestone in the official implementation of China’s private pension
system. Following this, supporting rules and policies have also been
issued: the Announcements on Individual Income Tax Policies forPrivate Pensions, which implements tax-deferral policy for private
pensions; the Interim Administrative Provisions on Private Pensions’
Investment in Publicly Offered Securities Investment Funds, which
regulate private pensions’ investments in mutual funds and theoperation of such funds; and the Interim Administrative Measuresfor Private Pension Services of Commercial Banks and Financial
Management Companies, and the Circular on Matters relating to thePrivate Pension Business Conducted by Insurance Companies, which
set out requirements for the private pension business and products(e.g. wealth management, savings and insurance) of the financial
institutions.
Along with the above rules and policies, the regulatory framework
governing private pension-related financial services is starting totake shape. In December, regulators published lists of pension funds
products and distributors (i.e. those selling pension schemes), andof commercial banks and wealth management companies, in partto help individuals to take advantage of tax benefits for the tax yearof 2022. According to a notice from CBIRC, a pilot program involving
four insurance companies was officially launched on 1 January 2023.
The private pensions system, supported by its four "pillars", oldage wealth management products, pension target funds, old-age
insurance and retirement savings, has taken its shape.
The implementation of this new policy also provides new business
opportunities for financial services companies. Commercial banks
have boosted their marketing of pension products. A lot of fundmanagement companies have established a department of FOF.
Guomin Pension Corporation, founded by 17 companies including
several financial institutions, opened for business in March, being
the largest of companies offering old-age insurance. With thesupporting policies announced by CSRC in December, we expect
there to be a flow of funds into individual pensions.

08PRC Financial Regulation - Annual Report (2023)
General2023 Regulatory Outlook

01

02

Financial policies will focus on supporting
economic recovery

Financial rule of law will be strengthened

Financial policies in 2023 will be devoted to supporting the real

2023 is expected to be a big year for "the development of the rule

economy. Multiple flexible and targeted financial policies will beof law governing financial services". In 2022, for various reasons, therolled out, in the greater cause of economic recovery.

legislative process of the NPC, the PBOC, the CSRC and the CBIRC
fell behind schedule. Unfinished legislative tasks are expected to be

In response to the outstanding issue of "insufficient domestic

gradually completed in 2023.

demand" revealed by the Central Economic Work Conference,
expanding consumption will be a top priority for economic recovery

Many fundamental regulations relating to the top-level design of thein 2023. As regulators in 2022 have taken a number of measures tofinancial system are expected to be finalized this year. These include

reduce the cost of consumption for the population so as to boost

the Company Law, the People's Bank of China Law, the Commercial

the economic recovery, we can expect to see more policies that will

Bank Law, the Anti-Money Laundering Law, the Regulations onfurther support consumption and boost people’s spending power

Local Financial Supervision and Management, and the Regulations

through various tools such as consumer loans, credit cards, andon Non-Bank Payment Institutions, which have been under public

payment discounts. In December, the CBIRC circulated an article

consultation for more than a year. In addition, according to thestating that it will support financial capital to play an important roleprevious NPC legislative plan and the PBOC's official website, thein residents’ expenditure on housing, automobiles and other big-Insurance Law and the Trust Law are also expected to be substantiallyticket items. This may involve reducing interest rates on automobile

amended.

credit loans and mortgages.
In terms of the market and products, the Measures for Real Estate
In addition to boosting consumption, financing support for

Investment Trust are listed in the CSRC's 2022 legislative plan as aenterprises engaged in real economy will be maintained. We expect"project that needs to be studied urgently and introduced at anbanks to continue to provide medium- and long-term loans toopportune time", which should bring real estate investment trusts

manufacturing, especially advanced manufacturing and strategic(REITs) into play.

emerging industries such as new energy, artificial intelligence, biomanufacturing, and quantum computing. The next phase may

So far as institutions are concerned, the CBIRC issued a number

involve a range of measures of the CSRC for key industry chains ofof regulations regarding non-bank institutions in 2022, including

manufacturing, technology innovation, and private enterprises,

the Measures for the Capital Management of Financial Asset

including expanding the "registration-based" IPO system, making

Investment Companies (for Trial Implementation), the Measures

greater use of the futures market, and continuing to implement

for the Administration of Finance Companies of Enterprise Groups,

special support plans and tools for private companies to borrow

the Notice on Strengthening the Compliance Regulation of thethrough bond issues. All of this is intended to make greater use of

Financial Leasing Business of Financial Leasing Companies. We canresources. We are also looking out for new policies in the real estate

expect regulations governing the businesses of these non-bankmarket and investment of insurance fund to better contribute to theinstitutions to follow in 2023, including auto finance companies,

economy recovery.

the draft of which has been released to solicit for comments. The
management measures for related party transactions, the measures

In an article published in December 2022, the CBIRC mentioned

for consolidated management and other rules of financial holdingthat financial policies should be more closely integrated with fiscal

companies (especially the intra-group synergy, which is of greatand social policies, and we believe that the applicable financial

concern to the industry) may also be implemented in an orderly

policies in 2023 will reflect this principle. Under the backgroundmanner to build a complete regulatory framework for financial

of increasing certainty of domestic environment, financial policies

holding companies. In addition, the Measures for the Administration

with strong political and social focus will be well integrated withof Business Qualifications of Securities Firms are also expected to beeconomic and fiscal policies and offer great help to the economy

issued to clarify the mismatch between the rules of Interim Provisions

recovery of China in 2023.

on the Approval of Business Scope of Securities Firms and the fastdevelopment of business qualifications of securities firms after thepassing of the Securities Law.

09

PRC Financial Regulation - Annual Report (2023)
General

In addition to the laws and regulations themselves, the top-

Asset Management Companies to Focus on the Main Business andlevel design of regulation is also progressing and developing. In

Actively Participate in the Reform of Small and Medium-Sized Financial

December 2022, the People's Daily published two articles titledInstitutions to Transform Risks and the Notice on Carrying out the

Building a Modern Central Banking System and Strengthening andSecond Batch of Pilot Transfer of Non-Performing Loans in 2022 are

Improving Modern Financial Supervision, proposing the building

expected to be followed up in 2023. The intention is to furtherof a "modern" central bank and establishing a "modern" financial

encourage financial asset management companies and financial

supervision regime under the centralized leadership of the Party

asset investment companies to participate in the disposal of non-Central Committee, centering on the people, based on China's

performing loans (including supporting some of the top fivenational conditions, adhering to marketization and legalization,

financial asset management companies to merge and restructure).

and drawing on the beneficial practical experience of international

Urban and agricultural commercial banks will be gradually involved

financial development.. What is exactly meant by "modern" andas participants.

how to structure "modern" is not really clear, and it remains to be
seen how the regulators will provide some more clarification. The

The CSRC will focus more on products and markets. It is looking toreference in the Central Economic Work Conference to "deepening

set up a sound system for risk identification in the futures market

reforms in relevant domestic fields with active reference to relevant

and to expand the powers of emergency measures and contingency

rules, regulations, administration and standards" as they relate todisposal measures for futures exchanges. To combat securities

opening up to the outside world should be an important signal

crimes, it will take a zero-tolerance approach involving bothof approach of "modernization" (a slight hint can be seen in theadministrative fines and criminal penalties.

revision of the Company Law). In short, 2023 may bring some
profound changes on the supply side of finance, and a financial

Local governments will come under the spotlight to eliminate

supervision regime based on the idea of the modern financial

hidden risks within local debts and to strengthen their internal

supervision can be expected to take shape gradually.

controls. There may be special measures to deal with government
credit projects and to dispose, where necessary, of city investments.

03

The Financial Stability Law is expected to be formally debuted

Prevention and resolution of financial risks tocontinue, with greater focus on market andlegal solutions to take risk out of economy

soon. The introduction of management measures for industry
insurance funds of non-bank payment institutions is also worthyof expectation. In addition, the Financial Infrastructure Supervision
and Administration Measures, released for public comment in

There remains an ongoing challenge for regulators to resolve

late 2022, should provide a clear regulatory framework of license

some major risk issues. The PBOC says that there were 316 high-requirements for the financial infrastructures. The Financial

risk institutions as at the fourth quarter of 2021, while the target isInfrastructure Supervision and Administration Measures emphasize

to reduce such number under 200 during the 14th Five-Year Plan.

that foreign investment in such institutions is subject to foreign

Coronavirus added to the numbers of institutions deemed to be atinvestment security review and also propose strict controls over therisk. We can expect elimination and reduction of risk to be a coremanagement of cross-border services provided via offshore financial

policy for 2023, especially the prevention of "regional and systemic"

infrastructures, especially for those involving fundamental financial

risks.

security concern and having a strong spillover effect. In May 2022,
the CBIRC issued an article stating that one of the tasks to prevent

How much focus there is on financial risk resolution and prevention

financial risks is to "actively respond to the spillover effects of macrodepends on the approach being taken by each regulatory authority.

policies and laws of developed countries", including the impact of

The CBIRC is likely to focus on small and medium-sized banks andfinancial policies of Western countries, and "long-arm jurisdiction"

insurance companies (including small and medium-sized banks,

sanctions. In short, national financial security is included in therural banks, and trust companies). In response to the increase

scope of supervision as an important component of risk prevention.

of risks in credit assets, more initiatives (including issuance ofspecial bonds) are expected to be introduced in 2023 to support
small and medium-sized banks to inject more capital, while there
should be greater encouragement of mergers and acquisitions ofsmall and medium-sized banks. In addition, in order to encouragebanking institutions to increase their disposal of non-performing
assets, the applicable ideas in the Guidance on Leading Financial

10PRC Financial Regulation - Annual Report (2023)
General04

Institutional opening-up will be promoted
at the highest level

without changing their existing trading and settlement practices) isalso expected to be launched. By contrast with the difficulties facedby foreign-invested financial institutions in 2022 (especially the first
three quarters) to access the China market, there should be progressin processing applications through 2023.

The Central Economic Work Conference held at the end of 2022
announced that "greater efforts should be made to attract andWith the development of high-quality opening-up, foreign-invested

utilize foreign capital". Against the background of the gradualfinancial institutions can expect to operate under stricter conditions

recovery of the economy following the adjusted and optimized

for operation stability, qualifications and professionalism.

COVID-19 prevention policy and the significant increase in thecertainty of the domestic political and economic environment, weMoreover, cross-border regulation/enforcement is tending to bebelieve that in 2023, China's financial policies will continue to bemature, making the opening-up efforts more challenging. We cangeared towards greater opening-up.

expect that, as a result of the agreement between China and the
US over the auditing of US-listed Chinese companies, the path

What we can expect is the introduction of rules, regulations,

towards US listings will be revived. However, at the same time,administration and standards that conform with internationallythe regulations governing cross-border data transfer may have an

accepted rules which will lead to achieving the "institutional

impact. Businesses should look out for revisions to the Provisions

opening-up strategy" on systemic innovation. A good example

on Strengthening the Confidentiality and Archives Management for

can be found in the ESG/green finance area: the International

the Overseas Securities Issuance and Listing of Domestic Enterprises.

Financial Reporting Standards Foundation (IFRS Foundation)

The procedures for review and approval of overseas listing of red-

executed a memorandum of understanding (MOU) with the PRC

chip and variable interest entities (VIEs), which have been under

Ministry of Finance at the end of 2022, agreeing to set up an

consideration for some time, are expected to be formally clarified.

office of the International Sustainability Standards Board (ISSB)
in Beijing sometime in mid-2023. The ISSB aspires to promote05

the promulgation of a set of global standards for ESG reporting.
Compared with China’s cautious attitude towards collaborating withinternational organizations in the past, the execution of the MOU
signals the desire to incorporate ESG standards in many areas ofCurrent financial policies will continue
to be implemented with "Stability is thepriority"

China’s economic and corporate activities. In addition, the project tointegrate Greater Bay Area into a financial hub, and the early moves

The goal of financial regulation is to ensure the long-term stability

towards establishing the "Carbon Connect", as well as the step-by-

as well as development of China's financial system. We believe

step improvement of carbon trading (including carbon allowancethat the interim and time-specific measures (mainly the measures

trading and carbon credit trading) should help bring about theto promote economic recovery) to be launched by regulatory

gradual alignment of China's carbon emission allowance processes

authorities in 2023 to serve for social effects and economic planningwith international practice.

will not affect the continuous high level of stability and consistencyof the major policies on the long-term development of financial

We expect to see other more ambitious moves towards opening-system regulation that have been previously established.

up. For example, the SAFE announced that from January 3 2023,
the trading hours of the interbank foreign exchange market will be

Institutional governance is a key priority and will be improved in an

extended to 3:00 am of the next day to cover more trading hours

orderly manner in 2023. As the last outcome of the Three-year Actionof the markets in Asia, Europe and North America and to further

Plan for Improving Corporate Governance in Banking and Insurance

enhance the attractiveness of RMB assets.

Industries (2020-2022), the new version of the Measures for the Regulatory
Evaluation of Corporate Governance of Banking and Insurance Institutions

The "cross-border connect" regimes will continue to be put inwas officially implemented at the end of November, drawing on threeplace. Targets (such as expansion of the scope of eligible stocks,

years' experience in the regulatory evaluation of corporate governance.

optimization of the trading calendar) will be set for the Shanghai-

The Measures accurately match plenty of governance rules issued in

Hong Kong/Shenzhen-Hong Kong Stock Connect and the Swap

recent years and specify subsequent annual evaluation arrangements,

Connect (i.e. a new interconnection channel between Hong Kongwhich achieved the effective transition from "policy-based" to "system-and the Chinese Mainland, allowing international investors to trade

based" governance evaluation mechanism. In addition, the Measuresand clear onshore RMB interest rate swaps in the Chinese Mainland

include non-banking financial institutions in the evaluation process for11

PRC Financial Regulation - Annual Report (2023)
Generalthe first time, indicating the expansion of the governance scope of thebanking and insurance industries in 2023. The CBIRC has also statedthat it will continue the previous rectification activities against the crossregional business operation of financial institutions. It is expected topromote the realization of the classified and hierarchical managementof business permits of financial institutions in 2023. Under the securities
regulation system, the CSRC will in 2023, as promised, comprehensively
carry out a new round of three-year action plan to promote the qualityof listed companies.
We can expect more efforts by regulators to ensure that individuals
have their consumer rights protected. The protection may have richmeaning in a new era laying more emphasis on the interest of thepeople. In terms of legislation, the individual consumer protection
framework will be further improved and the Administrative Measuresfor Protection of Banking and Insurance Institution Consumers' Rights
and Interests will come into force on March 1, 2023, effectively
bringing together the specialized legislation for the banking andinsurance sectors and the former rules stipulated by the PBOC. We
can also expect to see the release of Measures for Administrationof Consumer Suitability of Banking and Insurance Institutions firstfor public consultation and then formal promulgation. This should
complete the regulatory environment for banking and insurance
financial consumer protection. In particular, the CBIRC statedin early 2023 that, under the principle of "taking the interest ofpeople as priority", it is necessary to further establish a "grandconsumer protection system" in the future, and it would clarify
the division of responsibilities for consumer protection between
ministries and departments, strengthening their coordination andcooperation, and continuing to give play to the role of financial
regulation as a coordination mechanism for consumer protection.
We can expect that in 2023 the PBOC, CSRC and CBIRC will takeactions to coordinate regulatory cooperation and even unify thelaw enforcement in cross-area consumer protection (such as fund
distribution by banks).
In addition, some medium to long-term policies based on macrodecisions, though not expected to have immediate market effectin the short term, will still be actively implemented. Looking
further ahead, watch out for regulations in 2023 governing carbon
allowance trading and green finance, through the Interim Regulations
on the Administration of Carbon Emission Allowance Trading. The
China Certified Emission Reduction (CCER) is expected to restart for
the first time since its suspension in 2017; and the guidelines forgreen finance as they apply to different financial institutions may
be issued. With respect to elderly care, in addition to the continuous
support from the third pillar (personal pensions), the rest of theelderly care infrastructures as well as support for financing of elderly
care institutions will also be gradually put in place.

12

>>>>>PRC Financial Regulation:
Annual Report (2023)

Banking

13

PRC Financial Regulation - Annual Report (2023)
Banking

2022 Regulatory Milestones

January 10

April 28

The China Banking and Insurance Regulatory
Commission (CBIRC) published the Administrative
Measures on Related-party Transactions of Banking
and Insurance Institutions.

The CBIRC published the Notice on Regulating andPromoting the Development of Commercial Pension
Financial Services, providing guiding principles oncommercial pension financial services. On July 15,
the CBIRC and the People's Bank of China (PBOC)
published the Notice on Launching the Pilot Programof Specific Elderly-care Deposits. On November 17, the
CBIRC published the Interim Management Measures on
Individual Pension Businesses of Commercial Banks andWealth Management Companies, specifying the scopeof and requirements on individual pension businessof commercial banks and wealth managementcompanies.

June 1The CBIRC published the Guidelines for Green
Finance in Banking and Insurance Industries,
introducing ESG requirements in its regulations forthe first time.

June 20
July 12The CBIRC and the PBOC published the Noticeon Further Promoting the Standardized and Sound
Development of the Credit Card Business.

The CBIRC published the Notice on Strengthening
the Administration of the Internet Loan Business ofCommercial Banks and Improving the Quality andEfficiency of Financial Services, further regulatinginternet loan business (such as adding new rules on
utilization of loans) and extending the transitional
period.

November 11
The PBOC and the CBIRC revised the Administrative
Measures for Acceptance, Discount and Rediscount ofCommercial Drafts.

November 11
The CBIRC sought public comments on the Banking
Regulation Law (Revised Consultation Paper).

November 21
The PBOC and the CBIRC jointly held a symposium on
credit businesses with the main commercial banks,
providing a loan support scheme of RMB200 billion to
six main commercial banks to ensure housing projectdelivery and other public welfare.

November 28
The CBIRC revised the Administrative Measures on
Risks of Off-balance-sheet Businesses of Commercial
Banks.

December 26
The CBIRC published the Administrative Measuresfor Protection of Consumers' Rights and Interests by
Banking and Insurance Institutions.

December 29
The CBIRC sought public comments on the
Administrative Measures for Automobile Finance
Companies (Consultation Paper).

December 29
The CBIRC sought public comments on the
Administrative Measures for Custody Business ofCommercial Banks (Consultation Paper).

14

PRC Financial Regulation - Annual Report (2023)
Banking

2022 Regulatory Mainline Review

01

02

Banking sector instructed to stabilize theeconomy and as part of policy to protect
people’s welfare

Commercial banks playing a growingrole in the growth of individual pensions

Protecting people’s welfare is a central tenet of government policy,

There have been a number of regulations issued in 2022 to build

especially during the pandemic of 2022 and as China emerges

up the regulatory regime for individual pension, such as the CBIRC

from the consequences of COVID-19. In particular, regulators have

Notice on Regulating and Promoting the Development of Commercial

instructed banks and financial institutions to support the freight andPension Financial Services, the Implementing Measures for Individual

logistics sector to make sure that goods continue to be delivered

Pensions, and the Interim Management Measures on Individual Pension

and people can rely on receiving the goods that they need. During

Businesses of Commercial Banks and Wealth Management Companies.

lockdown, as freight and logistics companies were adversely

These have great impacts on banking industry.

affected, banks and financial institutions were encouraged to belenient in enforcing any loans that were outstanding as well as toCommercial banks play an important role in China’s individual

extend credit.

pension regime. A qualified individual may open a dedicatedpension fund account with a commercial bank for his/her individual

On April 15, the CBIRC published the Notice on Financial Support

pension. Such account is the source of funds for asset managementfor Freight Logistics to Ensure Smooth Operation and on April 18,

or wealth management product investments, investment earnings

the PBOC and the State Administration of Foreign Exchange

collection as well as any taxes payment in relation to individual(SAFE) published the Notice on Strengthening Financial Services forpension. Commercial banks can also offer other services linked to

COVID-19 Containment and Socio-Economic Development. Both ofthe pension fund accounts, including general advisory services

these focused on transportation and logistics companies as well as

and other types of banking accounts services, as well as financial

truck drivers that might have difficulties in repaying loans due to

products distribution. Since the services for individual pension funds

COVID-19 and encouraged financial institutions to extend or renew

are increasingly popular, the total levels of pensions deposited inloans, as appropriate. Financial institutions were also encouragedbank accounts can be substantial, offering huge potential for banks

to make it easier for taxi drivers, truck drivers, e-commerce businessbut also leading to considerable competition.

owners, and other self-employed individuals to take out loans, inreference to the policies for individual businesses and micro andSpecial attention has been paid to the handling of deposits devoted

small businesses. In response, many banks have introduced someto the care of the elderly. A pilot was launched in November 2022,

measures to assist. The Postal Savings Bank of China has offeredunder which savers of elderly care deposits would earn higher

credit support enhancement and special repayment policies, as wellinterest than those of common deposits, and can benefit fromas the opening of "green channels"; and the China Everbright Bank

preferential tax treatment when investing such deposits using

is providing further financial support and services to freight andindividual pension funds.

logistics industries.
Following the launch of the regulatory regime of individual pension
The CBIRC has encouraged banking institutions to support

as well as relevant services and products, how to keep individual

local governments to promote the policies that will "ensure

pension businesses in good operation and compliance status

the housing project delivery, people's livelihood, and stability",

remains a long-term concern for banking institutions.

including but not limited to, policy banks offering special loans
for "delivery of buildings". Six state-owned commercial banks are
increasing financing to real estate developers. The CBIRC and the
PBOC published the Notice on Strengthening Financial Services for
New Urban Residents, which instructs banks and other financial
institutions to help finance employment, entrepreneurship, housing,education, elderly care, and other fields for "new urban residents".
All of the above shows that the regulators pay close attention to
the financial support in both economy stabilization and people’s
welfare.

15

PRC Financial Regulation - Annual Report (2023)
Banking03

The risk solution in financial sector
promoting resource integration inbanking industry, and gradually shifting
focus to early risk prevention

More specifically, regulators will pay special attention to banking
and insurance institutions rated as D or below (i.e. poor) in terms ofcorporate governance, instructing them to improve their corporate
governance and to stop risky behaviors.

04

China’s regulatory environment is shifting from providing solutionsin the wake of financial risk outbreak to risk prevention, to try
to stop problems from happening in the first place. There wasa particular focus in 2022 on the risk management adopted
by small and medium-sized banking institutions. There were

Opening-up of banking sector continuing,
and cross-border business developingwith high-quality

While continuing to open up the banking sector to foreign

also some restructurings. For example, in January, the first ruralcompetition remains a key objective for China’s policy makers, acredit cooperatives reform was launched in Zhejiang; in July, thenumber of changes happened during 2022. In 2022, regulatory

businesses and assets of Liaoyang Rural Commercial Bank ( 辽阳农村商

policies continued to promote a high level of opening up of the业银行 ) and Liaoning Taizihe Rural Bank ( 辽宁太子河村镇银行 ) werebanking sector, and favorable policies continued to be put intotaken over by Shenyang Rural Commercial Bank ( 沈阳农村商业银行 );practice. Following the principle of having the same regulatory

and in November, local state-owned funds were injected into Huarong

environment for both domestic banks and foreign banks operating

Xiangjiang Bank ( 华融湘江银行 ), which then changed its name toin China, the CBIRC amended some provisions of the Implementation

Hunan Bank.

Measures on Administrative Permission Matters for Foreign Banks
to continue the process of convergence with the Regulations on

Disposal of non-performing loans was another area of focus for

Administration of Foreign Banks, continuing the introduction ofregulators. In 2022, regulators turned their attention to asset
management companies (AMCs), and provided guidance to AMCs

measures to further open the banking sector. The Measures foron the acquisition of non-performing loans from small and medium-

Comprehensive Supervision and Rating of Foreign Bank Branches (forTrial Implementation) is another step towards standardization of

sized financial institutions. These guidelines included certain

the supervision of foreign banks. It revised the existing rules in the

supportive policies for AMCs on acquisition of non-performing

form of a higher-level normative document. The Measures for theassets and the issuance of financial bonds. In addition, the guidance

Administration of Finance Companies of Group Companies, amended

encouraged AMCs to offer professional advice to local small

for the first time since 2006, confirmed that a multinational groupand medium-sized financial institutions on how best to dispose

can establish its own foreign finance company in China to provide

non-performing loans. In all, the intention is to promote better

financial services to its members in China without having to set up

coordination within the banking sector and to provide different
mechanisms for early financial risk prevention.

such foreign finance company through a specific WFOE.

One area of concern for the main regulator, the CBIRC, wasForeign investors are responding well. For example, Dah Sing Bank
gained approved to establish a new branch in addition to its existing

shareholdings and "related-party" transactions. The Administrative

legal subsidiary, becoming the first "dual-licensed" bank in China.

Measures on Related-party Transactions of Banking and Insurance

Schroder Bank of Communications Financial Management Co., Ltd.

Institutions promulgated in January 2022 redefined who "related"also secured approval to open for business.

parties were, looking at the actual situation (under the principle of"essence is more important than form"). These Measures define bankLegislation on cross-border business facilitation continues tosubsidiaries as "related" parties, to prevent banks from transferring

be put in place. In March, the Regulations on Matters Relating tointerests improperly through their subsidiaries. In addition, other

Overseas Loan Business of Banking Financial Institutions was officiallycommercial banks that have affiliated relationships with such bank

implemented, offering more scape for domestic banking financial

also fall into the scope of "related" parties of such bank under these
Measures, aiming to prevent shareholders from illegally obtaining

institutions to carry out overseas loan business. In May, the Notice onbank funds through implicit holding of equities in multiple banks.

Supporting Foreign Trade Enterprises in Improving Foreign Exchange

In November, the CBIRC published the revised Measures ondevelop their exchange rate hedging products and make it easier

Risk Management Capabilities was issued, encouraging banks to
for RMB cross-border settlement. In June, the Notice on Supporting

Supervision and Evaluation of Corporate Governance of Banking andCross-border RMB Settlement of New Forms of Foreign Trade was

Insurance Institutions, focusing on typical corporate governanceissued, allowing banks to carry out cross-border RMB settlement

problems such as shareholder manipulation and insider control.

16

PRC Financial Regulation - Annual Report (2023)
Bankingeither directly or in cooperation with qualified payment institutions

cooperating institutions, operating core businesses through its own

and clearing institutions. Following the successful conclusion of achannels, setting up the concentration ratio for the total number ofpilot program to allow multinational companies to integrate their

credit cards and the credit line issued by a bank in cooperation with

Chinese and foreign currencies (called "cash-pooling") in Beijing anda single cooperating institution, etc.

Shenzhen, in July, the pilot program was extended to Shanghai andGuangdong province, among others. This provides an opportunity

Some commercial banks are adjusting their internet loan businessfor banks to further optimize and upgrade their relevant services.

and credit card business accordingly.

In December, the PBOC and the SAFE jointly issued the Notice on

06

Matters Relating to the Administration of Funds of Foreign Institutions
Raised from Bond Issuance in China to set out the requirements for
management of funds arising from domestic issuance of bonds byforeign institutions, which further facilitates the financing of foreign

More specific regulations on financial
consumer protection promulgatedinstitutions in the domestic bond market and bolstering the twoway opening up of the financial market.

In December, the CBIRC published the Administrative Measures forProtection of Consumers' Rights and Interests by Banking and Insurance

05

Institutions ("Measures for Consumer Protection"), laying out
the obligations on banking and insurance institutions to protect

Online business and cooperation subject
to greater regulation

consumers’ rights to property safety, privacy, information and data
security, among other rights. The Measures for Consumer Protection
laid down detailed requirements, covering how banks and otherfinancial institutions can market their products, how much they

Regulators have turned their attention to two areas that havecan charge, collection of loans, and other areas with high risks ofcaused problems in recent years – internet loans and credit cards.

consumer rights infringement. There are also strict guidelines on

In July, the CBIRC published the Notice on Strengthening theinternal management and controls for consumer protection (suchAdministration of the Internet Loan Business of Commercial Banks andas requirements regarding mechanisms of self-review, consumer

Improving the Quality and Efficiency of Financial Services, providing

suitability assessment, and sales traceability management, which arefurther requirements on internet loan business of commercial banks,

more detailed than relevant requirements under the Implementation

based on which banks shall independently and effectively carry

Measures for Protecting Financial Consumers' Rights and Interests

out identity verification and enter into cooperation agreements by(2020), and will have great impacts on the internal control systems

business category with third-party institutions. The notice offeredof banks.

a one-year extension of the transitional period of internet loan
The CBIRC has also addressed consumer protection in more specificbusiness rectification.

areas of business (in the Guiding Opinions on Standardizing the
At the same time, regulators are addressing the issue of "fullyManagement of Market-regulated Prices of Banking Services, Notice1

disconnection" of credit markets , which has received widespreadon Carrying out Special Rectification of Infringement upon Personal

attention because of the time frame for the implementation ofInformation Rights and Interests by Banking and Insurance Institutions

corrective measures and relevant plans.

and the New Credit Card Rules), addressing such matters as arbitrary
charges and protecting consumers’ rights to information safety.

The Notice on Further Promoting the Standardized and Sound
Development of the Credit Card Business (the "New Credit Card

The regulators have stepped up the levels of fines levied on those

Rules") provides overall regulation of credit card business,consumer finance companies who breach the regulations. Nearlystrengthening supervision over cooperation agreements and

RMB8 million fine were imposed on consumer finance companies inrequiring commercial banks to be stricter in their use of cooperation

total, with some single penalties exceeding RMB1 million.

agreements with third party institutions and focusing on their corebusiness, such as implementing the list-based management over

1. "Fully disconnection" of credit markets means the financial institutions are not allowed to cooperate with institutions who do not have a credit
reporting license to obtain credit data of customers.

17

PRC Financial Regulation - Annual Report (2023)
Banking

07

08

Green credit business and green bonds
taking off as a result of supporting
regulation

The bank ing industr y insisting on
normalizing strict super vision andm a i n t a i n i n g t h e h i g h p re s s u re o fadministrative punishment

Green finance regulation took a major step forward in 2022 withthe promulgation in June by the CBIRC of the Guidelines for Green

Since addressing market disorders in 2017, regulators have devoted

Finance in Banking and Insurance Industries (the "Green Financea lot of attention to regulations to impose stricter controls on the

Guidelines"). This is the first set of CBIRC regulations which includes

banking sector, including imposing administrative penalties. In

in detail the concept of Environmental, Social and Governance2022, administrative penalties have focused on interbank business,(ESG). The Green Finance Guidelines is a comprehensive upgrade

management of employees, related party transactions and banks’over the Guidelines on Green Credit of 2012. Under the Green

wealth management business where there have been breaches.

Finance Guidelines, both credit and non-credit business of banks

Strict supervision continues and the number of administrative

shall be operated under green finance rules, ESG principles shall be

penalties increases (the total amount of administrative penalties

incorporated into banks’ risk management and business processes,

decreases due to the decrease in the total number of administrative

there is much greater emphasis on carbon reduction, and the scope

penalties of amount exceeding RMB 10 million). Failure to monitor

of investments and transaction counterparties under "green"-

the activities of employees has continuously led to the imposition

related management of banks has been expanded. Meanwhile,of many administrative penalties, and the total amount of fines has

as we predicted in the last annual report, green finance rules

been increasing each year. One rural commercial bank was fined

which target niche sectors were published in 2022, such as theover RMB10 million for failure to adequately supervise the conduct

Notice on Encouraging Non-banking Financial Institutions to Supportof its employees.

Development of New Energy Vehicles.
In the meantime, 2022 is the last year of the Three-year Action Plan
"Green" bonds are also the subject of more standardized regulation.

(2020-2022) for Corporate Governance in the Banking and Insurance

The Green Bond Standard Committee issued the PRC Green Bonds

Industries. Regulators have also clamped down on related party

Principles in July, providing a clear definition of green bonds withtransactions, imposing higher levels of fines on those in breachfour core characteristics, and requiring that 100% of the funds raised

as compared with 2021. The PBOC’s anti-money laundering (AML)

through green bonds shall be invested in green projects.

regulation upgraded in recent years. At the end of 2022, the PBOC
published a few penalties imposed on commercial banks and the

As the result of policies and regulations that encourage greener

relevant responsible persons, the total fine of which adds up topractices, as well as deterring polluting practices, there has been

about RMB 69 million. This demonstrates that the regulators are

an increase in the issue of "green" loans and "green" finance bonds.

determined to promote AML regulation. Moreover, as the grace

According to the PBOC, by the end of the third quarter of 2022, theperiod of the Asset Management New Rules ends, the wealthbalance of green loans was RMB20.9 trillion, 41.4% higher than amanagement business of banks has progressively shifted into

year ago; according to data from Wind, by the end of 2022, policy

wealth management subsidiaries ( WMSs). In May, the WMSs

banks and commercial banks had issued "green" finance bonds ofreceived penalties for the first time. Two WMSs were fined more thanmore than RMB350 billion, nearly tripling that of 2021. We expect

RMB 4 million each.

banks will significantly increase their "green" credit and "green"
finance bonds issuances in future.

18

PRC Financial Regulation - Annual Report (2023)
Banking2023 Regulatory Outlook

01

02

Ensuring people’s welfare, consumer
protection and enhancing consumer
finance will remain core objectives

Cross-border business will continue toget easier

In 2022 financial regulators have put a strong emphasis on

China will continue to open up, a process that will not be thrownprofessional standards, the need to create a strong financial

off course by international tensions or the consequences of theenvironment and concerns for people’s welfare in financial

pandemic. According to the spirit of the 20th National Congress ofdevelopment. Following the shift of pandemic prevention policies,

the CPC, China will still steadily promote the high-level opening-up

we anticipate that in 2023 the CBIRC will play its part in stimulatingof the financial sector and accelerate efforts to foster a new pattern

growth of consumption, and introduce more financial measuresof "dual circulation" development which is designed to foster

to support the development of the real economy. They are likely

positive interplay between domestic and international economic

to support small and micro enterprises of industries that wereflows.

adversely affected by the pandemic, such as hospitality, culture andtourism. We expect a series of regulations will be promulgated in

It is expected that the banking sector will maintain and continue

2023 to promote financial services to new urban citizens, to increase

to promote high-level opening-up in 2023. There will be moreconsumptions of new energy vehicles, green home appliance andbreakthroughs in cross-border business. With the 20th CPC National

housing, and to optimize supervision on consumer finance business.

Congress proposing to promote the high-level two-way opening-

The Administrative Measures for Automobile Finance Companies

up of the financial market and support the sustained prosperity

is likely to be released in 2023, which will provide more businessand stability of Hong Kong as the international financial center,growth possibilities for automobile finance companies.

Hong Kong features strongly in China’s plans. We expect that moreproducts in Hong Kong will be interconnected with the Mainland

Financial consumer protection will remain a regulatory focus in 2023.

market, which will both help with the diversified development ofSince the Administrative Measures for Protection of Consumers' Rights andthe Hong Kong’s financial markets and maintain Hong Kong’s role

Interests by Banking and Insurance Institutions have now been published

as an international financial center. At the same time, we expect theofficially, commercial banks are now required to make sure they have

CBIRC to introduce more policies and measures which will further

proper consumer protection processes in place.

improve the business environment for foreign banks in China,
expand international banks’ business scope, facilitate cross-border

There will be particular attention placed on protection of personal

RMB settlement, and continue to increase support for the "One Belt,

financial information rights. Based on the rectification campaigns

One Road" project.

against infringement over personal information rights completed
in 2022, the CBIRC may promulgate more specific rules on issues

03such as data collection, storage, transfer, query, usage, deletion andinformation processing cooperation with third parties. The CBIRC
is also likely to step up enforcement against those who breachregulations governing consumers’ financial information rights, andThe fundamental rules of loan business
may face changes and rectification resultsof internet loans business is to be tested

may publicize typical cases of infringement to deter others. We also
anticipate that there will be new rules on the pricing of services andIn 2023, the loan business will continue to be the focus of regulators.

the management of consumer suitability by banks.

We expect that the "Three Measures and One Guideline"2 will berevised and officially released, which are expected to set out moredetailed regulations covering, for example, entrusted distribution,loan term, and the pre-loan procedures for working capital loan
is expected to be grant more flexibility, to make it easier for small
and micro enterprises to borrow money. Under the concept of"20 Data Rules"3, the CBIRC will in 2023 encourage credit activities

2. "Three Measures and One Guideline" means the Interim Measures for the Administration of Fixed Asset Loans, the Interim Measures for the
Administration of Working Capital Loans, the Interim Measures for the Administration of Individual Loans, and the Guidelines on the Project Financing
Business.
3. "Data 20" means the "Opinions of the CPC Central Committee and the State Council on Establishing a Data Base System to Maximize a Better
Role of Data Elements" issued by the Central Committee of the Communist Party of China and the State Council in December 2022

19

PRC Financial Regulation - Annual Report (2023)
Banking

generated based on compliant information sharing and big-data-

custody of certain types of financial products may fall within theanalysis, ensuring that a responsible internet loan business can help

overall regulation of the CSRC, it remains to be seen how thebusinesses and individuals to relieve difficulties, strengthen financial

Custody Business Measures will interact with the CSRC regulations

services for new citizens, optimize financial support for key areas ofin practice.

consumption, and continue to improve the quality and efficiency offinancial services for the real economy. In 2023, it is expected that05

more clear rules and policies will be implemented in this regard.
As the transition period of the Measures for the Credit Business
Management comes to an end, by the second half of 2023, all credit
businesses will be required to operate with a license, and non-The digital RMB will be promoted
and apps will improve, the regulatory
framework is taking shapelicensed market players will be "fully disconnected" from financial
institutions per the regulatory requirements. All aspects of internet

Although the two-year pilot of digital RMB has not really taken off

loan operations will have to operate to the high standards laid downwith low user activity, we expect there to be continued interestby regulations. Commercial banks will no longer be allowed to over-in developing the digital currency, supported by accompanying

rely on partner institutions when extending loans, which will further

regulations to fill the current regulatory gap and also boost the

improve the supervision system on internet business of commercial

application of digital RMB in different scenarios. It is expected thatbanks. However, as the process continues to unfold, not all financial

the scope of the digital RMB pilot will continue to expand in 2023

institutions will have put in place the right policies, so we expect

and the digital RMB will extend from its current retail applications

there to be more penalties imposed on those who fail to abide by

to non-retail business. Meanwhile, in order to break the current

the regulations.

payment pattern built by bank cards and third-party payments
and to explore more application scenarios and business space, thedigital RMB currently positioned for retail may transform to non-04

retail business in the future. Cross-border digital currency may also

Rules on custody business of banks may
be issued, filling in the regulatory gap

be explored further, as evidenced by the "m-CBDC Bridge Project"4launched by the Digital Currency Institute of the PBOC, together
with the Hong Kong Monetary Authority, the Bank of Thailand
and the Central Bank of the United Arab Emirates. In addition, thebusiness model and application scenarios widely adopted by the

At the end of 2022, the Administrative Measures for Custody Businessindustry may usher in the regulation of independent rules.

of Commercial Banks (Consultation Paper) (the "Custody BusinessMeasures") was published by the CBIRC to seek public opinion.
This is expected to come into force in 2023. Once promulgated,
the Custody Business Measures will become the keystone rules
for the banking custody business with an asset scale of hundredsof trillions in RMB. This will mark the end of chronic lack ofregulation governing banks’ custody business, which up to now
has relied on self-disciplined rules. The banks will need to respondto the new regulations and change their ways of operating. For
example, functions and responsibilities of custodian banks shall be
distinguished for "assets under custody" and "other assets". Banks
operating custody businesses also need to review their internal andexternal management systems to check whether they can satisfy
applicable requirements under the Custody Business Measures,
including, but not limited to, requirements for risk management
system and preventing those with whom they have cooperative
businesses to market with the custodian bank’s brand. As the

4. "m-CBDC Bridge Project" experiments with cross-border payments using a common platform based on distributed ledger technology (DLT)
upon which multiple central banks can issue and exchange their respective central bank digital currencies (multi-CBDCs).

20

>>>>>PRC Financial Regulation:
Annual Report (2023)

Securities and Futures21

PRC Financial Regulation - Annual Report (2023)
Securities and Futures

2022 Regulatory Milestones

January 1
The China Securities Regulatory Commission (the"CSRC") issued the Provisions on the Implementation of
the Rules of Commitments by Parties to the Administrative
Enforcement of the Laws of Securities and Futures and theAdministrative Measures on the Commitment Funds ofParties to the Administrative Enforcement of the Laws ofSecurities and Futures.

January 21
The Supreme People's Court issued the Several
Provisions on the Trial of Tort Compensation Cases
regarding False Statement in Securities Market.

February 18

April 29

The CSRC issued the Measures for the Supervision
and Administration of Directors, Supervisors, Senior
Management and Practitioners of Securities and Fund
Institutions.

The CSRC issued the Guiding Opinions on the
Improvement of the Administration of Companies
Post-delisting, and solicited public comments on the
Administrative Measures of Cybersecurity in Securities
and Futures Industries (consulting draft).

May 12The CSRC issued the Pilot Provisions on Market Making
Business of Securities Companies for STAR Stocks.

May 27
The People's Bank of China (the "PBOC"), the CSRC
and the State Administration of Foreign Exchange (the"SAFE") issued the Announcement on Matters Relating
to Further Facilitating Investments in Chinese Bond
Market by Overseas Institutional Investors.

June 10The CSRC issued the Decision on Amending Several
Provisions of the Stock Connect between Mainland andHong Kong.

June 24
The CSRC issued the Announcement on the Arrangements
for Including Exchange-Traded Funds on the MainlandHong Kong Connect.

July 27
The CSRC and the Ministry of Finance issued theProvisions of the Matters on Prioritizing the Use of theProperties of the Persons Violating Securities-related
Laws for Civil Liabilities.

July 28
The depositary receipts business under the mutual
market access between China and Switzerland
launched.

August 1
The Futures and Derivative Law of the People's Republicof China took effect, which was promulgated on
April 22 by the Standing Committee of the National
People's Congress. The CSRC started to solicit
comments on the Administrative Measures for Futures
Exchange (consulting draft) publicly on September 16.

December 15
The U.S. Public Company Accounting Oversight Board(the "PCAOB") issued a report confirming that it has
secured access to inspect and investigate Mainland
Chinese and Hong Kong accounting firms in 2022.

December 19
The CSRC and the Securities and Futures Commissionof Hong Kong issued a joint announcement regarding
the further expansion of the scope of the underlying
stocks under the Stock Connect. On the same day,the SSE 50 stock index option was listed on the China
Financial Futures Exchange.

December 30
The CSRC solicited public comments on the Interim
Regulations on Position Administration in Futures Market(consulting draft) and the Administrative Measures ofStock Options Trading (consulting draft).

December 30
The CSRC announced that it will continue toinvestigate the illegal cross-border business of Futu
Holdings and Tiger Brokers.

22

PRC Financial Regulation - Annual Report (2023)
Securities and Futures

2022 Regulatory Mainline Review

01

02

The capital markets broadened financing
channels for enterprises and served thereal economy

The Futures and Derivatives Law comes
into force, filling the gap in the field offutures and derivatives

In the report of the 20th CPC National Congress, there is a strong

The Futures and Derivatives Law of the People's Republic of China (theemphasis that economic development should be focused on the"FDL") was formally approved by the National People's Congress onreal economy, i.e. not on the amorphous financial markets. In 2022,

April 20, 2022 and came into force on August 1, 2022. The formal

China's capital markets have gone some way to serve the realissuance of the FDL marks the first specialized law in the field of

economy, a long-term and strategic goal, and there have been somefutures and derivatives in China and fills the gap in China’s capitalsignificant achievements.

markets.

Science and technology innovation enterprises continue to receive

The FDL, described as a "fundamental law", expressly affirms thestrong support. In March 2022, the CSRC issued a document clearly

positive role of futures and derivatives in serving the national

stating that the priority will be given to private enterprises in high-economy. It sets out the regulatory framework, provides for thetech and strategic emerging industries to support bond issuances

operation of a futures and derivatives market, including futures

for fund raising. In May, the Shanghai Stock Exchange (the "SSE") andtrading and settlement, establishes the trader protection system,

Shenzhen Stock Exchange (the "SZSE") issued the SSE Guideline No.4

regulates the operation of futures operators, includes over-the-on the Application of the Rules for Reviewing the Listing of Corporate

counter derivatives trading, allows for the integration of China’s

Bonds – Science and Technology Innovation Corporate Bonds andfutures and derivatives trading with the international market andthe SZSE Guideline No. 6 on Innovative Varieties of Corporate Bonds

provides regulations for cross-border trading.

– Science and Technology Innovation Corporate Bonds respectively,
marking the formal launch of science and technology innovation-

There were follow-on developments. On August 1, 2022, thefocused corporate bonds, which will enable the bond market toInternational Swaps and Derivatives Association (ISDA) issued aprovide precise support to the science and technology innovation

legal opinion, formally endorsing the enforceability of the close-

industry and enterprises in such industry to have access to the fundout netting under the PRC law, thereby providing new developmentin the bond market. In November 2022, the CSRC and State-owned

opportunities for cross-border trading in the futures and derivatives

Assets Supervision and Administration Commission jointly issued

markets. On December 30, 2022, the CSRC released the Stock Options

the Notice on Supporting the Issuance of Science and Technology

Trading Management Measures (Draft for Comments) and the InterimInnovation Corporate Bonds by Central State-owned Enterprises,

Regulations on Position Management in Futures Market (Draft for

which is aimed at promoting the role of central SOEs in science andComments) and publicly solicited comments, further implementing

technology innovation in support of national strategy.

the applicable provisions of the FDL.

At the same time, the real estate sector is once again finding it

03

easier to raise finance. The CSRC cited five key areas where financing
could assist the sector, including: resuming M&A and restructuring;supporting financing and re-financing of listed real estate
enterprises and listed real estate-related enterprises; improving the

Securities companies' offshore businesscomes under regulator’s scrutiny

process for real estate companies to list overseas; promoting thedevelopment of real estate investment trusts (REITs); and launching

On September 25, 2018, the CSRC issued the Administrative

the pilot real estate private investment fund. After an extended

Measures on the Establishment, Acquisition and Equity Participation

period in which real estate companies found it difficult to raisein Overseas Business Organisations by Securities Companies

money on the A-share market, the CSRC initiative is a shot in theand Securities Investment Fund Management Companies (thearm for the real estate enterprises in China and marks the reopening"Administrative Measures"), which sets out regulatory requirementsof financing channels for the real estate sector.

on securities companies and fund management companies fortheir overseas business and their establishment and participation

The SSE and SZSE stock markets bucked the international trend

in applicable offshore institutions. The Administrative Measures saywhere most stock indices declined by maintaining IPO and equity

that overseas subsidiaries can only engage in securities, futures,

raising levels, playing an important role in stabilizing the macro

assets management or other financial business as recognized by the

economy and helping the development of the real economy.

CSRC, and finance-related business as recognized by the regulator

23

PRC Financial Regulation - Annual Report (2023)
Securities and Futures

such as financial intermediary introductory business and financial

mechanism extended to SZSE; at offshore level, the mechanism

information business, and shall not engage in the business unrelated

extended from UK to the Swiss and German markets. By the end

to finance. Under the Administrative Measures, the overseas

of 2022, five A-share companies had issued the global depositarysubsidiaries must have a transparent shareholding structure, be of areceipts ("GDRs") in the UK market and nine A-share companies

size that is consistent with their capital levels within the group, haveissued GDRs in the Swiss market.

a proper management, compliance and risk controls in place andcomply with all regulations.

Bond markets: In May 2022, the PBOC, CSRC and SAFE issued thejoint announcement on Matters Relating to Further Facilitating

Following the issuance of the Administrative Measures, the CSRC

Investments in Chinese Bond Market by Overseas Institutional Investors,

required the offshore entities approved by the CSRC to make any

which aims to make China’s bond market more "systematic, holistic

necessary adjustments to their operations within three years toand synergistic". International investors can in the exchange bondmake sure they comply with the regulations. On top of that, amarket directly or through one of the mutual market processes

number of securities companies were fined for breaches by theand can choose which exchange to use (previously there were

CSRC in June 2022. These include one securities company which

restrictions on foreign investors' access to the exchange bondestablished an overseas investment company in 2015 but failed

market).

to apply to the CSRC for approval and another securities company
which had failed to adjust the complicated shareholding structure

Financial derivatives markets: The newly-promulgated FDL provides

of its offshore subsidiary within the prescribed time.

clear arrangement regarding the mutual opening of the futures andderivatives markets. In September 2022, the five major domestic

The focus on regulating overseas businesses of securities

futures exchanges announced the expansion of the derivatives

companies has come about because of the growing importanceinvestment scope for qualified foreign institutional investors (QFIIs)

and contribution of such businesses. Statistics show that someand RMB-qualified foreign institutional investors (RQFIIs), involving

securities companies' overseas business revenue accounted for overstock index options and the futures and options for a number of

20% of their total revenue in 2020. It is important to improve theimportant commodities. In October, UBS Futures announced thecompliance standard of securities companies' overseas business, tocompletion of the first domestic commodity futures transaction bystrengthen the management of overseas subsidiaries, and to set up

QFII/ RQFII.

the compliance management, risk management and internal control
system to fully cover the overseas subsidiaries.

The refinement of the regulations is providing opportunities forinternational participants. The CSRC accepted applications by BNP

04

Paribas to set up a wholly foreign-owned securities company inJanuary 2022 and by Intesa Sanpaolo to set up Sino-foreign joint

Promoting the "system-based" openingup of the capital markets

venture securities company in September 2022. With the further
implementation of the policy of "promoting the reform and opening
up of the capital market", we expect that CSRC is considering more
applications by international financial institutions and will makeprogress in 2023.

China is taking a holistic approach to the opening up of its capital
markets, having issued various rules, measures and notices for
opening up in respect of equity, bond and financial derivatives
markets – what is known as the "system-based" opening-up.
Stock markets: The mutual market access mechanism between
the China mainland and overseas markets has been expanded invarious aspects. For the Shanghai/Shenzhen-Hong Kong Stock
Connect, from July 2022 qualified exchange-traded funds (ETFs)
can be included, and in December 2022, it was decided to further
expand the scope of the target securities. For the Shanghai-London
Stock Connect, in February, the CSRC issued the Provisions on theRegulation of the Depositary Receipt Business under the Mutual Market
Access Mechanism between Domestic and Overseas Stock Exchanges,
expanding depositary receipt business. At domestic level, the24PRC Financial Regulation - Annual Report (2023)
Securities and Futures

05

China and the U.S. sign the Statement ofProtocol, paving the way for solution ofdelisting of China stocks listed in the U.S.

06

Reinforcing the responsibilities ofintermediaries, constructing the market
operation system emphasizing information
disclosure

On August 26, 2022, the CSRC, Ministry of Finance of the PRC andPCAOB signed a Statement of Protocol (the "SOP"), under which the

In recent years, the regulators have been constantly dedicated

PCAOB obtained the initial permission to conduct inspections andto improve the relevant policies and strengthen the regulatory

investigations of the registered public accounting firms in China

enforcement, and strictly, timely, and severely conducted

mainland and Hong Kong and access to the audit work paper ofinvestigation and imposed penalties on the intermediaries which

public companies in their possession.

failed to perform its duty of care and diligence or had other illegal
conduct, which aims to let the market-driven discipline mechanism

The PCAOB has audit requirement on companies listed in theplay a role of survival of the fittest, promote intermediaries’

U.S., which becomes sensitive in recent years as the environment

fulfillment of their respective duties and fully control the "entrance"changed. In 2020, the U.S. passed the Holding Foreign Companyof the market.

Accountable Act, which provides that if the PCAOB determinesthat it is unable to conduct the audit on the auditor of a listed

Legislation has been introduced requiring sponsors of new issues tocompany in the U.S. for three consecutive years, the listed company

practise due diligence, carry out necessary information disclosurein question may be required to be delisted. As a result, most Chinese

and work to high standards. In 2022, the Securities Association ofcompanies listed in the U.S. (around 200 of them now) were at risk

China issued the Practice Quality Evaluation Measures of Financialof being forced to be delisted when the Holding Foreign Company

Consultancy Business of Securities Companies for Material Asset

Accountable Act was promulgated.

Restructuring in 2022, which requires to carry out the practice quality
evaluation on financial consultancy business, and strengthen the on-

Although the signing of the SOP eased the nerves of Chinese U.S.-

site inspection, regulatory enforcement and accountability pursing

listed companies, there was still some uncertainty as to how theof sponsor and underwriting institutions and financial consultants.

SOP would actually be implemented. On December 15, 2022, the

The Guiding Opinions on Promoting the Reform of Registration System

PCAOB said its staff had visited Hong Kong in September 2022 andfor Corporate Bond (consulting draft) promulgated by the CSRC also

had conducted the relevant audit work in Hong Kong. It confirmed

emphasized the responsibilities of the intermediaries, and urgedthat the PCAOB was able to secure complete access to inspect andintermediaries to build sound system in respect of quality andinvestigate audit firms in China mainland and Hong Kong. The CSRC

practice risk control in relation to the corporate bond business.

then held a press conference welcoming the statements madeby the U.S. regulator on these issues. The market was generally

In terms of the enforcement of the law, the CSRC disclosedof the view that this marked substantial progress in the area of

the information of the cases it handed in 2021. There wereaudit supervision cooperation between the U.S. and China and the

39 investigation cases, twice as many as in 2020, which wereprevious risk regarding the delisting of China concept stocks had

initiated against intermediaries in respect of their violation ofbeen eliminated.

the law. According to the CSRC, the illegal activities of securities
intermediaries mainly include: serious defects in risk identification
and appraisal procedures, inadequate and improper implementationof authentication and evaluation procedures, unreasonableprofessional judgment, and serious violation of professional ethics.
In November 2022, the CSRC announced the results of special
inspections on the internal controls of eight securities companies. It
said it had imposed: (i) administrative measures against a securities
company that committed multiple serious non-compliant activities,
ordering it to rectify and suspend its sponsorship business andunderwriting business for corporate bonds for three months; (ii)measures including administrative penalties and regulatory talks
on another securities company that committed multiple serious
non-compliant activities; and (iii) administrative measures suchas ordering to rectify and issuing the warning letter against five

PRC Financial Regulation - Annual Report (2023)
Securities and Futures

securities companies which had committed relatively minor
offences. In the high-profile case of LeTV, one of the underwriters
had around RMB 5.6 million confiscated and was fined around RMB
11 million due to its failure to perform its duty of diligence. Another08

Formal launch of market-making forstocks on the Science and Technology
Innovation Board (the "STAR Board")sponsor was ordered by CSRC Shenzhen to suspend its sponsor
qualification for three months. The sponsor representatives and theOn May 12, 2022, the CSRC promulgated the Provisions on the Pilot

person in charge of the sponsorship business at that time for LeTV's

Program of Market Making Business of Securities Companies for Stocks

IPO project were also held liable.

on the STAR Board, stipulating the qualification requirements andapproval procedures, internal control requirements, risk monitoring

With the promotion of the registration-based IPO system,

and control requirements for market makers, regulation and law

we anticipate that regulators will continue to strengthen theenforcement and other aspects, which provides top-level legal basis

supervision of intermediaries’ role of "gatekeepers".

for the introduction of the market maker mechanism into the STAR
Board.

07

Following concluding that Futu and Tiger
conducted business without a license,
securities cross-border business to be
subject to stricter regulation

On October 31, 2022, the market making for stocks on the STAR
Board was officially launched. By December 31, 2022, the first batchof 14 market makers for the STAR Board approved by the CSRC had
completed the filing of a total of 116 stocks, reduced to 92 after theelimination of "repeat subjects, accounting to nearly 18% of thetotal number of stocks on the STAR Board.

On December 30, 2022 the CSRC confirmed that Futu Holdings andTiger Brokers (internet securities companies) had illegally been

The formal launch of market making for stocks on the STAR

carrying out cross-border securities business for domestic investors

Board means that the original single-market bidding trading

without CSRC’s approval.

mechanism on the STAR Board has been transformed to mixed
trading mechanism including market making and bidding, which

The CSRC required the two institutions immediately to ceaseis an important transformation of China’s capital market. The

their illegal new business activities and to stop soliciting new

amended Securities Law in 2020 has officially included "securities

domestic clients, while allowing them to continue to serve existing

market making" into one of the seven basic business scopes ofdomestic clients so long as they did not transfer "incremental funds

securities companies. However, market making has long beenin violation of the administration rules of foreign exchange tolimited to certain products (such as market making for ETFs listed

investors' accounts". Different treatment to new and existing clientson exchanges and stock options) and has not really been fully

shows that the regulatory authority has adopted a relatively mild

implemented on the A-share market. The launch of the market

approach to maintain the stability of the market.

making business on the STAR Board is a pilot, allowing somesecurities companies who are viewed as having sound corporate

As early as 2021, the CSRC has, through media statements,

governance and internal controls, stable operation and strong risk

regulatory talks and other forms, expressed its attitude towards

resistance capability to carry out the market making business. Suchthe illegal cross-border securities business conducted by foreign

pilot approach is good for the steady promotion of the relevant

securities institutions, and pointed the compliance issue regarding

work and prevention and control of various risks. The CSRC andthe cross-border personal information transmission arising out of

the SSE will evaluate the pilot and, if all goes well, it is expected

the said cross-border securities business. On February 8, 2022, Sunthat market making will be expanded to other stock boards. The

Tianqi, the director of the Financial Stability Bureau of the PBOC also

relevant regulatory rules on market making are also expected to bestated that engaging in financial business that is not opened up to

developed.

foreign investors or conducting business in China only with overseas
licenses by foreign institutions is illegal.
Now that the two internet securities companies have been officially
identified as "driving without a license", cross-border securities
business without a domestic license will be subject to closer scrutiny
by the regulator, and cross-border financial activities with similar
nature may be subject to stricter regulation as well.

PRC Financial Regulation - Annual Report (2023)
Securities and Futures

2023 Regulatory Outlook

01

Capital markets will contribute to thedevelopment of the real economy

public for comments on September 16, 2022, aiming to implement
the provisions of the Futures and Derivatives Law relating to futures
exchanges, while regulations such as the Measures for the Supervision
and Administration of Futures Companies are also expected to beamended in 2023.

According to the Central Economic Work Conference at the endof 2022, stabilizing the economic growth and promoting the

In 2023, it is expected that applicable rules in relation to the listingdevelopment of the real economy will become one of the primaryand registration of futures varieties, position management, industrial

tasks of development of the securities market in 2023. To this end,

customer cultivation, over-the-counter derivatives trading, thethe CSRC clarified multiple priorities in work in December 2022.

business scope of futures companies and other important matterswill be further revised, so as to implement the relevant requirements

In terms of the reform orientation of the capital markets, the CSRC

under the Futures and Derivatives Law and further improve andemphasized that it would focus on key areas and weak spots suchcomplete the legislation system in respect of the futures andas major manufacturers, scientific and technological innovation,

derivatives.

private enterprises, and strengthening the role of the capital
markets in providing investment and financing to the real economy.

There are still many matters in the Futures and Derivatives Law, such

The futures market will play an increasing role in supporting the risk

as cross-border transactions, cross-border regulatory coordination,

management needs of enterprises engaging in the "real" economy.

the marketing of foreign institutions in the domestic market, andthe filing of master agreements, which are currently only stipulated

There will be a continued focus on supporting the real estate sector,

in principle, and it remains to be seen how they will be implemented

with a number of priority focuses, including resumption of mergers,in the future.

acquisitions and restructuring, the financing or refinancing oflisted real estate enterprises and listed companies related to real03

estate industry, improving the policies for the listing of real estate
enterprises in overseas markets, supporting plans for strengthening
the balance sheets of high-quality real estate enterprises, continuing
the implementation of special support plans and instruments

The securities dispute resolution mechanism
is expected to continue the diversified
development trend, and relevant rules andpractices will continue to improvefor bond financing by private enterprises, and promoting thecredit enhancement cooperation between the central and local
governments to jointly support the issuance of bonds by private real

The amended Securities Law provides different ways for resolving

estate enterprises.

securities disputes, including administrative settlement, dispute
mediation, advance compensation, and representative litigation.

In short, China’ capital markets will play a greater role in supporting

In 2022, there have been new developments in the legislation andthe continued development of China’s economy.

practice of securities dispute resolution, as follows:

02

Administrative settlement: A number of new rules came into effectSupporting rules and regulations of
the Futures and Derivatives Law will befurther refined, and the futures market will
embrace new development opportunities

in 2022, including the Measures for the Implementation of the Rules
for the Undertakings Made by the Parties to Securities and Futures
Administrative Law Enforcement, the Provisions on the Implementationof the Rules for the Undertakings Made by the Parties to Securities
and Futures Administrative Law Enforcement, and Measures for the
Administration of Funds Paid for the Undertakings Made by the Parties

On August 26, 2022, Fang Xinghai, vice-chairman of the CSRC, said

to Securities and Futures Administrative Law Enforcement, pursuant

in his speech at the 19th Shanghai Derivatives Market Forum thatto which securities investigations may be terminated if the party

it is necessary to improve the "promulgation, amendment andinvolved has undertaken to rectify the alleged breach of laws, toabolition" of supporting rules and regulations of the Futures andcompensate investors for their losses, to eliminate negative impact,

Derivatives Law.

and such undertakings have been accomplished. This mechanism
is not new, but the latest legislation in this regard has a number ofAmong the suppor ting rules, the amended version of thechanges, including: (1) extending the application time, deleting theAdministrative Measures for Futures Exchanges was released to therequirements that the relevant arrangements may only be applied

27

PRC Financial Regulation - Annual Report (2023)
Securities and Futures04

after the case has been filed; (2) expanding the scope of application;(3) optimizing the initial procedures; (4) clarifying the factors thatshould be considered when determining the settlement amount;and (5) clarifying decision-making procedures for deciding whether

Stock issuance registration system is
expected to be extended to the mainboard in 2023

to apply the settlement scheme. The above new rules reflect
regulators’ clear attitude to actively promoting the settlement

After the development in the past few years, the pilot systems

arrangement in the administrative enforcement process. We

used for registration of stocks on the STAR Market, ChiNext and the

expect that there will be more examples of securities investigations

Beijing Stock Exchange have all worked satisfactorily. According

settled in 2023. The relevant arrangements will help to protect theto public information, more than 300 enterprises have been listed

legitimate rights and interests of investors, to maintain market order,

through the registration system in 2022, raising more than RMB400

and to improve the efficiency of administrative law enforcement.

billion in aggregate. The implementation of the registration system
has effectively lowered the threshold for enterprises to go public

Misrepresentation: In January 2022, the Supreme People's

and, in so doing, made the market more efficient, weakened the

Court issued Several Provisions on the Trial of Civil Compensation

government review and approval, led to better pricing of stocks

Cases Involving Misrepresentation in the Securities Market

and generally improved the market’s ability to discover value. The(the "Interpretation of Misrepresentation"), addressing

development in the past few years has accumulated experience andsome problems that had occurred in the past due to market

created conditions for the fully implementation of the registration

developments, legislation and other reasons. The Interpretation

system. Currently only the main board has not applied theof Misrepresentation provides more detailed requirements on theregistration system.

determination of causation of losses and expands the scope of
application of misrepresentation. The newly released Interpretation

In the 2022 government work report, the goal of "fully implementingof Misrepresentation responds to the concerns expressed by market

the stock issuance registration system" was put forward again,

and the judiciary in connection with misrepresentations to someand in the CSRC work conference, the slogan of further promoting

extent, and is conducive to deepening all-round reform of thecapital market reform with the fully implementation of the stock

capital market and forming a good ecology of the capital market.

issuance registration system was emphasized. The scale of main

However, there is still much left to be clarified, and so we can expect

board market is large in terms of the number of listed companies,

some more legislative and regulatory developments in 2023.

the number of investors as well as investment products, and its
impact on iconic indices is significant, which increases the difficultyof fully implementing the registration system on the main board.

The priority of civil liabilities: The CSRC and the Ministry of Financeissued the Provisions on Matters Related to the Priority Use of Propertyof Securities Offenders to Bear Civil Liability in 2022. The principle of

Based on the practical experience accumulated in the past few years

priority of civil compensation has long been established but it hasin the areas of rule formulation, listing review, market-oriented

been difficult to put into practice, largely because of lack of effective

pricing issuance, secondary market trading by implementing

connection with the Ministry of Finance at institutional level. This

information disclosure-oriented registration system, together

regulation, jointly issued by the CSRC and the Ministry of Finance,with the gradual attempts of regulatory transformation and theshould enable civil compensation priority to work. In September

continuous enhancement of "gatekeeper" responsibility of the2022, the Shanghai Financial Court rendered a first-instanceintermediary agencies, a good market ecology to fully implement

judgment and publicly pronounced its judgment in the investor's

the registration system has gradually formed. We believe that there

lawsuit against Xian Yan for manipulating the securities trading

will be moves towards instituting registration on the main board inmarket, ordering the defendant Xian Yan to compensate the plaintiff

2023. In the future, market vitality will be further stimulated, andfor losses totaling more than RMB4.7 million, becoming the firstthe capital market will serve the real economy better with the fully

securities tort case to apply the principle of priority of civil liability

implementation of the registration system.

and compensate investors' losses in priority.
In view of the development of relevant mechanisms and practices in 2022,
we expect that more rules governing securities disputes and cases will
happen in 2023. Dispute resolution mechanisms such as administrative
settlement, arbitration and mediation in the securities and futures industry
are also expected to play an important role in further optimizing investor
protection options and improving efficiency for dispute resolution.

28

PRC Financial Regulation - Annual Report (2023)
Securities and Futures

05

China’s capital markets will continue
to open up, attracting more foreign
investors

In terms of institution access, in 2022, a number of conversion
applications (from foreign-funded public fund joint ventures towholly foreign-owned enterprises) and greenfield applications wereapproved, reflecting the regulators' continuously open attitude toforeign capital entering China's capital market. Driven by this trend,

Since 2022, regulators have made positive statements on the

we believe that more foreign securities companies and futures

opening up of China's capital market. In September, Fang Xinghai,companies will apply for licenses and there will be progress in thevice-chairman of the CSRC, said that the SFC and Hong Kong would

approval process in 2023.

launch three new initiatives to expand the connectivity of theMainland and Hong Kong capital markets. Of these, the expansionof eligible stocks for Stock Connect was launched in December
2022 and is expected to be officially implemented in 2023. Other
initiatives are also expected to be implemented in the near future,including introduction of Renminbi stock trading counters in Hong
Kong and support for the issuance of Mainland government bondfutures in Hong Kong. In November, Fang Xinghai further clarified
at the Global Financial Leaders’ Investment Summit that in order todevelop China's high-quality capital markets, China will continue
to open up in the future, welcome the world's top institutions, andshare the fruits of mainland economic growth with the world.
In terms of system construction, there will be more favorable
policies in the capital market for opening up in 2023. In October
2022, the CSRC indicated that it was studying and formulating
policies on the application of specific "short-swing" trading rules
for foreign investors, allowing eligible overseas public funds tocalculate the number of securities held separately for each productwith reference to domestic public funds, while exempting Hong
Kong Securities Clearing Company Limited as a nominal holder ofA-shares from applying short-swing trading rules. If the policy isfinally implemented, this should dispel the concerns of overseas
investors about triggering information disclosure requirements or
short-swing trading rules due to the total position exceeding thethreshold, thereby increasing the A-shares proportion in their asset
allocation.
The development of some cross-border transaction processes isalso expected to attract more overseas funds. With the upgrade of
Shanghai-London Stock Connect to China-Europe Connect in 2022,
the policies and procedures for A-share listed companies to issue
GDRs overseas have been settled, allowing more domestic listedcompanies to seek overseas financing by issuing GDRs. In addition,in November and December 2022, the Singapore Exchange andthe Shenzhen Stock Exchange each listed one China-Singapore ETF
cross-listing product, marking the beginning of China-Singapore
ETF mutual connection, and it is expected that more ETF products
jointly developed by the two countries will be launched in the
future, providing foreign investors with convenient channels toinvest in A-share ETFs and enhancing the international influence ofChina's capital market.

29

>>>>>PRC Financial Regulation:
Annual Report (2023)

Asset Management andWealth Management30

PRC Financial Regulation - Annual Report (2023)
Asset Management and Wealth Management

2022 Regulatory Milestones

February 18
April 26

The China Securities Regulatory Commission (“CSRC”)
published the Measures for the Supervision and
Administration of the Directors, Supervisors, Senior
Management and Practitioners of Securities and Fund
Institutions, the application of which is extended
to relevant personnel of the subsidiaries of fundmanagement companies and fund service institutions.

The CSRC published the Opinions on Accelerating andPromoting the High-quality Development of the Public
Fund Industry, some of which have already been
implemented in the new regulations published in
2022.

May 20June 16

The CSRC published the Measures for Administrationand Supervision on Publicly-raised Securities Investment
Fund Managers, which optimizes the policies regarding
market access, corporate governance and market exit
for the managers of public fund (i.e. “mutual funds” inWestern terminology).

The China Banking and Insurance Regulator yCommission (“CBIRC”) approved the application for
Xinhua Trust to enter into bankruptcy.

Early July

June 24

The CSRC announced the launch of a pilot scheme
for private equity (“PE”)/venture capital (“VC”) funds
to distribute shares in kind to fund investors, andin October 2022 approved Shanghai Pro-rationale
Investment Partnership LLP to carry out the first pilot.

The CSRC issued the Announcement on the Arrangements
for Including Exchange-traded Funds (“ETFs”) into theMainland-Hong Kong Mutual Market Access Mechanism,
and ETFs was officially included in the Stock Connect
regime.

August 5

August 22

The CBIRC issued the Provisions on the Administrationof Insurance Asset Management Companies.

The CBIRC issued the Measures for the Administrationof the Internal Control of Wealth Management
Companies.

September 2
The domestic commodity exchanges and the China
Financial Futures Exchange promulgated circulars
allowing QFIIs and RQFIIs to invest into commodity
futures, commodity options and stock index options.

October 13
The CBIRC approved the preparation for the establishmentof the fifth foreign-controlled wealth managementcompany (the joint venture between BNPP and thewealth management subsidiary of Agricultural Bankof China).

November 2
The CBIRC and the CSRC promulgated relevant
provisions on personal pension, which implement
the Opinions on Promoting the Development of
Personal Pensions promulgated by the General Officeof the State Council in April 2022 and serve as theimplementation rules for the Implementation Measuresfor Personal Pensions effective on October 26, 2022.

December 30
The CBIRC promulgated the Notice on Regulating theClassification of Trust Businesses of Trust Companies(Consultation Draft), which clarifies the boundaries andservice scopes of various types of trust businesses anddirects trust companies to increase the supply of trust
products which conform to the original purpose oftrusts.

31

PRC Financial Regulation - Annual Report (2023)
Asset Management and Wealth Management

2022 Regulatory Mainline Review

01

Aimed at high-quality development,
public fund industry embraces newpolicies

One of the key developments of 2022 is the rapid developmentof REITs. The General Office of the State Council, the National
Development and Reform Commission, the CSRC and the exchanges
have all adopted policies to promote REITs business. The preferential
tax policies on infrastructure REITs issued by the Ministry of Finance

The Opinions on Accelerating the Promotion of High-quality

and the State Taxation Administration have taken the first step

Development of the Public Fund Industry ("Opinions on Public

towards providing preferential policies for REITs in China, which also

Fund Industry") published by the CSRC on April 26, 2022 aims togave a strong boost to the high-quality development of the REITs

encourage the public fund industry to operate to high standards.

sector. The SASAC has also unified the approval procedures of state-This would be done by having professional asset management

owned assets related to REITs.

institutions, strengthening the professional capacities andpromoting the transformation of top-level regulation. On May

02

20, 2022, the CSRC amended the Measures for the Administrationof Securities Investment Fund Management Companies (publishedin 2004) and renamed it as the Measures for Administration andSupervision on Publicly-raised Securities Investment Fund Managers

Trust business returns to its roots withthe key words of "transformation andinnovation" and "risk disposal"(together with its implementing rules, "New Measures on Public
Funds"), some measures of which reflect the Opinions on Public Fund

After the introduction of the Asset Management New Rules, theIndustry.

CBIRC and the CSRC have issued follow-on implementation rules
for relevant asset management products and the management

The New Measures on Public Funds have brought both public fundinstitutions, but these exclude trust and trust companies. The Interim

management companies ("FMCs") and other financial institutions

Measures for the Management of Fund Trusts by Trust Companies

engaged in public fund management business under one unified(Consultation Draft) 《( 信托公司资金信托管理暂行办法（征求意见稿）》)set of regulatory rules, which includes raising higher requirements

published on May 8, 2020 have not yet been officially promulgated.

for license application, broadening the scope of financial

Trust companies are waiting to see what the final version will lookinstitutions which can apply for public fund management licenses.

like.

Even if there is already a FMC within the group, the CSRC allows
affiliated financial institutions to simultaneously hold public fundOn December 30, 2022, the CBIRC promulgated the Notice onmanagement licenses, which was not explicitly allowed due to theRegulating the Classification of Trust Businesses of Trust Companies"One Participation, One Control" principle previously (meaning,(Consultation Draft) (《 关 于 规 范 信 托 公 司 信 托 业 务 分 类 有 关 事

affiliated institutions were not allowed to invest in more than two

项 的 通 知（ 征 求 意 见 稿 ）》) ("Draft of Classification of Trust

FMCs and shall only control up to one of such two FMCs). Guotai

Business"), based on the Circular on Issues Concerning the Adjustment

Junan Securities became the first securities company to operateof the Classification of Trust Business (Consultation Draft) 《 关 于 调

two separate licensed public fund managers after the release of the

整信托业务分类有关事项的通知（征求意见稿）》 promulgated

New Measures on Public Funds, taking a controlling stake in HuaAn

in April and the version issued by the regulator to certain trust

FMC by acquiring additional 8% equity interest in HuaAn FMC.

companies in private in October. The Draft of Classification of Trust

Other financial institutions such as CICC, CITIC Securities and China

Business classifies the trust business into three major categories (i.e.

Securities also set up asset management subsidiaries in 2022. Whatasset management trust, service trust and charity trust) which arethis trend indicates is the asset management businesses of securities

further broken down into subdivisions. Specifically, single-clientcompanies will probably focus more on public fund management

trusts no longer fall within the category of asset managementbusinesses.

trusts, but are classified as wealth management trusts (in itself one
subdivision of service trust). This classification is different from the

The Opinions on Public Fund Industry and the New Measures onprovisions of the Interim Measures for the Management of Fund Trusts

Public Funds allow FMCs to set up subsidiaries that specialize inby Trust Companies (Consultation Draft) (《信托公司资金信托管理暂

publicly offered real estate investment trusts ("REITs"), private行办法（征求意见稿）》), and reflects the CBIRC's new approach

equity investment, fund investment consultancy, pension financial

on the regulation and development of trust business.

services and other innovative businesses. There are new conceptsof "comprehensive wealth management institutions" and "boutique

The Draft of Classification of Trust Business requires trust businesses

asset managers" proposed by the CSRC.

to return to their original purpose and not to carry out any
forbidden activities, such as carrying out illegal entrusted capital

32

PRC Financial Regulation - Annual Report (2023)
Asset Management and Wealth Management

03

pooling business, provision of channel services for illegal activities
and shadow banking. A three-year grace period has been granted
for any adjustment that is required for existing businesses. Allexisting businesses must operate only to the scale and size that theyFavorable policies are introduced for PE/
VC funds

had on December 31, 2022. Although the Draft of Classification ofTrust Business has not been promulgated in its official version, trust

By comparison with previous years when PE/VC funds were heldcompanies already need to adapt their businesses accordingly.

on a tight leash, 2022 witnessed a number of pilot policies being
introduced. These included the Shenzhen Financial Service Office

At the same time, trust companies are also being encouraged to

officially launching the pilot program for registration of contractual-innovate and to enrich their scope of services. Some of these havetype PE/VC funds (which means the PE/VC funds are purely

happened, such as the offering of China's first special needs trust bycontractually-based and not wrapped up in a form of limited liability

China Foreign Economy and Trade Trust Co., Ltd. in August and thepartnership or limited liability company). Where a contractual-typeoffering of China's first art asset management and heritage trust by

PE/VC fund invests in a limited liability company or a partnership, it

Minmetals International Trust Co., Ltd. in September.

is permitted to be registered as a shareholder or partner of the target
in the form of "the name of the PE/VC fund manager (representing

Faced with the challenges of risk disposal in the trust industry in

the "name of the PE/VC fund")". Whether such a model will solve

recent years, the CBIRC, in consultation with the Ministry of Finance,

the issues of "three types of special shareholders" during IPO ofrevised the Measures for the Administration of Protection Fund in thethe target is yet to be further clarified by the applicable regulatory

Trust Industry and promulgated the Measures for the Administration

authorities (FYI - three types of special shareholders referring toof Protection Fund in the Trust Industry and Liquidity Support Funds

contractual funds, asset management schemes issued by financial(Consultation Draft) (《 信 托 业 保 障 基 金 和 流 动 性 互 助 基 金 管 理

institutions and trusts). Introducing such types of shareholders (no办 法（ 征 求 意 见 稿）》) on February 11, 2022, which clarifies thematter having interests in the IPO applicant directly or indirectly)

positioning and use of the protection fund in the trust industry

might been seen as introducing a non-transparent shareholding("Trust Protection Fund") (the capital of which is paid in by trust

structure in the IPO applicant and may either be required to becompanies and used for the disposal of systematic risks and otherunwound or otherwise reorganized to other structures).

major risks recognized by the CBIRC) and the liquidity support
funds (the capital of which is raised by market participants in the

So far as exit channels are concerned, in July 2022, the CSRC

trust industry and mainly used for dealing with liquidity issues). This

launched the pilot program of in-kind distribution by PE/VC funds

consultation paper aims to optimize the functions of both the Trustto investors, and conducted the first pilot program in October. In

Protection Fund and the liquidity support funds, so as to resolve theSeptember 2022, the Shanghai Financial Service Office and otherrisks in the trust industry, ensure the stability of the financial market

departments issued the Several Opinions on Supporting the Shanghai

and protect the legitimate rights and interests of the trust clients/

Equity Exchange to Carry Out the Pilot Program for the Transfer ofinvestors.

Private Equity and Venture Capital Shares, which proposed the launchof preferential policies for shares transfer of PE/VC funds (including

During 2022, Trust Protection Fund reached a debt settlement withstate-owned assets and fiscal funds, QFLP funds and other types

Anxin Trust, accepted all of Huarong Trust's equity interest held byof PE/VC funds), one-stop services for information sharing andChina Huarong, and participated in the risk disposal of Sichuan Trust.

shares transfer among different authorities, and the establishment

In addition, the disposal of risks of Huaxin Trust and New Times Trustof secondary market funds, among others. The Shanghai Equity

is proceeding. Risk disposal involves a variety of solutions, including

Exchange became the second pilot platform for the transaction ofshare restructuring plus debt settlement, company liquidations and

PE/VC fund shares approved by the CSRC after the Beijing Equity

trusteeship.

Trading Center. These pilot programs took into account the specificneeds of different types of investors and made the PE/VC fundmarket more liquid.
Although pilot programs for registration of pledging shares oflimited liability partnerships have taken place in some cities, theSeveral Provisions on the Development of Green Finance in Shanghai
Pudong New Area in Shanghai is the first local legislation in Chinathat explicitly allows the registration of pledged PE/VC fund sharesin regional equity markets, solving the practical problem of the33

PRC Financial Regulation - Annual Report (2023)
Asset Management and Wealth Management

effectiveness of pledge of shares of limited liability partnerships

bringing pressure on these distributors to get their businesses in(note: share pledge will not become effective upon registration

order and to make sure they are complying with the regulations.

with the competent authority under PRC law. Previously, there wasThis is leading to some reorganization in the industry.

no means for a partner of a limited liability partnership to apply forregistration if the shares were pledged).

In terms of custody businesses, the circular issued by the CSRC tosecurities companies in early 2022 also summarized the major risks

In November 2022, the CSRC issued a circular announcing that itof the custody business of securities companies and mentioned

would launch a pilot program for real estate investment funds,

that on-site inspection of their operations of the custody businesses

allowing qualified PE fund managers to set up real estate investment

would also be strengthened. The CSRC specifically mentions thatfunds to invest in residential real estate, commercial real estatesome custodians have failed to make adequate investments inand infrastructure. The aim of the CSRC is to promote the use of

the HR and IT systems for their custody businesses. This may pose

capital markets in the cause of a stable development of the realsignificant challenges for small-sized custodians which used toestate sector. However, the connection between such policies andrun the custody business with only the most basic operating

the existing rules of the Asset Management Association of China

infrastructures.

("AMAC") (especially the Administrative Rules No.4 for Filing of Private
Assets Management Plans by Securities and Futures Institutions -In addition, the CBIRC promulgated the Measures for the Supervision

Private Assets Management Plans Investing in Real Estate Development

and Administration of Custody Services of Commercial BanksEnterprises & Projects which also applies to PE fund managers) still(Consultation Draft)) (《商业银行托管业务监督管理办法（征求意needs to be clarified.

见 稿）》) ("Draft of Custody Services of Commercial Banks") by
the end of 2022. Prior to the Draft of Custody Services of Commercial
Banks, there was no unified legislation for banks' custody services

04

other than one self-disciplinary rule, the Guidelines for Asset
Custody Services of Commercial Banks (《 商 业 银 行 资 产 托 管 业 务Asset management outsourcing services
to be made more professional

指 引 》) issued by the China Banking Association, while the otherrequirements were scattered in specific provisions for different
products. The Draft of Custody Services of Commercial Banks clarifies:(1) the segregated custodial assets should not be included as theAt the beginning of 2022, the CSRC issued a circular to securities

assets of the bank in the event of bank dissolution, or bankruptcy, (2)companies, highlighting the major risks associated with thethe division of the assets of products under custody into custodial

financial products distribution business (e.g. marketing, sales

assets and other assets, based on whether the bank can achieve

or promotion of financial products), clarifying the subsequentactual control over such assets, and (3) for other assets that do not

regulatory focus, and informing them that the on-site inspection

constitute custodial assets (e.g. private equity), the bank does notof financial product distribution would be strengthened. During

assume the duties of asset safekeeping, asset valuation, investment

the year the CSRC increased its efforts to clamp down on those insupervision and other duties, but may only provide purely

breach of regulations and some of distributors had their distribution

administrative services in connection with these assets. To somebusinesses suspended. The year of 2022 also witnessed the fundextent these rules constitute a formal statement by the CBIRC on

distribution license of some distributors being revoked, brought

the scope of duties of PE/VC fund custodians. However, it remains

about by the implementation of the Measures for the Supervision andto be seen how they will be coordinated with the existing rules of

Administration of Distributors of Publicly Offered Securities Investment

the CSRC and the AMAC. In addition, the Draft of Custody Services ofFunds (《公开募集证券投资基金销售机构监督管理办法》) andCommercial Banks reiterates the requirements of the independence

the competition in the market. On the one hand, some distributorsof the custody business under the Asset Management New Rules. We

were unable to maintain their licenses due to failure to meet thenote that the CBIRC penalized a number of banks whose custodyminimum requirements for carrying out their businesses or theirbusiness was deemed as lack of independence and not segregated

failure to rectify compliance issues on time. On the other hand,from other businesses during 2022.

due to the increased competition in the fund distribution industry,small institutions were unable to renew their licenses because they

The professionalism of outsourcing service providers should also

failed to meet the minimum levels of average daily distribution

be enhanced by the announcement of a series of new policies

volume. Under the Measures for the Supervision and Administrationin the financial services sector during 2022. As well as providingof Distributors of Publicly Offered Securities Investment Funds, fundpersonal pension ser vices directly to customers, financial

distribution licenses are only effective for three years, which isinstitutions can also provide services to personal pension service

34

PRC Financial Regulation - Annual Report (2023)
Asset Management and Wealth Management

providers by providing services such as product distribution and

The CBIRC and the CSRC were also more active in tak ing

custody. The New Measures on Public Funds provides that FMCs may

enforcement action against asset management institutions foundestablish dedicated subsidiaries to provide services such as fundto have been in breach of regulations, including in relation toadministration and transfer agent ("FATA"). In addition, FMCs are

information disclosure, provision of false or misleading information

allowed to entrust qualified service providers to handle outsourcing

to investors, failure to properly conducting suitability management

services, including FATA and consulting services. By taking reference

on investors, and compliance failures. For some transgressors,

to international experience, as asset management companies

the regulators adopted what is called the "dual-punishment

become more specialized, we can expect the outsourcing in public

system" which means that punishments are applied to both thefund management business may become the first choice for thoseinstitutions and the relevant responsible persons. Such cases reflectboutique asset managers and small and medium -sized FMCs.

the regulatory authorities' concerns on the greater protection forinvestors.

05

The judiciary has also contributed to the protection of financial

Greater financial consumer protection
and regulators taking joint actions toprotect investors

consumers. On October 11, 2022, Shanghai Pudong New Area
People' s Court issued the White Paper on the Trial of Financial AssetManagement Cases from 2021 to 2022 (the "White Paper"), whichsummarizes the trials involving asset management disputes andtypical cases from August 2021 to July 2022. The White Paper covers

On December 31, 2021, the PBOC and other authorities issued thedisputes relating to investor protection such as the performance ofAdministrative Measures for the Online Marketing of Financial Products

suitability obligations, fiduciary duties and investor education by(Consultation Draft) ("Draft of Financial Marketing"), on whichasset management institutions. To some extent it shows that these

they sought public comments by January 2022. The aim was toissues are quite common in the judicial field, and also provides

bring about unitary requirements of online marketing of all kinds

judicial guidance for investors to enforce their rights.

of financial products. If and when the Draft of Financial Marketingis finally implemented, it will have a material impact on the current
regulatory system and lead to greater protection for consumers as

06

well as acknowledging the rights of investors.
The CBIRC issued the Administrative Measures for Protection ofConsumers' Rights and Interests of Banking and Insurance Institutions

Online business of wealth management
booms, and regulatory policies support
the digital transformation of wealthmanagement sector(Consultation Draft) in May 2022, and an official version at the endof the year. These measures apply to banking institutions, insuranceWith the development of the Internet and the increased demand forinstitutions and wealth management companies (collectively,

online services as a result of COVID-19 lockdowns, more and more"banking and insurance institutions"). The new rules lay down

domestic customers have become accustomed to receiving financial

procedures for banking and insurance institutions to ensureservices through online channels. For the wealth management

their consumers are properly protected, and put forward thesector, adapting the wealth management services to the online age

principal requirements for suitability management, record keeping

has become both a challenge and an opportunity.

of distribution activities, protection of personal information,
management of cooperative institutions, complaint and dispute

There are different approaches by wealth management companies

resolution mechanism, etc. These measures also require banking

to bring about digital transformation including putting in placeand insurance institutions to make sure that they adhere to highstrategies for digitalization of the wealth management business,

standards when implementing the protection of consumers' rights

or leveraging FinTech, such as artificial intelligence, to precisely

and interests in the design and development, pricing management,

analyze investors' needs and preferences. Some foreign businesses,

formulation of agreements, marketing and publicity of their

including UBS and HSBC, have also started developing online

products or services, and to protect legitimate rights of financial

platforms to sell their services in China.

consumers. The regulations relating to the protection of financial
consumers' rights and interests have been frequently issued in

As quickly as wealth management companies have adapted torecent years, and the new measures should bring about greater

the digital transformation, the regulatory authorities have also

protection for consumers of banking and insurance institutions.

followed. In January 2022, the General Office of the CBIRC issued
the Guiding Opinions on the Digital Transformation of Banking and35

PRC Financial Regulation - Annual Report (2023)
Asset Management and Wealth Management

Insurance Industries, proposing the goal of achieving notable results

China's personal pensions markets develop will be a good indicatorin digital transformation of the banking and insurance industryof the progress of China's wealth management sector overall.

by 2025. Related to wealth management business, the CBIRC
proposed the use of FinTech to carry out marketing and services

Financial institutions are allowed or permitted to offer personal

for personal financial products, expanding online channels, andpension services relying on their capabilities in asset management

promoting online marketing, transactions, services, and risk control.

and other wealth management services, by offering personal

In particular, the CBIRC proposed enhancing the accessibility

pension accounts, personal pension consulting services andof financial products and services for special customer groups,

issuing pension financial products. There are already several rules

including the elderly. Similarly, the CSRC and various institutions

issued in respect of personal pension public funds, pension wealthincluding China Securities Information Technology Service Co.,

management products, commercial pension insurance products

Ltd, securities companies, fund management companies, futuresand pension saving products. The model of provision of professional

companies, and information technology service providers jointly

personal pension investment consulting and advisory service

drafted the Design Specification of Mobile Internet Application forremains to be further explored. With reference to the development

Securities and Futures Industry for the Elderly and the Design Testing

experience of developed countries, personal pension investment

Specification of Mobile Internet Application for Securities and Futures

advisory service is an integral part of personal pension financial

Industry for the Elderly to clarify the requirements related to App

services.

designs to make it easier for the elderly to use. In addition, theAMAC issued the Administrative Measures for Electronic Contract

08

Business of Private Investment Funds (for Trial Implementation), whichsets out how private investment funds need to have proper internal
controls, operation and data management when it comes to online
contracts.

07

Strengthening personnel management
and introducing unified rules in the fundindustry

With the development of the fund industry in China, there needs to

Personal pensions receives muchattention as policies are developing andbrings new opportunities for the wealthmanagement industry

be a focus on making sure that the practitioners in the fund industry
are well managed and suitably qualified. Several regulations were
issued in 2022 to govern the management of practitioners and tobring about improved internal governance of institutions in thefund industry.

In 2022, many new policies relating to personal pensions were
issued, including the Opinions on Promoting the Development of

In February 2022, the CSRC published the Measures for the

Personal Pensions issued by the General Office of the State Council,

Supervision and Administration of the Directors, Supervisors, Senior

the Implementation Measures for Personal pensions issued by

Management and Practitioners of Securities and Fund Institutions,

the Ministry of Human Resources and Social Security and othercovering procedures for the appointment and practice of directors,

regulatory authorities, the Announcement on Relevant Individual

supervisors, senior management and practitioners in securities andIncome Tax Policies Regarding Personal pensions jointly issued by thefund institutions by unified rules, which also included the relevant

Ministry of Finance and the State Taxation Administration, the Noticepersonnel of FMCs, their subsidiaries and outsourcing serviceof Launching the Pilot Program of Specific Retirement Savings issued

providers in the scope of supervision. Subsequently, the AMAC

by the CBIRC and the PBOC, the Notice of Expanding the Scope of the

published the Administrative Rules for Fund Practitioners and the

Pilot Program of Pension Wealth Management Products, the Notice of

implementing rules applicable to institutions in the public fund andRegulating and Promoting the Development of Commercial Pension

private fund industry, as well as their respective practitioners, which

Financial Services, the Interim Administration of Personal Pension

proposed more specific requirements for qualification application,

Business of Commercial Banks and Wealth Management Companies,

management responsibilities of the employers, code of conduct

and the Notice of Launching the Pilot Program of Commercial Pension

and other aspects. The New Measures on Public Funds published in

Business of Pension Insurance Companies issued by the CBIRC,

2022 also specifies the professional standards and requirements

and the Interim Provisions on the Administration of the Business offor relevant personnel to safeguard the interests of clients, work

Personal pensions' Investing in Publicly Offered Securities Investment

honestly and so on.

Funds issued by the CSRC. What all that means is that there is now
an overall regulatory structure covering personal pensions. How

36

PRC Financial Regulation - Annual Report (2023)
Asset Management and Wealth Management

2023 Regulatory Outlook01

The Opinions on Public Fund Industry and the New Measures on Public
Funds stipulate that public fund managers shall establish and refine
long-term incentive and control processes, have greater internal
control over the payment of salaries and remuneration, and ensure

Promising future for the wealthmanagement sector with strong policy
supportthat the interests of practitioners and fund investors are aligned.
In June 2022, the AMAC published the Guidelines for PerformanceWith the support of regulatory policies, the wealth management

Appraisal and Remuneration Management of Fund Management

sector in China has a promising future. Currently, key regulations

Companies, regulating the performance appraisal and remuneration(or their consultation drafts) have been issued one after another.

management of fund managers from the perspectives of optimizing

We expect that in addition to the official version of the consultation

remuneration structure and payment, as well as improving

drafts, the regulatory authorities will continue to issue further

performance appraisal.

implementation regulations.
Now that the Asset Management New Rules has raised requirements
such as eliminating "mandatory repayment" and carrying out net
value management, there is a recognition that wealth management
services can greatly assist people's personal finances. Given thatbuy-side investment advisory services are the core of wealthmanagement services, we can expect regulators to put in place rules
and regulations governing how those services are delivered. Thereis a consultation draft written by the CSRC on securities, futuresand fund investment advisory businesses. In addition, the model ofprofessional personal pension investment consultation and advisory
services, including providing professional advice and guidance on
pension account management, asset allocation, tax treatment andso on will be guided and encouraged by applicable policies.
The advantages of trust business in the wealth management sector
will be further explored, and trust companies can provide tailored
wealth management services through wealth management service
trusts (including family trusts, testamentary trusts, individual/
legal person/unincorporated organization wealth management
trusts, special needs trusts and others). Trusts serve many people
well, including high net worth individuals, who need their privacy
protected and assets ring-fenced. We anticipate that regulatory
authorities will pay increasing attention to wealth management as a
new direction for the transformation of trust companies, and launch
regulatory guidance and implementation policies accordingly.
In 2022, many local governments, including Beijing, Guangzhou andShenzhen, proposed to become the wealth management/wealthand asset management centers. Whether the local governments
will introduce more specific implementation advice or preferential
policies, we will just have to wait and see.

37

PRC Financial Regulation - Annual Report (2023)
Asset Management and Wealth Management

02

03

China's financial sector will continue
to open up and international financial
institutions need to sort out a morepractical approach to make the most of
their group advantages while adheringto the PRC regulatory requirements

Unified regulations should help tobenefit the industry generally

The promulgation of unified regulatory standards covering asset
management and supporting rules applicable to different types ofasset management institutions is likely to lead to more competition,

We expect that in 2023 the regulatory authorities will continue tolargely because banks and trust companies can no longer offer

open up the financial sector, and provide more choices of financial

guaranteed returns on their asset management products and the

products and services for domestic financial consumers by allowing

gap between regulations of the CSRC and those of the CBIRC narrow

more foreign institutions to enter the market and exploring more

to prevent companies taking advantage of different regulations. At

channels for cross-border investments.

the same time, we can expect more cooperation between different
types of financial institutions, including distribution and custody.

The Provisions on the Administration of Insurance Asset Management

For example, professional asset managers may provide investment

Companies published in 2022 had already removed the restriction

advisory services to banks (which are less competitive in investmentthat foreign investors cannot hold more than 25% of equity interest

research), and the new trend of outsourcing by public funds willin an insurance asset management company, and specified thatbring more opportunities for the banks or securities companies.

insurance asset management companies may establish dedicatedsubsidiaries engaging in asset management business or asset

The trend towards issuing unified regulations by regulators for

management-related business. We shall have to wait to see how thedifferent institutions to build a healthy industry ecosystem andmarket responds. In addition, we expect the launch of Swap Connect

the greater cooperation including supervision cooperation andin 2023, which will be another landmark of the mutual connection

information sharing between regulators should serve the asset

between the financial markets of Mainland China and Hong Kong,

management sector and wealth management sector well.

promoting the development of the domestic derivatives market
and providing more diversified investment and risk management04

instruments for both domestic and overseas investors.
To enter the Chinese market, foreign institutions need to adapt to
the Chinese market, working towards localization while bringing

Improvements to internal governanceand risk control and multi-pronged
strategy to resolve financial risks

their advanced international experience. Although foreign
institutions have more experience in innovative and complex

In 2022, China's financial regulatory authorities, including thefinancial products, and have stricter group compliance and risk

CBIRC and the CSRC, made it clear the importance they attachedcontrol requirements, foreign institutions still need to take into

to financial institutions' governance and risk control. The Opinions

account local regulatory requirements and the environment of theon Public Fund Industry points out that high-quality development

domestic market, and reach a balance between the requirements ofshall be premised on compliant operation and risk prevention,group collaboration and independent operation.

and propose four specific requirements. The New Measures on
Public Funds set up a special chapter on internal control, in which

In our view, against the background of tightening financial

various requirements are stipulated with an aim to strengthen theregulation and increasing regulatory attention to network andinternal control and risk management of FMCs. The Measures fordata security, it remains for all parties concerned to work together

the Administration of the Internal Control of Wealth Management

to devise feasible and risk-controlling work solutions on how toCompanies puts forward comprehensive requirements on theachieve rapid business implementation and stable commercial

internal control of wealth management companies. Chairman of theoperations, to maintain necessary cross-border data transmission

CBIRC Guo Shuqing pointed out key measures for strengthening

and to adhere to global risk control requirements, which will ensurecorporate governance and internal control of financial institutions

compliance with all local regulations but at the same time takeand urging financial institutions to refine and improve their internal

advantage of international resources and experience.

controls in an article, "Strengthening and Improving Modern Financial
Supervision".
We expect that in 2023 regulatory authorities will continue to38

PRC Financial Regulation - Annual Report (2023)
Asset Management and Wealth Management

emphasize financial institutions' internal governance and risk

the real economy from the perspective of equity investment andcontrol. This could take a number of forms, including (1) risk plansother aspects. Banks are also being asked to adapt their wealthand disposal plans such as "living wills" to implement the capitalmanagement businesses. We believe that the CBIRC will assist in

replenishment responsibilities of major shareholders and actual

the business transformation and development of bank wealthcontrollers of asset management institutions, (2) strengthening

management and trust business, optimize the relevant businessverification of shareholders' qualification and license application

regulatory system, and provide the policy basis for them to serve

requirements, (3) strengthening the regulation of shareholders'

the real economy.

conduct, as well as the supervision of conducts of directors andsenior management personnel, and paying special attention to

The CSRC is giving special attention to the normalized issuance andlong-term incentive mechanisms, and (4) improving and enhancing

expansion of infrastructure REITs and government-subsidized rental

the construction of internal control, improving the overall risk

housing REITs projects to better serve the real economy. In addition,

management system, (5) fully implementing the Asset Management

the pilot scheme of PE/VC funds to make in-kind distributions to

New Rules, reducing shadow banking, and stopping guaranteed

investors initiated by the CSRC and the pilot real estate private

returns. Although these measures have already been implemented

investment fund to be introduced by the CSRC should demonstrate

for banking and insurance institutions, we expect China's regulatory

the role of private equity funds in the real economy. We believe that

authorities will improve and use a wide range of mechanisms to

the CSRC will give full play to the investment research advantages

optimize the implementation. Requirements such as "living wills"of asset managers and will continue to explore and implement pilot

will be further introduced to CSRC-regulated public and private

programs to serve the real economy.

fund managers in 2023. In addition, regulatory authorities willuse diversified risk disposal methods to properly deal with risky
institutions and prevent systemic financial risks.

05

Policies will guide the asset management
sector to serve the real economy with anaim at the economic recovery

With a focus on economic recovery, the financial policies in 2023 will
be geared to ensure that the asset management sector will serve
the real economy and contribute to the disposal of non-performing
assets. There will be more pilot schemes covering a greater range ofasset management products.
Given the advantages of insurance funds in long-term investments
and diversified investments, the CBIRC will further explore how
insurance funds can be put to good use and will encourage
innovation of insurance asset management products to promote
the development of emerging and innovative industries. According
to the Draft of Classification of Trust Business, trust companies
are prohibited from carrying out any trust business which aims
at providing investment banking service for the benefit of thelenders in essence, and they need to reduce the trust business withprominent shadow banking risks. In the meantime, trust companies
will be expected to explore new business models. In the processof serving the real economy, it is particularly urgent for trust
companies to reduce the scale of existing non-compliant businesses
and explore new business models, and they need to break the single
role of financing provider and better support the development of39

>>>>>PRC Financial Regulation:
Annual Report (2023)

FinTech40

PRC Financial Regulation - Annual Report (2023)
FinTech2022 Regulatory Milestones

January 10
The China Banking and Insurance Regulatory Commission(CBIRC) issued the Guiding Opinions on the Digital
Transformation of the Banking and Insurance Industry.

January 21

April 13

The People's Bank of China (PBOC) released the
Fintech Development Plan (2022-2025).

The National Internet Finance Association of China(NIFA), the China Banking Association (CBA) and the
Securities Association of China (SAC), jointly issued
the Initiative to Prevent Relevant Financial Risks of NonFungible Tokens.

April 29

June-July

The China Securities Regulator y Commission(CSRC) issued the Measures for the Management ofCybersecurity in the Securities and Futures Industry(Consultation Draft).

The Cyberspace Administration of China (CAC)
promulgated the Provisions on Standard Contracts
for Outbound Transfer of Personal Information(Consultation Draft) and the Measures for Security
Assessment of Outbound Data Transfer.

July 12The CBIRC issued the Notice on Strengthening theManagement of Internet Loan Business of Commercial
Banks and Improving the Quality and Efficiency ofFinancial Services.

July 19
The CBIRC solicited public opinion on the
Administrative Measures on Insurance Sales Practices.

September 12
The CAC solicited public opinion on proposed
Amendment to the Cybersecurity Law.

December 1
The Secretariat of the CAC and the General Officeof the CSRC jointly issued the Work Plan for theGovernance of Online Information Content involving
Illegal Securities Activities.

December 11
The CAC, the Ministry of Industry and Information
Technology (MIIT) and the Ministry of Public Security
jointly issued the Provisions on the Administration of
Deep Synthesis of Internet-based Information Services.

December 26
The CBIRC issued the Administrative Measuresfor Protection of Consumer Rights and Interests by
Banking and Insurance Institutions.

December 30
The CSRC announced initiation of inspection and"rectification" work against online brokerage firms
Futu Holdings and Tiger Brokers.

41

PRC Financial Regulation - Annual Report (2023)
FinTech2022 Regulatory Mainline Review

01

02

Financial regulators reinforce licensing
requirements for financial business, andinitiate regulatory measures on crossborder securities services

Promoting the digital transformationand innovative development of thefinancial sector

Driven by the development of the digital economy, the financial
Following the issuance of a series of rules requiring financial

sector experienced a new wave of digitalization and innovation inbusiness (such as banking, securities, insurance, and credit

2022.

reporting) to operate with a license in 2021, on January 1, 2022,
a number of developments occurred to reinforce the licensing

In early 2022, the PBOC issued the Fintech Development Plan

requirements and to draw clearer delineations between the financial(2022-2025), defining "Fintech" as a "technology-driven financial

and technology sectors. These included:

innovation", emphasizing "driven by digitalization" as the principleof Fintech development, and setting "deepening the digital(i) the expiration of the "rectification period" (which involves

transformation of the financial industry", "further releasing thebusinesses putting right processes and practices to comply withpotential of data elements" and "advanced digital infrastructure

new regulations) under the Notice on Further Regulating the Internet

construction" as development goals of Fintech for the years 2022-

Life Insurance Business of Insurance Institutions;

2025.

(ii) the formal implementation of regulatory requirements on the

On October 28, 2022, the Report of the State Council on theminimum funding proportion by each participating bank in a joint

Development of the Digital Economy restated the working

loan and the cross-regional operations under the Notice on Further

arrangement of "vigorously promoting the innovation andRegulating the Internet Loan Business of Commercial Banks; anddevelopment of the digital industry" and "accelerating deeptransformation of industrial digitalization", and listed "speeding up(iii) the formal implementation of the Measures for the Administration

the digitalization of the financial industry" as one of the tasks ofof the Credit Reporting Business.

"accelerating deep transformation of industrial digitalization".

On January 24, 2022, the CBIRC emphasized in its working meeting

In terms of specific policies and measures,

the need to crack down on unlicensed financial businesses.
(1) On January 10, 2022, the CBIRC issued the Guiding Opinions
On December 1, 2022, the Secretariat of the CAC and the Generalon the Digital Transformation of the Banking and Insurance Industry

Office of the CSRC issued the Work Plan for the Governance of Online(the "Guidance on Digital Transformation"). As the first CBIRC

Information Content involving Illegal Securities Activities (the "Workdocument dedicated to the digital transformation of the banking

Plan"). The Work Plan calls for a prompt clean-up of informationand insurance sectors, the Guidance on Digital Transformation

and accounts (i) used in illegal stock recommendation activities

provided guidance on how banks and insurance companies shouldby unlicensed institutions or individuals, (ii) counterfeiting thedevelop digital finance, with the goal of actively developing

information and accounts of licensed securities and fund institutionsindustrial digital finance, digitalizing personal financial services,or their staff, or (iii) of stock market "black mouth" spreading fakeincreasing digital financial market transactions and creating aor misleading information and deceiving investors into trading.

safe and efficient financial services sector. The Guidance on Digital

The Work Plan also requires strict implementation of "licensing

Transformation set a deadline for the banking and insurance sectors

operation" by securities businesses, as well as proper guidance forto obtain significant achievements in their digital transformations

website platforms and mobile app stores to set the verification of

by 2025.

securities service qualifications as a prerequisite for carrying out
securities-related business cooperation.

(2) On November 18, 2022, the PBOC, the National Development
and Reform Commission (NDRC), the Ministry of Science andLicensing requirement has also extended to online cross-borderTechnology, the MIIT, the Ministry of Finance, the CBIRC, the CSRC

securities services. On December 30, 2022, the CSRC announced

and the State Administration of Foreign Exchange (SAFE) jointlythat it planned to order Futu Holdings and Tiger Brokers to stop

issued the Overall Plan for the Construction of Pilot Zones for Sci-

providing cross-border securities services to domestic investors

Tech Innovation Finance Reform in Shanghai, Nanjing, Hangzhou,

without proper approval and to address regulatory non-compliance

Hefei and Jiaxing. The plan laid out 19 specific policies ranging fromunder PRC law.

promoting the innovation of science and technology financial

42

PRC Financial Regulation - Annual Report (2023)
FinTech04

products to improving the Fintech ecosystem, with the goal of
better linking finance, technology and manufacturing industries tofacilitate high-quality development.

03

Regulators move towards establishingtechnology to support financial regulatory
supervision, but challenges remain

Cy b e r s e c u r i t y l e gi s l at i o n a n d l aw
enforcement in the financial industry
fur ther strengthened; suppor tinginsurance mechanisms begin to emerge

Following the Regulations on the Security Protection of Critical
Information Infrastructure, the Regulations on the Managementof Network Product Security Vulnerabilities and the Measures for
Cybersecurity Review in 2021, cybersecurity legislation continued tobe refined in 2022.

As compared with the Fintech Development Plan (2019-2021) in
2019, the Fintech Development Plan (2022-2025) has upgraded

On June 27, 2022, the CAC promulgated the Provisions on thethe development strategy of "regulatory technology (Regtech)",Management of Internet User Account Information to further refinechanging description from "strengthening the application of

the requirements of the "Internet real-name system".

regulatory technology and establishing a sound rule base for digital
regulation" to "accelerating the all-round application of regulatory

On September 12, 2022, the CAC publicly solicited comments ontechnology" and "strengthening capacity development of digital

the proposed Amendments to the Cybersecurity Law. The completed

regulation". The point is to highlight the importance of the use ofamendments further strengthen the legal responsibilities of (i)technology as an efficient way to regulate and properly guide thecritical information infrastructure operator, (ii) network operators,

development of the Fintech sector. "Improving the use of regulatoryand (iii) providers of critical network equipment and cybersecurity

tools for Fintech innovation" was also set as one of the key tasks ofproducts; and greatly increase the scope of punishments and levels

the Financial Technology Committee of the PBOC in 2022, accordingof fines for those in breach.

to a committee meeting held in March 2022.

On April 29, 2022, the CSRC solicited public opinions on the

On November 18, 2022, PBOC, together with other seven regulatory

Measures for the Management of Cybersecurity in the Securities andbodies, jointly issued the Overall Plan for the Construction of Pilot

Futures Industry (Consultation Draft), requiring securities institutions

Zones for Sci-Tech Innovation Finance Reform in Shanghai, Nanjing,to establish and improve sound cybersecurity management system

Hangzhou, Hefei and Jiaxing, proposing a work plan to "improveand mechanism, and enhance security assurance capabilities forthe level of financial regulatory technology", expressly supporting

network operation.

the setting up of provincial digitalized financial regulatory
platforms, encouraging Nanjing, Hefei and Jiaxing to promote theOn November 7, 2022, the MIIT published the Opinions on Promoting

implementation of Fintech innovation regulatory tools, and calling

the Standardized and Healthy Development of Cybersecurity Insurance

for exploration of innovative application of data sharing and data

(Consultation Draft), providing guidance for the development

intelligence in technology-based regulation, as well as "inclusive

and operation management of "cybersecurity insurance", andand prudent" Regtech practice.

laying down the foundation for subsequent development andimplementation of regulatory rules for cybersecurity insurance.

Whilst Regtech has been applied in the financial sector to regulate
such activities as anti-money laundering, related party transactions,

Meanwhile, regulators have continued to bolster law enforcement

regulatory reporting, consumer protection and securities market

in the cybersecurity sector. In July 2022, due to a system failure, asupervision, there is still a lack of supporting rules. The development

brokerage firm was punished for being in breach of the Measures forof Regtech is also hampered by restrictions on the use of data andthe Administration of Information Security Protection in the Securities

technical difficulties. Guo Shuqing, chairman of the CBIRC, wrote inand Futures Industry, the Measures for the Information Technology

an article Strengthening and Improving Modern Financial Supervision

Management of Securities and Fund Operators, and the Measures for the(Conscientiously Study, Publicize and Implement the Spirit of the 20th

Reporting, Investigation and Handling of Information Security Incidents

CPC Congress) published on December 14, 2022, that "the gap

in the Securities and Futures Industry. Also in July, the CAC announced

between the means of regulatory technology and the digital level ofits decision to impose administrative penalties on a well-known

the industry is prominent", indicating that there remains much room

Internet travel platform (as well as its executives) for its violation of thefor the development and application of Regtech.

Cybersecurity Law, the Data Security Law and the Personal Information
Protection Law, imposing a fine of more than RMB 8 billion.

43

PRC Financial Regulation - Annual Report (2023)
FinTech05

Management rules for outbound datatransfer by financial institutions further
improved; permitted routes for personal
information export become clearthat "banking financial institutions shall not provide relevant
documents, information and data related to their business outsideof China without authorization".

06"Outbound data transfer", i.e., the transmission of data from within
the mainland area of China outside the jurisdiction, continued to be
the subject of regulatory attention.

Financial institutions accelerate
Metaverse oppor tunities; financial
compliance risks emerged for Metaverse
innovation

On July 7, 2022, the CAC issued the Measures for Security Assessmentof Outbound Data Transfer (the "Outbound Transfer Assessment
Measures"), which, on the basis of the Personal Information

Driven by the rapid development of Metaverse economy, Metaverse

Protection Law and the Data Security Law, further clarifies the scope,

exploration has expanded from gaming and entertainment toconditions and procedures of outbound data transfer security

other sectors. According to public statistics, as of August 15, 2022,

assessment, and provides general guidance for the assessment.

the concept of "Metaverse" had been mentioned in a total of 39
official policy documents and work reports across the country. In

So far as outbound personal information transfer is concerned,

November 2022, five regulatory departments including the MIIT, theaccording to the Outbound Transfer Assessment Measures and related

Ministry of Education, the Ministry of Culture and Tourism, the State

official comments , currently only outbound personal information

Administration of Radio and Television and the State Administrationtransfer by (i) operators of critical information infrastructures,of Sports, jointly issued the Action Plan for the Integration and(ii) data handlers that handle personal information of more thanDevelopment of Virtual Reality and Industry Applications (2022 -1 million people, and (iii) data handlers that have cross-border2026), noting that "virtual reality (including augmented realitytransferred personal information of more than 100,000 individuals

and mixed reality)" is "a major forward-looking field of the digitalor sensitive personal information of more than 10,000 individuals

economy", and putting forward a five-year goal of "achieving large-

cumulatively as of January 1 of the previous year, are subject to thescale application of virtual reality in important economic and social

security assessment requirement. Other types of outbound personal

industries".

1

information transfer arrangements can be carried out by signing astandard contract or obtaining a personal information protection

In this context, aiming to open up a new digital market, the financial

certification. With the subsequent promulgation of the Provisions

sector has initiated active exploration of Metaverse, including:on Standard Contracts for Outbound Transfer of Personal Information(Consultation Draft) and the Announcement on the Implementation- in January 2022, WeBank launched a digital collection of the Yearof Personal Information Protection Certification, the implementationof the Tiger "Fuhu", and Bank of Jiangsu announced that it would

rules for the three "permitted routes" of outbound personal

start to actively deploy financial Metaverse; andinformation transfer identified under the Personal Information
Protection Law (i.e., the route of security assessment, protection- in February 2022, Xiangcai Securities announced the launch ofcertification and signing of standard contracts) are essentially all inthree series of digital collections for investment education, andplace.

JPMorgan Chase opened Onyx Lounge in Decentraland (the first
fully decentralized virtual world), becoming the first commercialbank to enter the Metaverse.

Meanwhile, outbound data transfer by banks is subject toheightened rules of "data localization". On November 11, 2022, the
CBIRC publicly solicited comments on the Banking Supervision Law of

The rapid development of Metaverse economy also brings

the PRC (Draft Revision for Consultation). Compared with the current

compliance concerns. On February 18, 2022, the Office of the Inter-Banking Supervision Law, the consultation draft adds new provisions

Ministerial Joint Conference issued the Risk Alert on Preventing

on outbound data transfer by banking financial institutions by

Illegal Fund Raising in the Name of Metaverse, drawing the public’s

reference to the regulatory rules in the securities sector, providing

attention on illegal fund raising, fraud and other illegal and criminal

1. Press Conference for the Measures for Security Assessment of Outbound Data Transfer, http://politics.people.com.cn/n1/2022/0707/c1001-32469307.html

44

PRC Financial Regulation - Annual Report (2023)
FinTechactivities under the disguise of Metaverse. On April 13, the NIFA,

to unofficial statistics, as of December 21, 2022, there have been

the CBA and the SAC jointly issued the Initiative to Prevent Relevant

7 equity transfer deals in the third-party payment sector in 2022.

Financial Risks of Non-Fungible Token, proposing to curb the move

While, according to the PBOC, as of December 31, 2022, the total

towards NFTs (non-fungible tokens) securitization, and advocating

number of licensed third-party payment service providers stands atthat there should be (i) no financial product embedded in the201. Cumulatively, 70 third-party payments providers have ceased

underlying commodities of NFTs, (ii) no disguised issuance andbusiness, of which 23 were terminated during 2022.

trading of financial products, token Issuance financing or centralized
trading via NFTs, (iii) no use of virtual currency as a valuation, pricing

In terms of regulatory policies, with the introduction of a series ofor settlement tool for NFT issuances and transactions, and (iv) no

new regulations in 2022, such as the Self-regulatory Code for Acquiring

investment in, or provision of financing services for the investment

Outsourcing Service Organizations (For Trial Implementation), the Anti-in NFTs.

Telecommunication Network Fraud Law of the PRC and the Noticeon Further Promoting the Standardized and Healthy Development

On December 11, the CAC, the MIIT, and the Ministry of Publicof Credit Card Business, compliance requirements for third-party

Security jointly issued the Provisions on the Administration of Deep

payment industry have been further upgraded and strengthened,

Synthesis of Internet-based Information Services, including "deepthe cost of violations has increased significantly, and the gray profit

synthesis technology" 2, which is considered as one of the key

margin has been further compressed.

technologies for the development of Metaverse, into the scope ofadministration. These Provisions provide general regulatory rules for

Meanwhile, cross-border RMB payment services continued to be

the operation of deep synthesis service, requiring service providers

encouraged by the regulators. On June 16, 2022, the PBOC issued

to undertake responsibility for information security, to establish

the Notice on Supporting Cross-border RMB Settlement of New Forms

and operate robust internal management, including having in placeof Foreign Trade Businesses, which expands the cross-border RMB

processes and risk management protocols to enhance content

policy support for new forms of foreign trades and, on the basis ofmanagement and deal with rumors and complaints, and to carry out

the Notice on Further Optimizing Cross-border RMB Policies to Support

real-name identity check on users.

Stable Foreign Trade and Foreign Investment (Yinfa [2020] No. 330),
explicitly expands the cross-border RMB payment business scope of07

third-party payment institutions from goods and service trade led

Third-party payment market undergoes
deepen restructuring; cross-border RMB
policy reinstates supports to cross-border
RMB payment businessby cross-border e-commerce, to cross-border e-commerce, marketpurchase-trade, overseas warehouses and comprehensive foreign
trade service, among other new types of foreign trade business.
Domestic banks are encouraged to cooperate with licensed thirdparty payment institutions and qualified clearing institutions toprovide cross-border RMB settlement services for market entities

In 2022, the PRC non-bank payment sector (i.e., the third-party

and individuals on current account.

payment sector) undergoes another round of reshuffle. On June
26, 2022, the PBOC announced the license renewal results of theWe expect that the "reshuffling" in the third-party payment sector

fourth-batch third-party payment institutions. The result revealed

will continue through 2023. At the same time, the legislativethat among all the seventy-nine (79) payment institutions, only fifty-

progress of the Regulations for Non-Bank Payment Institutions is alsotwo (52) had had their licenses renewed, eight (8) had applied forworth attention. The formal implementation of the Regulations issuspension, ten (10) failed to submit renewal applications, one (1)likely to help further consolidate and facilitate the development of

was rejected, and eight (8) withdrew their applications. Compared

the third-party payment service market.

to the previous three batches, the proportion of successful
renewals of the fourth batch is the lowest. Meanwhile, affected by
the directional opinions (such as the "two participations and twocontrols" principle) under the Regulations for Non-Bank Payment
Institutions (Consultation Draft), voluntary clearing and withdrawal
by third-party payment institutions are also accelerated. According

2. "Deep synthesis technology" is a new application of AI technology, covering face synthesis, human voice synthesis, immersive scene generation and editing andother technical types and services.

45

PRC Financial Regulation - Annual Report (2023)
FinTech2023 Regulatory Outlook

08

01

Financial consumer protection measurescontinue to be strengthened; rules ofInternet information service further
improved

Big Tech "rectification" enters its final
phase; Internet finance steps in a stage of"normalized" supervision

After three years of regulatory attention, the process of regulating
In 2022, financial consumer protection remained a top priority

Internet finance companies entered its final stage during 2022.

of regulators. In July 2022, the CBIRC issued in succession the
Notice on Strengthening the Management of Internet Loan Business

On March 2, 2022, Guo Shuqing, chairman of the CBIRC, disclosed atof Commercial Banks and Improving the Quality and Efficiency ofa press conference that the major 14 Internet platform enterprises

Financial Services and the Administrative Measures on Insurance Sales

had done much on self-inspection but were still in the progress

Practices (Draft for Consultation), which introduced more regulationsof completing necessary internal reforms (i.e., the "rectification")covering the sales of financial products and strengthened theto bring their businesses in line with regulations. The innovative

protection of consumers' rights and interests. On December 26,

financial services of the 14 platforms were also being gradually2022, the Administrative Measures for Protection of Consumer Rights

brought under supervision, he said.

and Interests by Banking and Insurance Institutions were officiallypromulgated, expressly prohibiting banking and insurance

Later on September 20, 2022, the PBOC convened a forum withinstitutions from allowing third-party institutions to promote or

the 14 platforms, revealing an intention to quickly complete thesell financial products and services in the name of banking andrectification process and initiate normalized supervision on Internet

insurance institutions through business outlets or self-operated

platform companies. In November 2022, the Report of the State

online platforms.

Council on the Financial Work reiterated the intention of "prudently
processing and expeditiously completing the rectification of theInternet regulation is also undergoing revision. On June 14, 2022,

financial business of platform enterprises, and implementing

the CAC issued the updated Provisions on the Administration of

normalized supervision". In the same month, 360 DigiTech, one of

Mobile Internet Application Information Services, strengthening

the 14 platform enterprises, said that it had basically completed

the requirements for the protection of the rights and interests

rectification and upon general regulatory review, moved into theof application users, prohibiting service providers from inducing

phase of "normalized supervision".

users to download applications via false advertising, bundled
downloading, brushing, comments control or spreading illegal and

The concept of "normalized supervision" embraces both the strict

harmful information. On September 9, 2022, the CAC, the MIIT andsupervision of financial services and the coordinated regulation on

the State Administration for Market Regulation (SAMR) jointly issued"platform economy" (such as antitrust and anti-unfair competition

the Provisions on the Administration of Internet Pop-up Information

regulation). Going alongside that, as part of the country’s overall

Push Service, proposing specific compliance requirements for issues

economy strategy, the development of platform economy remains

such as using pop-up windows to illegally push news information,strongly supported and encouraged in China. It was pointed out

online advertisements that cannot be closed with one click,during the Central Economic Work Conference held in December

malicious hype about entertainment gossip, and other malevolent

2022 that it is necessary to "vigorously develop digital economy

features.

and improve the level of normalized supervision, support platform
enterprises to lead the economy development, create employment
and play their role in international competition."
It is foreseeable that, in 2023, with the conclusion of the rectification
work on leading Internet platforms, Internet financial services will
gradually step into the phase of "normalized supervision". Whilst,
driven by economic development needs, supporting regulation
policies and rules on Internet finance will continue to evolve.

46

PRC Financial Regulation - Annual Report (2023)
FinTech02

Implementation rules for outbound datatransfer pending for further improvement;"data capitalization" to be expectedfurther highlighted. On October 28, 2022, the Report of the StateCouncil on the Development of the Digital Economy expressly
calls for establishing systems and rules for data property rights,
data circulation and trading, income distribution and security
governance, and promoting the "national data element market

With the release of the Outbound Transfer Assessment Measuressystem". On December 19, 2022, the Central Committee of theand other documents on outbound data transfer, the routes andCommunist Party of China (CPC) issued the Opinions on the

supporting regulatory requirements for transferring data out ofConstruction of Data Basic System to Better Play the Role of Data

China have become clearer.

Elements (the "20 Data Measures"), putting forward 20 measurescovering such matters as data property rights, data transfer andHowever, as the Provisions on Standard Contracts for Outboundtransaction, distribution of income, and safety management. The 20

Transfer of Personal Information is not finalized, and the detailed

Data Measures proposed a data property rights framework which

operational rules and guidance for security assessment and personal

divides data property rights into three kinds: ownership, the right toinformation protection certification are yet to be unveiled, there isuse and process data, and the right to operate data products. The 20

still a lack of clear implementation guidelines and reference cases

Data Measures proposed improving the life-cycle data compliancefor outbound personal information transfer. Meanwhile, in terms

and regulatory rules system, having standardized and efficient dataof the implementation of the security assessment requirement

trading venues, and building safe, compliant and well-organizedfor outbound data transfer involving "important data", the scopecross-border data transfer systems.

of "important data" is not clearly defined either. Although someindustries have initiated pilot work to formulate industrial important

Whilst data capitalization has become a key focus as thedata catalogs, so far no draft catalog has been issued; and the draft

government promotes the digital economy, data trading remains anational standards Information Security Technology Important Data

hazy area and is not well regulated due to varied unresolved issues

Identification Guide3, after several modifications, is still waiting to besuch as unclear property rights and lacking of fair pricing. There

finalized. Since the scope of "important data" is clearly important

are only a few data trading venues and platforms that are able towhen it comes to the outbound data transfer security assessment, as

ensure continuous operation, and important services thereof suchwell as the formulation of the "data classification and categorization

as data registration, value estimation, liquidation, delivery and asset

management mechanism" proposed by the Data Security Law, it

management are far from standardization. Compliance risks also

is imperative to introduce clear identification rules and instructive

exist in terms of the qualification of data providers and the legality

catalogue of "important data".

of data sources. As such, to promote "effective" and "compliant"data capitalization, formulating legislation on data capitalization is

We expect that, in the coming months, the legislative work on data

likely another legislative focus in the near future.

security will focus on the finalization of the Provisions on Standard
Contracts for Outbound Transfer of Personal Information, the releaseof operating standards for the security assessment and personal
information protection certification, and the final versions ofindustry-wide important data identification guidelines. It is also
expected that, with the further introduction of the outbound datatransfer rules and greater clarity on the scope of "important data"in the financial sector, the regulatory compliance boundary foroutbound financial data transfer, will become clearer.
Meantime, with the heating up of the exploration work in thedata element market 4, the concept of "data assets" has been

3. This document has purportedly changed its name to the Information Security Technology Important Data Identification Rules.
4. On May 27, 2022, Guiyang Big Data Exchange released the first set of data trading rules in China, providing guidance on data ownership, evaluation and pricingof digital assets, trading process and other matters. Later in July, September and November 2022, Fujian, Guangzhou and Shenzhen respectively opened their local
data exchanges. As of August 2022, 44 data trading institutions had been established nationwide, with most of the platforms' registered capital ranging from RMB50
million to RMB100 million, according to the 2022 White Paper on the Development of Data Trading Platforms released by the State Industrial Information Security
Development Research Center.

47

PRC Financial Regulation - Annual Report (2023)
FinTech03

04

Steady development of e-CNY, withexpected supporting laws and regulations

Gradual improvement of legislative andenforcement measures for anti-monopoly andanti-unfair competition in the digital economy

In 2022, the domestic e-CNY pilot project moved further forward. As

On June 24, 2022, the 35th Meeting of the Standing Committee ofof October 2022, PBOC has identified some areas in 15 provinces andthe 13th People's Congress considered and adopted the Decision

cities to carry out e-CNY pilot projects and designated 10 operatingon Amending the Anti-Monopoly Law of the PRC. The new version of

institutions upon evaluation. Meanwhile, PBOC continues to actively

the Anti-Monopoly Law came into force on August 1, 2022. A major

promote multilateral and bilateral exchanges and cooperation forrevision by the new Anti-Monopoly Law is to further clarify the rules

the internationalization of e-CNY. PBOC has participated in theof application of the anti-monopoly related system in the digital

multilateral central bank digital currency bridge project advocatedeconomy and to confirm the regulatory principles stipulated in theby the Bank for International Settlements, exploring the possibility ofAnti-Monopoly Guidelines on the Platform Economy at the level ofmultilateral cooperation for cross-border payments; and accelerated"law". On June 27, 2022, the SAMR issued the Regulations of the State

cross-border payment technology testing between the Mainland

Council on Standards for Declaration of Concentration of Businessand Hong Kong, seeking to establish interconnection between the

Operators(Revised Draft for Consultation), Regulations on the Review of

e-CNY system and Hong Kong fast payment system (FPS) to facilitate

Concentration of Business Operators (Consultation Draft), Regulations

settlement by HK residents. According to the Hong Kong Monetaryon Prohibiting Abuse of Dominant Position in the Workplace

Authority (HKMA), in September 2022, Hong Kong, being the first(Consultation Draft), Regulations on the Prohibition of Monopoly

city outside of the mainland area of China to conduct a cross-border

Agreements (Consultation Draft), Regulations on Suppressing Abuse ofpilot technology test for e-CNY, has entered the second phase of

Administrative Power to Exclude and Restrict Competition (Consultation

testing. Also according to The Currency Bridge Project: Central Bank

Draft) and Provisions on Prohibiting Abuse of Intellectual Property

Digital Currency Helps Economies Converge and Interoperate - jointly

Rights to Exclude and Restrict Competition (Consultation Draft), allpublished by the Bank for International Settlements and others -open for public comments. These documents adjust and refine

the multilateral central bank digital currency bridge has successfully

the provisions on safe harbor, concentration of business operatorscompleted the first real transaction pilot test based on four central

and determination of dominant market position in the platformbank digital currencies. In a six-week period, 20 commercial banks

economy.

from four different jurisdictions have completed a total of 164 crossborder remittance and foreign currency exchange transactions,

On November 22, 2022, the SAMR issued for public comment the

totaling more than RMB150 million equivalent.

draft revision of the Anti-Unfair Competition Law of the PRC. The draft
puts forward the principal requirement that "business operators

We expect there to be more regulations governing the use of e-CNY

shall not use data and algorithms, technology, capital advantages

both domestically and internationally. Meanwhile, the prohibitionand platform rules to engage in unfair competition", and targets

on the issuance of virtual currencies and related financial services is

unfair competition in data acquisition and use, or via the use of

not expected to change in 2023.

algorithms, as well as new types of unfair competition on Internet
such as prevention of open sharing.
With the clarification of the rules applicable to the "digital economy"
under the new Anti-Monopoly Law and the Anti-Unfair Competition
Law, as well as the introduction and updating of the subsequent
supporting rules, the anti-monopoly and anti-unfair competition
enforcement in the digital economy will be stepped up. As the
economy recovers, we expect there will be more regulatory
enforcement in 2023 to stamp out monopolistic behavior in theplatform economy, including the Internet finance sector.

48

PRC Financial Regulation - Annual Report (2023)
FinTech05

Supervision of financial science and technology
ethics is expected to be established, top-level
legislation on financial consumer protection
may be introduced in the future

PBOC expressed in an interview with the media, that "it is necessary
to speed up the formulation of the law on the protection of financial
consumers’ rights and interests"; in July 2022, Sun Tianqi, directorof the Financial Stability Bureau of the PBOC, published opinions in
Chinese Finance, stating that "efforts should be made to strengthen

In early 2022, the General Office of the Central Committee ofthe protection of the rights and interests of consumers andthe CPC and the General Office of the State Council issued theinvestors, and to promote the introduction of the financial consumer

Opinions on Strengthening the Ethical Governance of Science andprotection law". We therefore believe that top-level legislation in theTechnology, pointing out that "the ethics of science and technology

field of financial consumer protection is likely to be introduced inis the value and norms of conduct that need to be observed in

the future.

scientific research, technological development and other scientificand technological activities, and it is an important guarantee to

In 2022, regulators continued to strengthen financial consumer

promote the healthy development of science and technology", andprotection through greater law enforcement. Among the issued

proposing five governance principles including (i) respecting thepenalties, most were imposed on both the organizations andright to life, (ii) adhering to fairness and justice, and (iii) keeping

the people in charge, and several were in an amount exceeding

openness and transparency. The Fintech Development Plan (2022 to

RMB 1 million. Meanwhile, with the formal implementation of2025) also listed "strengthening the construction of financial science

the Administrative Measures for Protection of Consumer Rights andand technology ethics" as one of the important tasks of improving

Interests by Banking and Insurance Institutions, the compliancethe governance system of financial science and technology. The

requirements and the level of penalties for financial consumer

objective is, primarily, to prevent in advance and effectively solve

protection have once again increased. We expect there will be more

the ethical risks of Fintech activities, and to prohibit the misuse offinancial customer protection related law enforcement action in thetechnology.

future.

On October 9, 2022, PBOC officially issued the Guidelines for Scienceand Technology Ethics in the Financial Sector (JR/T0258-2022)5, which
defined "Fintech" as "technology-driven financial innovation", andput forward major requirements for financial institutions, including
the responsibility of performing ethical governance, implementing
the requirements of "licensing operation", fulfilling the mission ofserving the real economy, upholding the position of "technology
empowering finance", adhering to the code of conduct in goodfaith, and effectively safeguarding the legitimate rights and interestsof all parties. It is therefore clear that ethics governance has beenformally incorporated into the regulatory framework of Fintech, andmay become one of the soft requirements for sci-tech compliancein the future, echoing and bring into line with existing regulatory
requirements such as consumer protection, data security, andnetwork security
In terms of consumer protection legislation, at present, apartfrom the Guiding Opinions of the General Office of the State Council
on Strengthening Financial Consumer Protection, there has beenno unified special legislative document on financial consumer
protection. The regulatory requirements issued by the PBOC, the
CBIRC and the CSRC are yet to be properly aligned, and the "topdown" regulatory system for financial consumer protection is notcomplete. In view of this, in March 2022, the deputy governor of the

5. https://finance.sina.com.cn/money/bank/bank_yhfg/2022-10-25/doc-imqqsmrp3670382.shtml

49

>>>>>PRC Financial Regulation:
Annual Report (2023)

Insurance

50

PRC Financial Regulation - Annual Report (2023)
Insurance

2022 Regulatory Milestones

January 10
The Administrative Measures on Related Party Transactionsof Banking and Insurance Institutions was issued,
preventing improper transfer of interests by relatedparties in a "look-through" way.

March 21
National Pension Insurance Company received
approval to open for business, becoming the 10th
professional pension insurer, boosting the "third
pillar" of pension insurance.

April 24
The Notice on the Investment in Relevant Financial
Products with Insurance Funds was issued, expending
the scope of financial produc ts available forinvestment by insurance funds.

May 9
The Administrative Measures on Entrusted Investment of
Insurance Funds was issued, reshaping the regulatory
system for the "entrusted" investment of insurance
funds.

June 1The Guidelines for Green Finance in Banking and Insurance
Sectors was issued, laying out the strategic arrangement
for the development of green finance in the insurance
sector.

July 15
Bankruptcy of Yi'an Insurance was accepted by the
court, becoming the first insurer of China to enter
into the bankruptcy and restructuring procedure.

July 28
The Administrative Provisions on Insurance Asset Management
Companies was issued, removing the shareholding
limit for foreign investors.

October 25
The Administrative Measures for the Insurance Security
Fund was issued, which was the first revision since its
formulation 14 years ago, optimizing risk prevention
measures of the insurance sector.

November 21
The Matters Concerning the Private Pension Business of
Insurance Companies was issued, boosting the "third
pillar" of pension insurance with support from theinsurance sector.

November 24
The Pilot Program of Commercial Pension was
launched, four pension insurer and 10 provinces andcities being selected.

November 28
The Regulatory Assessment Measures for the Corporate
Governance of Banking and Insurance Institutions
was amended, promoting the classification-based
regulation of corporate governance of banking andinsurance companies.

December 26
The Administrative Measures for the Protectionof Consumers' R ights and Interests by Banking
and Insurance Institutions was issued by CBIRC,
strengthening protection of rights and interests offinancial consumers.

51

PRC Financial Regulation - Annual Report (2023)
Insurance

2022 Regulatory Mainline Review

01

Integrated regulations on the related
party transactions applicable to banks
and insurance companies; new standards
balancing severity with leniency

internal checks and have disposed of some assets.
The regulators have carried out inspections on financial holding
platforms or hidden financial holding platforms which have capital
operation as their main business, as well as on small and mediumsized insurance institutions which have diversely developed and

Financial reform was continuously deepened in 2022. The mid-2022

aggressively expanded shareholders.

saw more regulations governing banking and insurance though
not as many as had been introduced in 2021. Nevertheless, they are

Regulators are being lenient in some regards. The related party

still important in terms of its importance and influence, with thetransactions of subsidiaries that are controlled are no longer

Administrative Measures on Related Party Transactions of Banking andrequired to be managed as if done by the insurance institution itself.

Insurance Institutions (the "No. 1 Decree") being a typical example.

More flexibility is allowed for insurance institutions in the scopeof related party and their methods to identify related party. These

There is still a long way to go before the financial security defensechanges are part of the drive by regulators to streamline financial

line and risk emergency response mechanism are well established.

companies' obligations.

Based on numerous experiences and lessons, particular risks stemfrom related party transactions, which are difficult for regulators

Certain practical problems remain unsolved, for example, on how

to monitor but can be prohibited or controlled by insurance"related party" transactions can be accurately identified and how

institutions' effective daily management. The No.1 Decree replaced

to calculate investment in private equity investment funds andthe Administrative Measures on Interested Party Transactions offinancial products, as well as the standard for calculating accrued

Insurance Companies that had been in force for many years, andamount. Other areas that have been left for discussion include theintegrated the related party transactions of banks, insurance

deletion of "co-investment" and exemption from review/disclosurecompanies and other non-bank financial institutions into the samefor subsequent transactions. The market expects the regulator to

regulatory regime. While coordinating the basic definitions of terms

provide more detailed guidance on these issues, while the regulator

such as "related party" and "related party transaction", as well as

expects to gain some feedback on market experience when

the regulations setting out prohibited activity, the No.1 Decree

implementing the No.1 Decree. We expect to see more guidance

also formulated the regulations on transaction classifications thatand opinions in the future, though they may not be comparable

are more applicable to the business models of different types ofwith the No.1 Decree in terms of hierarchy and effectiveness.

licensed institutions.
The No. 1 Decree is based on the principles of "substance over form"and "look-through", replacing the previous quantitative standards

02

such as "significant influence". "Related party" is also broadened inits scope of definition to include concepts such as "persons acting
in concert", "ultimate beneficiaries", "important branches" andpersonnel with the power to approve or make decisions on core

Insurance sector participating in theprivate pension market, promoting
establishment of a multi-tiered and multipillar old-age pension systembusinesses. The No.1 Decree added a new chapter providing rules
on prohibited actions such as transaction splitting and multi-layer

After a long preparation, the private pension plan was rolled out innesting, which also enriched the contents of "substance over form"

2022. The Opinions on Promoting the Development of Private Pensions

and "look-through" principles.

was issued by General Office of the State Council in April, disclosing
the complete system regime for the first time. In late 2022, the

The No.1 Decree reflects a stricter regulatory attitude. The expansion

Ministry of Human Resources and Social Security together withof the scope of related party requires better management ofother ministries issued the Measures for the Implementation of Private

information and better information system. Also, the maximum

Pensions. Following that, the Ministry of Finance, State Taxation

proportion allowed for the balance of related party transactions

Administration, People's Bank of China, China Banking and Insurance

involving application of funds has been reduced. Together with theRegulatory Commission ("CBIRC"), and China Securities Regulatory

Notice on the Special Inspection of Related Party Transactions for theCommission ("CSRC") issued supporting pilot rules to fill in the

Use of Insurance Funds and Notice on Strengthening the Supervision ofgaps of industry rules in respect of income tax policies, pension

Related Party Transactions for the Use of Funds by Insurance Institutions

savings, wealth management products for pension savings, public

issued in the mid-2022, many financial institutions have done somefunds for pension savings, and endowment insurance products. The

52

PRC Financial Regulation - Annual Report (2023)
Insurance

03

supporting rules for insurance industry sought public opinion in thelate September and were officially issued in November.
The private pension plan is based on the personal account, deposits

Reshaping the investment model of
insurance funds, expanding the rangeof financial products in which insurance
funds can invest

which can be used by the participant to invest in financial products.
The private pension plan can help expand the coverage of the

In 2022, regulators have been reshaping the significant rules"third pillar" pension, but exposes pension insurance products torelating to insurance funds utilization, compared with the effort

competition with bank savings and asset management products

to emphasize "delegating power, streamlining administration andon the basis of united account, exploring the trillion-dollar blue

optimizing government services" in 2021.

ocean market. In fact, the insurance institutions have the first moveradvantage in the pension market as their annuity and endowment

The Notice on the Investment in Relevant Financial Products withinsurance products in essence have the function and nature of

Insurance Funds ("No. 7 Decree") issued by CBIRC in April has

pension security. Also, by making use of its specific advantage,

expanded the scope of financial products available for investment

insurance funds can be invested in building communities forby insurance funds. The wealth management products provided

the elderly and elderly-care operation institutions, laying out an

by wealth management companies and the convertible debt

industrial chains of the elderly care sector.

investment plans which had been regulated by a special regulation,
together with single asset management plans, have all been

Although the previous attempt to launch tax-deferred pension

included in the "white list" of permitted investments, so as to satisfy

insurance failed to achieve the desired result, the pilot program

the needs of diversified investment. Single asset managementof exclusive commercial pension insurance, launched in 2021, hasplans issued by securities companies, securities asset management

made good progress. The pilot program was further expanded incompanies, and securities investment fund management companies

March 2022, with 10 more pension insurance companies added to

had previously been regulated as a form of trusted investment

the initial six companies. Success achieved in the pilot program has

by insurance funds, meaning that the investing institution would

also laid a solid foundation for insurance institutions to participate

conduct the investment as a trustee of the insurance funds. The No. 7

in the competition for private pensions and help them quickly

Decree classified this kind of investment plan as a financial product,

enter into the market. The first batch of private pension insurance

which reflected the regulator's intention to distinguish between

products consists of seven products provided by six companies,

an trusted investment within the insurance sector and investment

all of which are exclusive commercial pension insurance products.

outside the insurance sector, and clarify the difference between

With the expansion and normalized promotion of the pilot program

an engagement relationship and a trust relationship. Also, basedof exclusive commercial pension insurance, more insurers andon the previous experience and lessons, the new rule emphasizes

products are expected to enter the private pension market as timethe "look-through" principle of regulation. In principle, to invest

goes on.

in financial products, the insurance institutions shall be equippedwith adequate investment management ability comparable to theApart from the exclusive pension insurance and private pension

products' underlying assets, apply the corresponding limits on theplan, there is also a pilot program covering commercial pensions.

proportion of investment in financial products, so as to reflect the

CBIRC issued the Notice of Launching the Pilot Program of Commercial

true risk of the invested assets and effectively reduce the proportion

Pension Business of Pension Insurance Companies in December,of investment in non-standardized products.

allowing four pension insurers to launch the pilot business in Beijing
and other nine provinces (cities). Although the pilot products are not

The Administrative Measures on Entrusted Investment of Insurance

eligible for tax benefits available to private pensions, the pension

Funds ("No. 9 Decree") is aligned with the No. 7 Decree in a number

insurers can provide one-stop services to clients, which includes

of ways. Under the regulatory regime established by No. 7 Decree

account management, pension planning, fund management andand No. 9 Decree, the "entrusted investment" of insurance funds

risk management. The professional pension insurers, after playing

specifically refers to the circumstance where the insurance asset

an important role in the investment management of the "first pillar"

management company acts as the trustee. Insurance companies

and "second pillar" for a long time, has gradually obtained attention

are allowed to entrust insurance asset management companies toduring the prosperous development of the third pillar. As requested

invest in financial products, excluding the single asset managementby the regulators, pension insurers have commenced with removal

plans and private wealth management products issued to a singleof asset management and similar wealth management businesses,

investor. Also, the No.9 Decree has specified that the insurance

and turned to focus on strengthening its function of elderly care.

group companies and insurance companies without the ability

53

PRC Financial Regulation - Annual Report (2023)
Insurance

to manage investment in equities and real assets are allowed

management expertise generally.

to indirectly invest in equities and real assets financial products
through entrusted investment.

Another phenomenon worthy of attention is the increase in interests
to secure insurance intermediary licenses. Since Tesla registered an

The Administrative Provisions on Insurance Asset Management

insurance brokerage, car companies such as BMW, BYD, Li Auto andCompanies issued in July fur ther allowed insurance asset

NIO have all registered or acquired insurance brokerage companies.

management companies to establish subsidiaries engaged in

In view of the requirement of "registration business license before

asset management or asset-management-related business in thegovernmental approval" for insurance brokerage licenses, some

wealth management, mutual funds, private funds, real estate andof them have not yet obtained the qualifications to carry out the

infrastructure. It is undoubted that the insurance asset managementbusiness, but the trend for brokerages in the auto industry willcompanies will take on a more important role in the investment

provide extra impetus.

by insurance funds, and it has encountered a good opportunity
to enhance professional development and in-depth reform of its

The policy to establish brokerages has been in place since 2021, butbusiness.

there remains a lack of necessary detailed regulations to delineate
the boundaries of intermediary/agency business development.
In addition, the Internet platform sideline insurance agency

04

qualifications, the business compliance role of the recent MGA

Lackluster domestic investment ininsurance license business, while foreign
investors remain enthusiastic, brokerages
offer greater appeal(managed insurance professional intermediary agency) businessand other old and new issues that have previously been talked
about but have not yet come to pass.

05

The impact of the pandemic and other factors meant that there
were fewer M&A transactions and less domestic investment in 2022.
There was also reduced activity in the insurance sector, i.e. equity
investment and license application. In the first half of the year, theRisk prevention and disposal continues,
financial stability showed top-level designideas

National Pension Insurance Co., Ltd. and China Rongtong Property
Insurance Co., Ltd. were approved to open for business, and the

In 2022, the insurance sector continued on its consolidation to deal

latter broke the record that there were no new property insurancewith the high-risk companies. The workout of Mingtian Xi's four

companies in the past four years. Several institutions listed theirinsurance companies was completed: Tianan Property & Casualty

shares, but without attracting much public interest.

Insurance's assets were sold at rock-bottom prices; Yi'an Property& Casualty Insurance became the first domestic company to enter

While the domestic market showed little signs of activity, several

bankruptcy and reorganization process; and the two life insurance

foreign companies demonstrated their confidence in the Chinesecompanies were taken over by trustee members with the follow-up

market. International insurance giants, including Allianz, Prudential,

disposal plan still in the works.

Chubb, and AIA, have all increased their domestic insurance licenses
through equity acquisitions and capital increases, or anchored their

Risk prevention, resolution, and disposal of financial institutions

controlling stakes. Institutions such as HSBC that have acquired

have all become an important part of regulatory work in recent

controlling stakes have shifted their focus to the establishment

years, but these procedures are scattered among the specificof domestic branches. In terms of reinsurance, Spain's Mamfort

regulations of various financial sub-sectors, and some are lessReinsurance Company prepared to establish a Beijing branch, andeffective than others. In 2022, the draft version of the Financial

Hannover Reinsurance further increased its capital in its Shanghai

Stability Law was released and public opinions were solicited, whichbranch. At the policy level, the Regulations on the Administration

generated much discussion. In particular, the establishment of theof Insurance Asset Management Companies officially abolished thefinancial stability guaranty fund, the sequence of use of risk disposal

restriction on the proportion of ownership that foreign companies

funds, disposal measures and tools, and the "three terminations"can hold in insurance asset management companies, marking

and other judicial interface issues all revealed the thinking ofthat among the all the 34 opening-up measures for the insurance

the regulators. If the Financial Stability Law is promulgated inindustry introduced since 2018 have been implemented. Looking

the future, it should parallel existing laws such as the Insurance

ahead, we can expect to see the introduction of health insurance,

Law and the Enterprise Bankruptcy Law. How the specific systems

pension insurance with greater use of advanced technology andregulated therein are connected is also an important prerequisite

54

PRC Financial Regulation - Annual Report (2023)
Insurancefor determining whether relevant measures can be effectively

insurance companies and reinsurance companies. Concurrently,

implemented.

the CBIRC issued measures including the Negative List of Personal
Insurance Products (2022 Edition) and the Notice of the Personal

The disposal of AnBang and other institutions required significant

Insurance Department of the China Banking and Insurance Regulatory

dipping into industry guaranty funds. According to the draft version

Commission on Recent Issues with Personal Insurance Products. It alsoof the Financial Stability Law, industry guaranty funds should only

issued the Measures on Information Disclosure on Personal Insurance

be called upon as a last resort as a means of supporting distressed

Products in November to increase the transparency of information

insurance companies, but how to effectively use and manage thein the entire process of product sales. The next phase will be to see

funds is still an area that needs to be considered.

whether the regulation covering life insurance will be extended toother types of insurance products.

In December 2022, after a lapse of 14 years, the Insurance Security
Fund Management Measures was revised to optimize the use andSo far as penalties are concerned, the trend is for an increase. In

management of insurance guaranty funds and give insurance

2022, the number of administrative fines imposed on insurance

guaranty fund companies "the right to participate in risk disposal

institutions and their personnel all increased compared with theplans and the making of the methods".

same period. More attention has been paid to protecting personal
data held by insurance companies. In August, the Notice on Carryingout Special Rectification of the Infringement of Personal Information

06

Rights by Banking and Insurance Institutions was issued. Following

Internal controls and compliancemanagement given added weight, shiftof regulators from rectifying chaos tobuilding a thorough and workable overall
and compliance systemthat, the local Banking and Insurance Regulatory Bureau targeted
employees of insurance institutions for violating citizens' personal
information. Some were barred from working in the insurance
sector for five years. There has also been heightened supervisionof insurance intermediaries, and many institutions have been
penalized for management failings, including losing their licenses.

In the past few years, China's regulators have been focusing on

In June, the “CBIRC” issued the Notice on Printing and Distributing

making sure that banks and insurance companies have effective

the Work Plan for the "Scattered" Problems of Insurance Intermediaries

internal corporate governance, and with some success. On the basis

within the industry, clearing out insurance intermediaries that didof ensuring effective corporate governance, business compliance is

not meet regulatory requirements, as well as requiring others to

an important factor that determines how far an organization can go.

rectify many violations of laws and regulations.

There has been a shift by regulators from requiring errant companies
to “rectify” (i.e. remediate) their poor governance to putting in place
effective, robust governance processes that prevent violations of the07

law and regulations from happening. Regulators have struggled tokeep up with innovations that have seen companies conducting all
manner of illegal activities, including falsifying reports, the grantingof interests outside the insurance contract to policyholders, andGreen insurance and agricultural insurance
move into next phaseillegal transfer of interests between related parties. In 2021, the
CBIRC launched the "Internal Control and Compliance Management

Green finance (i.e., providing finance for environmental projects)

Construction Year" campaign in the banking and insurance

and green insurance are fast-growing sectors. In 2022, the CBIRC

industries to guide institutions from "passive compliance" toissued in succession the Guidelines for Green Finance in the Banking"active compliance" and to firmly establish the concept of "internal

and Insurance Industry and the Notice on the Statistics System for Green

control first and compliance as the basis". Combined with the new

Insurance Business, which for the first time at the policy level clarified

regulations promulgated in 2022, compliance will be the main focus

the definition of "green insurance". The regulations require insuranceof regulators in the next few years.

institutions to incorporate and integrate environmental, social andgovernance (ESG) factors into their systems and management,

In January, the CBIRC issued the Interim Measures for the Off-site

investment and financings, and information disclosure, andSupervision of Insurance Companies, aiming to set a unified standard

innovatively propose that ESG assessment results be used as anfor off-site supervision. In the future, it will also study and formulate

important basis for cost management and investment decisions.

the specific assessment guidelines of the risk monitoring andWe can expect insurance companies to devote more resources tooff-site supervision of property insurance companies, personal

greenfield projects, once ESG factors are fully incorporated into their55

PRC Financial Regulation - Annual Report (2023)
Insurance

decision-making and costs.

administrative regulations.

Agricultural insurance has also been the subject of policy making.

"Digital transformation" cannot be separated from the discussion of

The 19th Central No. 1 Decree to guide the work of the "Three-"technology empowerment". More and more insurance institutions

Agriculture", the Central Committee of the Communist Party ofare applying digital technology, life technology and environmental

China and the State Council on Promoting the Key Work of Rural

technology to daily governance, internal control compliance, andRevitalization in 2022, was issued as scheduled in February. The

product and insurance innovation to improve work quality anddecree requires commercial agricultural insurance and innovative

efficiency. From another perspective, at the policy level insurance

agricultural insurance to keep in line with policy developments. The

funds are also being encouraged to support industrial development

CBIRC on the basis of the Interim Measures for the Management ofand empower the technology industry. In July, the CBIRC and theAgricultural Insurance Underwriting and Claims and the Agricultural

Shanghai Municipal Peoples Government issued the Work Plan for

Insurance Regulations, the CBIRC issued the Agricultural Insurance

the Leading Area of Science and Technology Insurance Innovation

Underwriting and Claims Management Measures in February toin the Lingang New Area of China (Shanghai) Pilot Free Trade Zone,

further regulate underwriting claims management of agricultural

supporting the development of the leading area of technology

insurance, detailed agricultural insurance co-management system,

insurance innovation in Lingang New Area into a model for

unified forest insurance into the scope of adjustment, and further

innovation.

clarified the content and requirements of agricultural insurance,
differentiated the inspection content of the underwriting subject

With encouragement of policy makers, insurance institutions will

into different insurance categories, and unified the time limit for

be able to participate in the investment and financing of cutting-loss determination and explicit prohibition of arbitrage of premiumedge manufacturing, major industrial projects, and key technology

subsidies, etc. At the end of the year, the China Insurance Associationcompanies through a variety of capital utilization methods.

released the underwriting and claim settlement specifications for

However, what cannot be ignored is that considering the higharable, husbandry and forest insurance, which is the first time totechnical threshold of the technology industry, the work of pre-standardize and unify this at the level of industry self-discipline.

investment due diligence, investment decision-making and postinvestment management all puts forward higher requirements for08

insurance institutions.

Digital transformation receives top-levelsupport, opportunities and challenges
coexist in digital transformation,
insurance and technology are two-way
empowerment

At the beginning of 2022, the CBIRC issued the Guiding Opinions
on the Digital Transformation of the Banking and Insurance Industry,requiring banking and insurance institutions to digitize theirbusiness operations and management, actively develop digitalfinance and "vigorously" promote the digital transformationof personal financial ser vices. Many insurance companies
have proposed digital transformation development strategies,
seeking to use digital technology to empower the high-quality
development of the insurance sector. These institutions areinvesting in digital technology research and development, both forinternal management and to make them more efficient. However,digital transformation also throws up challenges that need tobe confronted, such as data governance, network security, data
security, and privacy protection. Many regulatory decrees issued inrecent years have encouraged insurance institutions to make gooduse of data, while at the same time requiring them to fully protect
customer privacy and data security in accordance with laws and56

PRC Financial Regulation - Annual Report (2023)
Insurance

2023 Regulatory Outlook

01

02

The discussion on the amendment of the
Insurance Law will continue to heat up

Antitrust compliance awareness in theinsurance sector will be strengthened

The current Insurance Law has been amended four times since

After nearly two years of discussion and revision of the draft, theit was promulgated and implemented in 1995, and the latest

Anti-monopoly Law (2022 amended) was finally approved at the 35th

version was amended in 2015. In recent years, with the accelerated

session of the Standing Committee of the 13th National People's

development of the insurance market and the entry of various

Congress in June 2022 and was implemented on August 1. This isemerging institutions and products, new risks and challenges are

the first amendment since the Anti-monopoly Law took effect inaccompanied by opportunities. The priority of the insurance sector

2008.

has gradually shifted from accelerating development to the originalfunction of insurance and serving the real economy. The current

Over recent years, we have seen the rise of anti-monopoly cases inInsurance Law has gradually lagged behind changes on the ground,the insurance sector and more examples of financial institutions

and there has also been a call for amendment in the market. Suchbeing penalized for breaching anti-monopoly rules. Companies

amendment of the Insurance Law has been in the legislative work

have been penalized for, among other violations, the horizontal

plan of the Standing Committee of the National People's Congressmonopoly organized by the industry association, the vicious

since 2020, and it has remained on the list of items for preliminarycompetition at the business end and failure to conduct merger

deliberation in 2021 and 2022.

control filings. This has caused a number of insurance companies toreview their internal controls and compliance processes.

During the NPC and CPPCC sessions in 2022, some representatives
proposed a motion to amend the Insurance Law, suggesting that the

The amendment of the Anti-monopoly Law paid special attention

amendment and improvement should be made from the aspects ofto the financial sector, including insurance institutions. The law

improving business operation rules, strengthening the protection

added Article 37 - "the classification-based and hierarchy-basedof the rights and interests of insurance consumers, and improving

examination system for merger control." Although the specificrisk prevention and disposal mechanisms of the insurance sector tocontent of the system is not clear, it is widely believed that thismeet the industry development and regulatory requirements. The

is a signal to strengthen the merger control filing review in key

regulators have listened to the feedback both from the sector andsectors such as finance. We can expect to see stricter supervision of

from society at large. There has been heated discussion in academia

insurance companies, as has happened in other financial services

and in the sector about how to improve the rules relating to risk

sectors. Insurance institutions should, in turn, strengthen theirdisposal and the modification of standard terms and conditions.

internal and compliance processes and be more vigilant when it
comes to anti-monopoly regulations.

Given that recently the Civil Code has been promulgated and the
Financial Stability Law, Company Law and Civil Procedure Law have03

all been revised, there is pressure on law makers to harmonize theInsurance Law with other laws. We can expect more discussion overthe coming year.

Classification-based and hierarchy-based
regulatory system of insurance institutions
will be put in place

The idea of the classification-based and hierarchy-based regulatory
system has been widely used in the insurance sector. This helps
regulator to effectively manage the daily affairs of institutions
and allocate supervision resources more efficiently when it comesto regulating business scope, branches, corporate governance,
solvency risk assessment, and so on. In 2021, the regulator madean attempt on the management of insurance asset managementcompanies by launching the Interim Measures for the Regulatory
Rating of Insurance Asset Management Companies. This provided
a comprehensive rating system for insurance asset managementcompanies with five key indicators: corporate governance and57

PRC Financial Regulation - Annual Report (2023)
Insuranceinternal controls; asset management capability; comprehensive risk

the Measures for Online Marketing of Financial Products (Consultation

management; transaction and operation security; and information

Draft) issued at the end of 2021, the trend of uniform regulatory

disclosure. For institutions of different classifications, regulators

standards in the banking, insurance and securities sectors in special

will apply differentiated regulatory measures in terms of market

areas has been conspicuous. Considering the current top-level

access, business scope and allocation of resources they apply todesign of separate supervision and the relatively mature existingsupervision.

regulations of various sectors, it is not easy to regulate across manyfinancial sub-sectors. However, if the uniformed regulation has

In terms of the management of insurance companies, in theachieved good results in asset management, Internet promotion

past few years, the regulator has launched a similar classificationand other sectors, it is worth expecting more along these lines in themechanism from the perspective of corporate governance, andcoming year.

further improved the Measures for the Supervision and Evaluationof Corporate Governance of Banking and Insurance Institutions (the05"Measures") in November 2022. According to the Measures, thoseinstitutions rated as grade B or above will not be supervised as often
as those deemed to be of higher risk.

Supporting systems for vehicle-related
insurance will gradually be put in place

With the implementation of territory-based policies in recent years,
and the implementation of on-site inspection and off-site inspection

The long-planned "equivalent pre-recognition" policy for cross-rules, there is a certain basis for promoting the classification-based

border vehicle-related insurance in the Great Bay Area is expected toand hierarchy-based regulatory system for insurance institutions

be implemented early on in 2023. What this means is that the scopein a larger scope. It may be regulator's next step to coordinate theof liability for cross-border vehicles to be insured by Hong Kong

existing classification-based and hierarchy-based regulatory system

and Macao insurance companies will be extended to the third-party

with a view to having a holistic approach to regulation.

liability insurance on the Mainland. Based on our experience, there
are a number of complexities associated with this type of insurance,04

including issues such as cross-border payments, tax management
and regulatory coordination in different areas, so it will not be easy

The regulatory standards of financial subsectors in specific fields will graduallyconverge

to see final implementation. With the loosening of the lockdown
policy, the pilot policy is expected to be widely applied in the
Greater Bay Area, laying a good foundation for broader cross-border"insurance connect" cooperation.

The gradual unification of the regulatory framework of the banking
and insurance sector was one of the main themes in 2021. The

In addition to cross-border vehicle-related insurance, some insurance

consolidation of the regulatory framework slowed down in 2022,

companies have already moved into the new energy vehicle-

but, as we anticipated last year, the regulator still issued many

related insurance market. In August 2022, the Ministry of Transport

important regulations, including the Measures for the Affiliatedissued the Autonomous Vehicle Transport Safety Service Guide

Transactions of Banking and Insurance Institutions, the Measures for(Trial) (Consultation Draft) (the "Guide"). According to the Guide,

the Banking or Insurance Institutions' Protection of Consumer Rights

the insurance coverage of self-driving vehicles has significantly

and Interests, and the Guidelines for the Green Finance of the Banking

improved as compared with traditional vehicle-related insurance.

and Insurance Sector, and coordinated management of the banking

The insurance coverage of traditional three-party insurance is RMB1

and insurance sectors as laid out in a number of policy measures.

million to RMB2 million, while the same product for self-driving

We expect that the process of bringing about uniform supervisionvehicles is at least RMB5 million. Compared with traditional vehicle-

will continue to be implemented in 2023, and regulations such as

related insurance, self-driving vehicle-related insurance products

compliance management and information disclosure are expected

can superimpose liability insurance according to different scenarios

to be put on the agenda.

and purposes. As far as we know, some institutions have developed
and launched supporting insurance products, but the scale and

The CBIRC issued the " Four teenth Five -Year Plan" for thequality of services are still limited according to the technology of theStandardization of the Insurance Sector in May 2022, proposing thevehicles. With the active participation of more insurance institutions

promotion of unified standards for the asset management businessand more self-driving enterprises, the development of self-drivingof banking, securities, insurance and other sectors. In addition tovehicle-related insurance is worth expecting, and its supporting
policies will gradually take shape.

58

>>>>>PRC Financial Regulation:
Annual Report (2023)

Green Finance andCarbon Markets

59

PRC Financial Regulation - Annual Report (2023)
Green Finance and Carbon Markets

2022 Regulatory Milestones

January 24
The Ministry of Ecology and Environment ("MEE")
announced that the first compliance cycle of the National
Carbon Emissions Trading Market ("National Carbon
Market") had been successfully completed, and theframework for the operation of the national carbon
market had been established.

April 12The China Securities Regulatory Commission ("CSRC")
released the Carbon Financial Products National
Standard, the first national industry standard in thefield of carbon finance.

June 1The China Bank ing and Insurance Regulator yCommission ("CBIRC") issued the Guidelines on Green
Finance for the Banking Industry and the Insurance
Industry, setting out comprehensive requirements
covering environment, social and governance ("ESG")
for the first time in its regulatory specifications.

July 14The Supreme People's Court issued the Opinions on
Providing Judicial Services and Protection to Accelerate
the Construction of a Unified National Market,
providing judicial support in the process of achieving"Carbon Peaking and Carbon Neutrality".

July 25
Hainan International Carbon Emission Trading Center("Hainan Carbon Center") officially established.

July 29
Green Bond Standard Committee issued selfregulatory rules - the China Green Bond Principles.

August 4
The MEE announced the list of pilot cities/areas forclimate investment and financing, containing 23
cities/areas.

August 31
1 4 t h Fi ve -Ye a r Pl a n o f G ua n g z h o u Eco l o g i ca l
Civilization Construction was released, announcingthat Guangzhou will explore the establishment of
the Guangdong-Hong Kong-Macao Bay Area ("GBA")
carbon emission rights exchange.

October 28
Hong Kong Exchange launched Core Climate, a newinternational carbon market, dedicated to building aninternational voluntary carbon market.

November 11
The CBIRC issued the Notice on the Issuance of theStatistical System for Green Insurance Business.

November 3
The MEE published the Implementation Plan for
the Setting and Allocation of Total National Carbon
Emissions Trading Quotas for the Years 2021 and 2022
for solicitation of public comments.

December 12
The first carbon asset bond linked to carbon quota
trading proceeds in China was successfully issued on
the interbank market.

60

PRC Financial Regulation - Annual Report (2023)
Green Finance and Carbon Markets

2022 Regulatory Mainline Review

01

The "Five Pillars" to the green financedevelopment have been optimized withthe green finance regulatory framework
being perfected• In August, the PBOC included several foreign banks into
the list of financial institutions permitted to issue carbon
emission reduction support instruments, again with the goalof encouraging more financial resources to be invested ingreen and low-carbon fields and improving incentives andstrengthening restraints;

Since the top-level framework of green finance was established in2016 in the Guiding Opinions on Building a Green Finance System,• In November, the CBIRC issued the Notice on Issuing Green

China's green finance regulatory framework has been gradually

Insurance Business Statistics System, further emphasizing theput in place and refined. The People's Bank of China ("PBOC") has

significance of green insurance and establishing the importanceproposed "Five Pillars" of green finance development as the keyof green insurance from the perspective of business statistics ;breakthrough and basic focus for financial institutions to achieve"Carbon Peaking and Carbon Neutrality", namely, (i) improving• In December, the Ministry of Finance and the International

the standards of green finance, (ii) strengthening the supervision

Financial Reporting Standards Foundation (IFRS Foundation)and information disclosure requirements of financial institutions,signed a memorandum of understanding and decided to(iii) gradually improving incentives and constraint mechanism, (iv)establish an office of the International Sustainability Standards

continuing to refine and improve products and market of green

Board (ISSB) in Beijing, which is expected to complete by mid-finance , and (v) actively expanding international cooperation in

2023. It is generally believed that this implies China's intention

green finance. By now, policies and standards in furtherance of theto introduce ESG standards that are in line with international"Five Pillars" have been gradually put in place.

standards.

China's 14th Five-Year Plan for National Economic and Social

Since China proposed the goal of "Carbon Peaking and Carbon

Development (2021-2025) and Vision 2035 outlines the requirement

Neutrality", green finance legislation has been introduced and it isto "build a green development policy system and strengthen legal

likely that in the coming years more legislation will follow.

and policy safeguards for green development", and the 14th FiveYear Plan for Financial Standardization also proposes to "improve
the top-level design and planning of green finance and improve02

the green finance policy framework and incentive and constraint
mechanisms". 2022 is the second year of the implementation of the
14th Five-Year Plan, and regulators continue to introduce measures
aimed at improving green finance generally:

Climate finance pilot established;transition finance policies have built
momentum

One of the main challenges hindering the achievement of "Carbon• In April, the CSRC issued the Carbon Financial Products National

Peaking and Carbon Neutrality" target is the huge funding gap,

Standard, the first national industry standard in the field of

which requires market and financial instruments to encouragecarbon finance;

capital investment into related areas, in addition to the financial
assistance provided by the state. To this end, China continues to• In June, the CBIRC issued the Guidelines on Green Finance foractively promote climate finance and transition finance.

the Banking Industry and the Insurance Industry to strengthen
ESG compliance requirements (including, without limitation,

The MEE and other regulatory authorities issued the Notice on

disclosure requirements) for financial institutions, providing

Piloting Climate Finance at the end of 2021. In August 2022, theguidance for banks and insurance institutions to support

MEE announced the list of climate finance pilots, with a total of 23

green development and low-carbon transition projects, andapproved locations. These pilot cities or areas will aim to address

improving incentives and strengthening restraints in relation

climate change and, according to the characteristics of each pilot

to green finance;

site, curb investments into local high-carbon emitters and, instead,guide funds to be invested in climate-friendly projects, develop• In July, the Interbank Market Dealers Association led thecarbon finance, strengthen carbon accounting and information

Green Bond Standard Committee to issue the China Green

disclosure, enhance innovation in business model and financial

Bond Principles, which primarily unified domestic green

instruments, strengthen supporting policy, and build a nationalbond standards and brought these standards in line withclimate finance project bank. The MEE also stated in its 2022 Annualinternational standards;

61

PRC Financial Regulation - Annual Report (2023)
Green Finance and Carbon Markets

Report on China's Policies and Actions to Address Climate Change

most prominent, having been the first and now the most extensive.

that it will further strengthen its work on climate finance, including

The rules relating to green credits have been developing sincebuilding a platform to match funds to projects, strengthening

2007. In 2022, the Guidelines on Green Finance for the Banking andinformation disclosure, encouraging innovative financial instruments

Insurance Industries ("Guidelines on Green Finance") promulgatedand services, supporting the participation of financial institutions

by CBIRC refines the relevant requirements for the business of banks

and enterprises, and developing international cooperation.

and insurance institutions on the basis of the Green Credit Guidelines.
In addition, the China Green Bond Standard Committee under the

The current green and sustainable finance framework, including

National Association of Financial Market Institutional Investors has

climate finance, supports economic activities that meet the criteria

released the China Green Bond Principles and the CBIRC has issuedof being "green" and "low-carbon", and currently does not really

Circular on Issuing the Statistical System for Green Insurance Business,

support the financing of enterprises that are in the process ofboth of which provide policy support for the further development

transitioning from high-carbon to low-carbon operations. At theof green finance products. Financial institutions are also constantly

end of 2022, China took the lead in promoting the launch of thetrying to innovate green finance products. For example, in April

G20 Transition Finance Framework, which guides G20 members to2022, CPIC worked with commercial banks and local government

formulate specific policies for transition finance that are compatible

to develop an insurance product covering China’s first ecologicalwith their own circumstances. While the international consensus

value insurance for wetland carbon in Ningbo, combining green

on the framework of transition finance is broadly in place, China iscredit with green insurance; and in November 2022, Pacific Property

framing its own program to encourage practice under transition

Insurance Shanghai Branch developed the first carbon asset

finance scheme: the National Association of Financial Market

repurchase performance guarantee insurance in China.

Institutional Investors and the Shanghai Stock Exchange havereleased standards and specifications related to "transition financeFor carbon finance products, more policies have been introduced

bonds"; several financial institutions have released their guidelines

to support carbon finance pilots and carbon finance innovations.

on transition finance bonds and studied on innovative products of

The Circular on Launching the Pilot Program of Climate Investment

transition finance; and Huzhou City, Zhejiang Province has issued

and Financing encourages pilot regions to develop carbon finance;

the first local supportive policies and catalogs. In response to the

23 such pilot regions were identified in 2022. The Carbon Financeregulatory trend of standardization in financial sector, we expect

Products, promulgated by CSRC in April, as the first nationalthat relevant authorities will introduce transition finance policies

industry standard in carbon finance, provides guidelines for theand implementation plans that are in line with the principles

implementation of carbon finance products. The CBIRC gave a clearof the G20 Transition Finance Framework, which are similar tosignal in 2021 that it would support the development of carbon

climate investment and financing policies, to develop innovations

emission quota mortgage and pledge loans1, and many provinceson financial products and service on top of building financial

and cities have been issuing regulations related to these rights.

infrastructure.

Several financial institutions have launched innovative carbon asset
loan products. For example, Shanghai Rural Commercial Bank issued
the China’s first loan which the lender pledged its China Certified

03

Emission Reductions ("CCERs") future income right at the end of2021.

Rules relating to green finance products
got refined; carbon finance products to
be developed

However, the above-mentioned carbon financial products andderivatives are in the early stage of development, and carbon
financial products trading is yet not lunched in the National Carbon

Under the background of developing green finance and achieving

Market. Some regions have introduced carbon-related financial

the goal of "Carbon Peaking and Carbon Neutrality", in China, there is

products, such as carbon bonds, carbon forwards, carbon options,a growing number of green finance products, including green credit,

carbon funds, cross-border carbon asset repurchases, and carbon

green bonds, green insurance, green funds, green trusts and carbon

emission allowance mortgage and pledge loans, but the market

financial products, all of which are providing diversified investment

participation is limited and the development is uneven between

and financing tools for the market. Of these, green credits are theregions. Guangzhou Futures Exchange has dedicated itself to the

1. On 24 June 2021, the CBIRC website published the speech delivered by CBIRC Vice Chairman Zhou Liang at the promotion conference titled Focusing on "Carbon
Peaking and Carbon Neutrality" and Accelerating the Development of Green Finance, in which Zhou mentioned the development of carbon emission quota mortgage
and pledge loans. http://www.cbirc.gov.cn/cn/view/pages/ItemDetail.html?docId=992372&itemId=915&generaltype=062

PRC Financial Regulation - Annual Report (2023)
Green Finance and Carbon Markets

development of carbon futures products, but none have so farcontent and to improve information disclosure by reference tobeen launched. The trading rules governing the trading of carbon

international practices, guidelines or good practices.

financial products have still to be released. Added to that, thelegal nature of carbon assets is not yet clear which to some extent

The Guidelines on Green Finance do not apply to non-banking

restricts the development of carbon financial products. International

financial institutions under the supervision of the CBIRC. In respect

practice has shown that the carbon financial market and carbonof the CSRC, it has issued rules mainly to do with the governancetrading market are interdependent. Refining the trading rules ofand disclosure of listed companies and green financial products suchcarbon financial products, clarifying the attributes of carbon assets,

as green bonds, but the CSRC has not yet provided comprehensive

and the promotion of carbon financial products will enhance China’s

guidelines for compliance governance and disclosure of ESG for

carbon emissions trading market to become more developed andsecurities companies, futures companies, fund companies andsophisticated.

other institutions. Given that the "14th Five-Year" Development Plan
for Finance Standardization has laid down requirements for the04

financial sector in China to develop green finance policies, include
incentives and limitations covering green finance and generally

Financial institutions’ ESG compliancerequirements are tightened, incorporating
Governance (G) factors for the first time

have the financial sector play an important role in developing green
development, we expect this aspect of China’s financial sector todevelop strongly over the coming years.

In 2022, the CSRC and the CBIRC issued documents to urge financial
institutions to fulfill their ESG responsibilities. The Opinions of the05

China Securities Regulatory Commission on Accelerating the Promotionof High-Quality Development of the Industry of Publicly Offered Funds
provides guidance to the public fund sector on how they can best
serve the development of the green economy, including supportingFirst "performance period" of the
National Carbon Market finishes, andregulations are progressing steadily

green finance, ensuring responsible investing, making sure thatenvironmental impacts are included in investment projects andOn 16 July 2021, the National Carbon Market was officially launched.

summarizing the ESG investment rules. The Guidelines on GreenOn 31 December 2021, the first performance period of the National

Finance are issued on the basis of the Green Credit Guidelines but

Carbon Market was officially finishing, with an overall performance rate

expanded the scope of application to insurance institutions as well.

of carbon allowance in the National Carbon Market reaching 99.5%.

The amended Measures for the Regulatory Assessment of Corporate

Upon the completion of operation in the first performance period, theGovernance of Banking and Insurance Institutions aims to assist

operational framework of the National Carbon Market is essentiallybanking and insurance institutions improve the effectiveness ofin place. In 2022, regulators continued to address the shortcomings

their corporate governance.

revealed during the operation of the National Carbon Market byintroducing more regulations while the sufficient policy continuity andstability of the regulations are maintained.

The Guidelines on Green Finance incorporate "governance" factors
into green finance evaluation criteria, and for the first time
proposes comprehensive "Environmental, Social and Governance"

The regulators continued to strengthen their management on datarequirements, that is, banks and insurance institutions should

quality of carbon emissions and environmental information disclosure

incorporate environmental, social and governance requirements into

in 2022. Following the release of the Notice on the Supervision andtheir business management process and risk management system

Management of Data Quality in the National Carbon Emissions Tradingin their financing and investment business. They are also instructedMarket in October 2021, the MEE made public in March 2022 typicalto continuously improve applicable policies, regimes and processes.

cases of falsification of carbon emission data by some institutions.

In particular, bank and insurance institutions should develop ESG
assessment standards and set up risk lists (assessing differential• In April, the National Development and Reform Commission

risk rates for different risks). They must incorporate ESG factors in("NDRC"), the National Bureau of Statistics, the MEE and otherrisk assessment, due diligence, compliance, credit management

departments jointly issued the Implementation Plan on Accelerating

and post-investment management, and include governancethe Establishment of a Unified and Standardized Carbon Emissions

factors in internal control inspections, evaluation assessments andStatistics and Accounting System to accelerate the establishment

information disclosure. The Guidelines on Green Finance also requireof a unified and standardized carbon emissions statistics andbanks and insurance companies to disclose green finance-related

accounting system.

63

PRC Financial Regulation - Annual Report (2023)
Green Finance and Carbon Markets

06• In December, the MEE issued the Guidelines for Accounting andReporting of Greenhouse Gas Emissions by Enterprises (Power
Generation Facilities) to continue to improve the managementof data quality in relation to carbon emissions.

National and regional carbon markets
develop differently; integration ofcarbon markets to be watched• In terms of environmental information disclosure, according toPrior to the establishment of the National Carbon Market, there

the Measures for the Administration of Law-based Disclosure ofhave been regional carbon emissions trading markets since 2011 inEnvironmental Information by Enterprises, which came into effect

Beijing, Tianjin, Shanghai, Chongqing, Guangdong, Hubei, Shenzhen

in February 2022, various enterprises are required to discloseand Fujian, covering nearly 3,000 "key emission entities" in moreenvironmental information in accordance with the regulation,

than 20 industries, including electricity, steel and cement. According

including key pollutant discharging entities, enterprises subject

to data from the Guangzhou Emissions Exchange, as of 16 December

to compulsory cleaner production examination, eligible listed

2022, the cumulative turnover of carbon emission allowances in thecompanies and bond-issuing enterprises. The regulation

secondary markets of China’s eight regional carbon markets was

specifies detailed requirements on the content and time limits

530 million tones, amounting to a turnover of RMB13.7 billion. The

of disclosure and corresponding penalties for non-disclosure,regional carbon markets have their own special features:

untrue or inaccurate disclosure or disclosure in violation of• the National Carbon Market focuses on power generation

regulations.

industry, while the regional carbon markets cover otherindustries such as steel and cement, as well as power;

To better advance the work in next performance period, the MEE
launched a Consultation Paper on the Implementation Plan for Settingand Allocating the Total Amount of National Carbon Emission Trading• the National Carbon Market only has spot trading, while theAllowance for 2021 and 2022 in November 2022 ("Implementation

regional carbon markets also offer derivatives trading such as

Plan"). This Implementation Plan, compared with the Implementation

carbon options, carbon forwards and carbon swaps;

Plan for Setting and Allocating the Total Amount of National Carbon
Emission Trading Allowance (Power Generation Sector) for 2019

• the products traded in the National Carbon Market are only

and 2020, keeps the same policy, continues the process of freenational carbon emission allowances, while the products

carbon allowance allocation and allowance allocation based on

traded in the regional carbon markets include regional carbon

intensity control of carbon emission, and sets the corresponding

emission allowances, CCERs, while local versions of certified

carbon emission benchmark according to different institutionalemission reduction projects have been launched in the regional

categories. In the meantime, based on a comprehensive summary

carbon market, such as Fujian FFCER's and Guangdong PHCERs.

of the practical experience of the first performance period, theImplementation Plan has optimized the annual division of allowance

After the National Carbon Market went live, the regional carbon

allocation, correction factors, benchmark, and operation methods.

markets continued to operate with relatively high trading volumes,

We expect that the regulators will further amend and optimize thewhich means that they play an independent and indispensable rolerules in the second performance period. An orderly and effective

in reducing greenhouse gas emissions at the regional level.

regulatory system will provide strong support and assurance for the
The Interim Regulations on the Management of Carbon Emissions

further expansion and development of the carbon market.

Trading (Draft Amendment) issued by the MEE in 2021 ("Interim
Meanwhile, it is expected that the National Carbon Market will

Regulations") provides that "local carbon markets that existed before

continue to expand. In October 2022, the MEE announced thatthe implementation of this regulation shall be gradually incorporated

it would gradually expand the coverage of the National Carbon

into the National Carbon Market." However, given the differences andMarket, meaning more trading entities, products and trading

independent value of regional carbon markets and the National Carbon

methods will be covered. The cement, chemical, electrolytic

Market, as well as the price differences between products in different

aluminum and paper industries will be included in the National

carbon markets, the integration of regional carbon markets into the

Carbon Market during the "14th Five-Year Plan period", and the

National Carbon Market will be an extremely complex issue that will

cement industry is expected to be formally included in the carbon

require long-term planning and arrangements. How the finalized

trading system in 2023 at the earliest.

Interim Regulations deal with this remains to be seen.

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Green Finance and Carbon Markets

07

Carbon footprint standards gradually
established; carbon financial inclusion
schemes have become the trend

the context of actively launching carbon inclusion system across thecountry this year, we understand that follow-up policies and regulationsin the field of carbon print will be further introduced and modified,covering issues such as local and national standards of enterprises
and individual carbon footprint, the carbon footprint assessment

The concept of carbon footprint has now become well-establishedand certification system, the standard, frameworks and methods forin the international market and is the subject of regulatory control

environmental information disclosure.

in many jurisdictions. In China, carbon footprint is now listed as a
key construction target under China's "Carbon Peaking and Carbon
Neutrality" policy framework. In terms of product carbon footprint,

08

the State Council has proposed the development of a product carbon
footprint standard in the National Standardization System Development
Plan (2016-2020), and also explicitly proposed to explore theestablishment of a whole-life carbon footprint standard for key products

Judicial innovations guide the dispute
resolution of green finance to facilitate
the achievement of the goal of "Carbon
Peaking and Carbon Neutrality"

in the Action Plan for Carbon Peaking by 2030. In the past two years, theMinistry of Industry and Information Technology and the Ministry of

In July 2022, the Supreme People’s Court issued the Opinions on

Commerce have encouraged key industries such as photovoltaic andProviding Judicial Services and Protection to Accelerate the Construction offoreign trade to explore carbon footprint certification mechanism, anda Unified National Market ("Opinions"), supporting the establishment

the MEE guided various industry associations to issue group standardsof a unified national energy and ecological environment market. The

for carbon footprint assessment of products, including LED lighting,Opinions proposed to research and issue judicial policies on how theTV sets and microcomputers. There are, as yet, no national standards

courts could assist in achieving the goal of "Carbon Peaking and Carbon

affecting the operations of enterprises and lives of individuals, but someNeutrality"; proposed to properly adjudicate in cases involving trading

such standards have been set at the local level. For example, Suzhou'sof carbon emission allowances and certified emission reductions,Green Powers Carbon Neutral Promotion Center has taken the lead in

corporate environmental information disclosure, and disputes over

implementing a "digital carbon ledger" of emission reduction behaviors

green credit and green finance involving carbon elements, and help

based on carbon footprint data from the production and consumption

improve the mechanism of trading carbon emission rights; proposed toactivities of individuals and enterprises in the region. There are plans toimprove the rules for adjudicating disputes involving carbon emission

apply the digital carbon ledger for individuals to obtain social welfare,rights, water use rights, pollutant discharging rights and energy use

business and policy incentives, to create a model of carbon financial

rights trading. In addition, the Supreme People’s Court has explicitly

inclusion program in Suzhou and the Yangtze River Delta region.

supported the secured creditor’ right in security created over forest
carbon sink in accordance with the Interpretation of Several Issues

As an important innovation of carbon finance, carbon financial inclusion

Concerning the Application of Law to the Trial of Civil Disputes over Forest

has been implemented in many places in China. It enables bothResources, and has permitted the subscription of certified forest carbon

corporate entities and the general public to establish their own carbon

sinks by an obligor as an alternative for the obligor’s liability for damage

accounts, where behaviors reducing carbon emission reflected by theto the forest ecology and environment.

carbon footprint record can accumulate verifiable carbon credit points.
Verifiable carbon credit points can be exchanged for goods, services

In Fujian Province, for example, where forest carbon sink projects areor policy rights and interests, or even be traded as carbon assets. The

booming, the Fujian Provincial High People's Court issued working

idea is to establish incentives across society to reduce carbon emission.

guidelines in September 2022 on the compensation for damages

In 2022, the first market-based carbon financial inclusion system forin relation to forest carbon sinks in ecological and environmental

voluntary emission reduction has been launched in Suzhou Industrial

criminal cases, establishing a mechanism for measuring damages due

Park, and Shanghai, Shandong and other provinces and cities are also

to decrease of forest carbon sink and compensating on the same, theintending to launch their own local carbon financial inclusion schemes.

first of its kind in China, with the aim of solving the key issues in theidentification of forest carbon sink damages in local environmental

In addition to exploring emission reduction scenarios and developing

criminal cases in recent years. As green finance practices continue torelated methodologies, the implement and improvement of carbon

boom, it will be increasingly important to clarify the rules for dispute

financial inclusion scheme also relies on the setting-up of enterprises

resolution in judicial practice, and it is expected that more green

and individuals carbon footprint standards to provide data basis. In

finance-related cases and rules will emerge in 2023 to provide further
clarity for green finance-related disputes.

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Green Finance and Carbon Markets

2023 Regulatory Outlook01

ESG disclosure standards for financial
institutions are expected to be unified, andinternational standards and experiences
are likely to be adopted in due timeadvertising or misleading statements. Laws and regulations
including the Securities Investment Fund Law, the Interim Measuresfor Supervision and Administration of Private Investment Funds, theAnti-Unfair Competition Law and the Advertising Law provide legal
basis for regulatory authorities to impose punishment on "Green
Washing". However, there is no specific regulation focusing "GreenAt present, the only standards of information disclosure applicable

Washing" in green financial products. What will be required is an

to financial institutions are set out in the Guidelines for theoverall system of green finance to include what are and what are not

Environmental Information Disclosure of Financial Institutions

green financial products and, therefore, provides clear restrictions

published by the PBOC in July 2021, which is not a mandatoryon "Green Washing".

regulation financial institutions have to follow. There are no otherguidelines on information disclosure for financial institutions in

Such a system is taking shape. Standards covering green financial

terms of S (social) and G (governance) factors. With the growth of

products are gradually being introduced, following the launch ofgreen finance and the increased obligations on financial institutions

the "14th Five-Year" Plan for Financial Standardization in February

for ESG governance, we expect that the regulator and industry

2022. It is likely that more regulations will be issued to govern risk

associations will introduce more comprehensive ESG disclosure

management of green financial products.

guidelines or standards. Although the Guidelines on Green Finance
do not yet require bank and insurance institutions to make ESG

03

information disclosure, regulators have strongly indicated that they
will draw on international standards and experiences in the sorts of
information disclosure that they will expect of banks and financial
institutions. We expect that in time, both the regulatory standards

Interim administrative regulations oncarbon emissions trading are likely to
be issued to fill in the gap of high-level
legislationand financial institutions’ practices will gradually develop into a
unified ESG reporting standard for all financial services institutions.
In March 2021, the MEE issued the Interim Regulations for public
Added to this, the International Financial Reporting Standards

consultation, which focuses on building a scientific, standardized andFoundation (IFRS Foundation) signed a memorandum oforderly carbon emissions trading management system to promote

understanding with the Ministry of Finance at the end of 2022 to

the goal of "Carbon Peaking and Carbon Neutrality". The draft provides

establish an office of the International Sustainability Standards

provisions on the coverage of the carbon emission trading market, theBoard (ISSB) in Beijing, which is expected to be completed by mid-identification of key emission units, the allocation of allowances, the2023. The ISSB aspires to promote the emergence of a set of global

supervision of carbon emission data quality, the clearance of allowances

standards for ESG reporting. This is a clear indication that China

and the mechanism of trading operation. In July 2022, the State Council

intends to follow international standards when it comes to ESG

has included the Interim Regulations in its annual legislative work

reporting and governance.

plan, but the formal regulation has not yet been issued. At present,
the Measures for the Administration of Carbon Emission Trading (for trial

02

implementation), the Rules for the Administration of Carbon Emission
Registration (for trial implementation), and the Rules for the Administration"Green Washing" is capturing regulatory
authorities’ attention; green financestandards need to be refinedof Carbon Emission Settlement (for trial implementation), which mainly
regulate the activities related to carbon emission trading, are all
departmental rules with lower hierarchy of legal authority compared
to laws and administrative regulations. The Interim Regulations, an"Green Washing", the term given to activities of businesses such asadministrative regulation once promulgated by the State Council,

promoting false information and other camouflaged conducts toshould fill a long-standing gap in high-level legislation and provide

pretend they are achieving green and sustainable developments,

stronger institutional support for regulating carbon emissions trading

poses significant risks to both financial institutions and investors.

and related activities.

Regulators in various countries are stepping up their efforts tocurb such practices, and there have been several cases of financial

According to the MEE’s statement in the second half of 2022, the Interim

institutions being investigated for "Green Washing".

Regulations is expected to be formally introduced in 2023. At the sametime, relevant supporting policies and technical specifications will also

In China, "Green Washing" in practice is considered as false

be issued to further improve the system of cooperative supervision

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PRC Financial Regulation - Annual Report (2023)
Green Finance and Carbon Markets

05

and better prevent the risks of market operation, so as to promote
the standardized and orderly operation and healthy and sustainable
development of the national carbon emission trading market andprovide strong legal protection for the realization of China's "Carbon

The development of cross-border carbon
trading platform has attracted muchattention, with positive progress in the
GBA and the Hainan Carbon Center

Peaking and Carbon Neutrality" goal.
Although the Guangzhou Carbon Emissions Trading Center was04

briefly connected to the EU carbon emissions trading system

CCER filings are expected to restart assignals emergedin 2019, the relevant business has been suspended, and there
is currently no market practice of direct connection for carbon
allowance swap trading between China and overseas carbon
emissions trading markets. Foreign investors can open accounts
for carbon allowance trading in a few regional carbon emission

The CCER trading was previously a key complement to the carbon

rights exchanges that accept foreign entities to open accounts, butmarket. However, since 2017, the NDRC has held off on accepting filingthey cannot participate in national carbon market trading, and theapplications for CCER projects both because of "irregularities" in somedirect participation of foreign entities in the carbon market on-court

CCER projects and low overall trading volumes. Despite frequent signals

trading is restricted.

of the reopening of CCER project filing applications in 2022, there havebeen no applications for new CCER projects as yet.

The GBA has been attracting attention as a potential region thatcan link domestic and international carbon markets. In March 2022,

CCERs can be used to offset a portion of the clearance amount in

the Guangzhou Carbon Exchange and the Hong Kong Exchange

the performance of carbon allowance clearance, and approximately

announced that they would jointly explore the possibility of

32.7 million tones CCERs were used as carbon offsets in the firstcreating a voluntary emission reduction system applicable to theperformance period of the National Carbon Market. However, there is

GBA. On October 28, 2022 the Hong Kong Exchange announced thevery little current stock of CCERs in the market. As the expiry date of thelaunch of Core Climate, a new international carbon market platform

second performance period of the National Carbon Market approaches,for internationally certified carbon credit products. The platformthe need to restart the filing of CCER projects will become increasingly

is dedicated to connecting the international capital markets withurgent. On October 2022, the MEE stated that it would accelerate

climate-related products and opportunities in Hong Kong, thethe establishment of a voluntary greenhouse gas emissions trading

Mainland, Asia and the rest of the world. Following the launch of themarket and strive to launch a market that conforms to China's actual

foreign exchange pilot for carbon emissions trading in Shenzhen

circumstances and reflects China’s special features as soon as possible.

in 2014, Guangzhou also announced in 2022 that it will explore aThis was widely interpreted as a signal that the CCER would soon beforeign exchange pilot to allow foreign investors to participate inrestarted. In preparation for the re-launch, the regulators are revisingcarbon emissions trading in the GBA in foreign exchange or RMB, if

the Interim Measures for the Management of Voluntary Greenhouse Gas

they meet the conditions set by the GBA carbon emissions trading

Emission Reduction Trading (originally issued in 2012) to set up how

center.

the voluntary emission reduction trading market would work and therights and responsibilities of the participating parties, and to coordinate

There is also a proposal to build a new carbon market trading system

the carbon emission trading market and the voluntary emission

in the GBA, to be called Carbon Connect, to open up cross-border

reduction trading market. At the same time, they are also working

carbon trading channels and allow global investors to participate inon the regulations and rules that will support the Interim Measures,the Mainland carbon market.

including important supporting management systems and technicalspecifications such as project development guidelines, validation andOutside the GBA, Hainan emphasizes differentiated development

verification rules, registration and trading rules, and methodologies.

and focuses on the international market route to explore theIn addition, work is nearing completion on the establishment of thevoluntary carbon emission reduction market serving the Belt andvoluntary emission reduction registration system and trading system.

Road. In February 2022, the Hainan Carbon Center was approved
and formally established in Sanya in July. In December, the firstcross-border carbon transaction was successfully concluded in
Hainan Carbon Center, the underlying product is international
voluntary carbon emission reduction, the buyer and seller werean enterprise in Nanjing and an overseas institution, and Hainan

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PRC Financial Regulation - Annual Report (2023)
Green Finance and Carbon Markets

Carbon Center provided trade matching and witnessing services forthe transaction.
Cross-border carbon trading can supplement resource andgive further impetus to carbon trading market. Promoting theinterconnection between China's carbon trading market and theinternational carbon trading market is also the development trendof carbon trading. Based on the existing development, we expect
more institutional and practical exploration in cross-border carbon
trading in 2023.

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PRC Financial Regulation - Annual Report (2023)
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

Lily YanSam Chen

Kristy TangSam Wang

Partner, Fangda Partners
lily.yan@fangdalaw.com

Counsel, Fangda Partners
sam.chen@fangdalaw.com

Counsel, Fangda Partners
kristy.tang@fangdalaw.com

Counsel, Fangda Partners
sam.wang@fangdalaw.com

Xiaoye Zhao

Lawrence Zhu

Yao Zhang

Rong Fan

Counsel, Fangda Partners
xiaoye.zhao@fangdalaw.com

Counsel, Fangda Partners
lawrence.zhu@fangdalaw.com

Counsel, Fangda Partners
yao.zhang@fangdalaw.com

Fangda Partners

69

PRC Financial Regulation - Annual Report (2023)
Authors

Zihan Fang

Fangkun Hu

Ge Hu

Shiyun Li

Fangda Partners

Fangda Partners

Fangda Partners

Fangda Partners

Zhao Li

Janet Li

Wenbin Lian

Lara Liao

Fangda Partners

Fangda Partners

Fangda Partners

Fangda Partners

Olivia Lv

Cecilia Niu

Yunxiang Qiu

Alex Xiao

Fangda Partners

Fangda Partners

Fangda Partners

Fangda Partners

70PRC Financial Regulation - Annual Report (2023)
Authors

Yifei Yao

Veronica Yu

Joey Yu

Qifei Zhang

Fangda Partners

Fangda Partners

Fangda Partners

Fangda Partners

Rui Zhang

Hailey Zheng

Jazzy Zhou

Chunye Zhu

Fangda Partners

Fangda Partners

Fangda Partners

Fangda Partners

Molly Zhu

Maria Zhu

Fangda Partners

Fangda Partners

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