New legislative liberalisation on Chinese financial services

Publication | July 2018

Introduction

In the past two months, the China Banking and Insurance Regulatory Commission (CBIRC) has continuously issued regulations to further liberalise the restrictions in the financial services industry and to implement CBIRC’s financial reform roadmap as set out in the Measures on Facilitating the Further Opening-up of Banking and Insurance Sectors issued on 27 April 2018.

Insurance

Changes for the insurance sector are summarized in the table below:

Name of the regulations concerned Effective date Proposed changes/changes
1. Suggested amendments to the Regulations of the PRC on the Administration of Foreign-Invested Insurance Companies (Draft) (对《关于修改<中华人民共和国外资保险公司管理条例>的决定(建议稿)》公开征求意见) For public consultation
  • Remove the “2-year representative office” requirement for the establishment of a foreign-invested insurance company (FIE Insurer)
2. Implementation measures of the Regulations of the PRC on the Administration of Foreign-Invested Insurance Companies (Draft) (《中华人民共和国外资保险公司管理条例实施细则》征求意见稿) For public consultation
  • Foreign direct investment cap on life insurance companies is relaxed from 50 per cent to 51 per cent
  • Remove the “2-year representative office” requirement for the establishment of an FIE Insurer
  • FIE Insurers are now subject to national treatment as those of domestic insurance companies when opening branch offices.
  • Exit of the major foreign shareholder of an FIE Insurer will be subject to certain restrictions (e.g. a five year lock-up period, and a new capital supplement requirement in case the major foreign shareholder intends to reduce its equity percentage or exit the market so as to ensure that such FIE Insurer meets the solvency requirements)
3. CBIRC Notice on Permitting Foreign Investor’s Participation in the PRC Insurance Agency Business (《中国银保监会关于允许境外投资者来华经营保险代理业务的通知》) 19 June 2018
  • A qualified foreign professional insurance agency that has engaged in insurance agency business for at least 3 years or an FIE Insurer which has been open for business for at least 3 years, is able to establish a professional insurance agency firm (PIA) in China and engage in insurance agency business – this is deemed to be a full liberalization of the foreign shareholding restriction imposed on PIAs. Previously, unless established through the CEPA regime, a foreign shareholding in a PIA could not exceed 25 per cent
  • Such FIE PIA shall apply for a PIA licence with CBIRC. It will be subject to the same treatment as applied to domestic PIAs.
4. CBIRC Notice on Permitting Foreign Investor’s Participation in the PRC Insurance Loss Adjustment Business (《中国银保监会关于允许境外投资者来华经营保险公估业务的通知》) 19 June 2018
  • A qualified foreign insurance loss adjuster that has engaged in insurance loss adjustment business for at least 3 years or an FIE Insurer which has been open for business for at least 3 years, is able to establish an insurance loss adjuster in China and engage in insurance loss adjustment business in China - this is deemed to be a full liberalization of the foreign shareholding restriction imposed on FIE insurance loss adjustors
  • Such FIE insurance loss adjuster shall be subject to the relevant regulatory procedures with CBIRC (including the business filing process).

Asset management

On 27 June 2018, the China Security Regulatory Commission (the CSRC) issued the Interim Provisions for Securities and Funds Operators to Use Securities Investment Consulting Services from Hong Kong Institutions (the Interim Provisions), which took effect on 1 July 2018. These Interim Provisions enable further cooperation between professional financial service providers in both mainland China and Hong Kong markets.

Since 2016, CSRC has allowed qualified HK institutions to issue research reports to PRC investors on HK stocks in the name of its PRC affiliates (e.g. its securities joint venture subsidiary, its securities investment advisory joint venture subsidiary, or its parent company in China). The Interim Provisions introduce two new types of services which can be offered by qualified HK institutions to PRC investors relating to the HK stock market under the relevant mainland-Hong Kong Stock Connect scheme (Southbound Investment):

  • A qualified HK institution is permitted to issue the advisory research report relating to the Southbound Investment in its own name and authorise PRC securities companies or their subsidiaries to forward the report to their clients (Research Report Service); and
  • A qualified HK institution is permitted to be engaged by PRC securities companies or fund managers to provide investment advisory services relating to the Southbound Investment made by the securities investment funds managed by such PRC securities companies or fund managers (Investment Advisory Service).

In order to become a qualified institution to provide the above services, the HK institutions, amongst others, need to obtain the requisite licence/permit issued by the Securities and Futures Commission in Hong Kong. Also, where a qualified HK institution is being engaged to provide the Investment Advisory Service it must file its basic information with the China Asset Management Association.

The Chinese Government has allowed qualified institutional investors to make investments in overseas financial products for more than a decade. These existing regimes more or less have permitted qualified overseas financial services providers to offer investment advisory services to qualified domestic institutional investors. However, the Interim Provisions add a further dimension, qualified individuals may also become investors in HK stocks falling within the Southbound Investment. Given this the Interim Provisions may be deemed as a big step forward for qualified foreign financial services providers who offer the foregoing mentioned services to PRC individual investors.


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Lynn Yang

Lynn Yang

Shanghai
Ai Tong

Ai Tong

Shanghai