According to the Circular, FI Banks can now engage in the following businesses without prior CBRC approval. Instead, FI Banks are only required to report to CBRC within five days upon commencement of the relevant business mentioned below, and remain subject to the administrative approval of other regulatory authorities where applicable.
Underwriting of treasury bonds
Underwriting of treasury bonds used to be subject to approvals of both the Ministry of Finance (MOF) and CBRC. From late 2014, MOF reformed its selection standards on underwriters and announced a list of financial institutions which were regarded by MOF as qualified to underwrite treasury bonds. This list is effective for three years from 2015 to 2017. We understand that only three FI Banks are included in the MOF’s list; they are HSBC Bank (China) Company Limited, Standard Chartered Bank (China) Limited and JP Morgan Chase Bank (China) Company Limited.
Under the Circular, CBRC approval is no longer required for an FI Bank (which in this context does not include any onshore branch of a foreign bank) to conduct the business of treasury bonds underwriting. This will obviously make the regulatory process simpler if an FI Bank intends to conduct business in this arena. The Circular does not touch upon FI Banks’ conduct of local government bonds underwriting business, which we believe will remain subject to CBRC approval.
For a long time, only provision of custodian services to (i) qualified domestic institutional investors for their outbound investments and (ii) mutual/private securities investment funds (collectively, Regulated Custodian Services) is expressly required to be subject to the approval of CBRC. CBRC was silent on whether or not its approval is required when banks (including FI Banks) conduct other types of custodian services.
The Circular now makes it clear that FI Banks may conduct non-Regulated Custodian Services without CBRC prior approval. CBRC can of course promulgate new rules to reshape the scope of the Regulated Custodian Services but we would not expect the scope to be enlarged given CBRC’s intention of relaxing regulatory control over such services.
Financial advisory etc. consultancy business
Under China’s legal regime, Chinese banks (including FI Banks) may only conduct traditional banking business (e.g. deposit-taking, providing loans). Therefore, the consultancy business of banks in China shall be the consultancy services associated with traditional banking business only.
In the Circular, CBRC for the first time explicitly permits FI Banks to conduct financial advisory and other consultancy business. This means that a FI Bank may conduct consultancy business beyond that which is only related to traditional banking. However, the Circular does not define what “financial advisory and other consultancy business” exactly covers. The vagueness has caused different interpretations in the market. One interpretation is that CBRC may be intended to allow FI Banks to conduct the “investment banking” business, e.g. financial advisory services for initial public offering, new share issuance and bond issuance. Another interpretation is that the “financial advisory and consultancy business” is meant to refer to ordinary consultancy business only in order to be consistent with CBRC’s permission for FI Banks to collaborate with their overseas affiliates as mentioned in the section immediately below. Further clarification from CBRC is expected.