China Now – Regulatory Reform in the Financial Services Industry

Global Publication May 2018

On 27 April 2018, various financial regulators in China promulgated new measures further opening up the financial services industry to foreign investment, regulating non-financial entities to invest into financial institutions and tightening up control over the conduct of asset management business by financial institutions.

We set out in this briefing a summary of the key points in each of the new measures referred to above in the following three sections:

Section I: China further opens up its financial services industry to foreign investment

On 27 April 2018, the China Banking and Insurance Regulatory Commission (CBIRC) issued the Measures on Facilitating the Further Opening-up of Banking and Insurance Sectors (the Measures). The Measures largely echo the messages from the speech of Mr. Yi Gang (the new governor of People's Bank of China) on further opening up of China’s financial services industry at the Boao Forum for the Asia Annual Conference 2018 and set out the current legislation progress and the plan for future action in this respect.

We summarize below the major content of the Measures for your easy information:

Type of financial institutions Current legislation progress Plan for future action
Commercial banks
  • The Notice on Matters relating to the further Relaxation of control over Foreign-invested Banks’ Market Access was issued on 27 April 2018 by CBIRC (CBIRC Notice 16) (see below for further information).
  • A draft decision of CBIRC on abolishing and amending several regulations will be published for public consultation, under which the Measures on Equity Investment into Domestic Financial Institutions by Offshore Financial Institutions1 are proposed to be abolished. 
  • Restrictions on foreign ownership in domestic banks will be lifted;
  • Foreign banks will be allowed to set up bank branches and subsidiaries simultaneously;
  • The “one-year waiting period” required for foreign-invested banks to apply for Renminbi business will be lifted;
  • The threshold for a single RMB fixed-term deposit which a foreign bank’s branch may take from retail customers will be reduced from RMB 1million to RMB500,000;
  • A foreign bank’s onshore branches will be reviewed on a consolidated basis and the working capital requirements on foreign banks’ onshore branches will be adjusted; and
  • Foreign banks’ onshore branches will be allowed to conduct agency business for the issuance, acceptance and underwriting of government bonds.2
Other financial institutions A draft decision will be issued shortly for public consultation concerning the removal of the restrictions on foreign ownership in financial asset management companies.
  • Restrictions on foreign ownership in financial asset management companies will be lifted;
  • No foreign ownership restriction will apply to financial assets investment companies and wealth management companies newly set up by commercial banks; and
  • Trust business, financial leasing, auto finance, currency brokerage and consumer finance will be open to foreign investment.
Insurance companies The Notice on Expanding Business Scope of Foreign Invested Insurance Brokerage Companies  was issued on 27 April 2018 by CBIRC (CBIRC Notice 19) (see below for further information).
  • Restrictions on foreign ownership in life insurance companies will be to relaxed from 50 per cent to 51 per cent, and fully removed after three years;
  • The “two-year representative office’ requirement will no longer be required for setting up foreign-invested insurance companies in China; and
  • Qualified foreign investors will be allowed to invest in insurance agency and insurance loss adjustment business3.

CBIRC Notice 16: Further opening up market access by foreign-invested banks

Under CBIRC Notice 16, the permitted scope of business of foreign-invested banks is expanded with details as follows:

  • Foreign banks’ onshore branches, wholly foreign-invested banks and Sino-foreign joint venture banks (collectively, Foreign-invested Banks) are allowed to conduct agency business for the issuance, acceptance and underwriting of government bonds, and the underwriting business may also include the underwriting of bonds issued in China by foreign governments. No prior approval is required and the Foreign-invested Bank is only required to submit a report to CBIRC within 5 working days after commencement of the relevant business.
  • In the case where a foreign bank has multiple branches in China and the administrative branch (which refers to one of the branches performing the administrative function) has been approved to engage in Renminbi business and/or derivative business, the other branches may also engage in the same business based on the administrative branch’s authorisation with no need to apply for a separate permit. The administrative branch shall assess and ensure that the relevant branches are qualified to engage in the underlying business before giving the authorisation. Prior to the official commencement of such business, the relevant branch shall complete the preparation work and file a report to the local counterpart of CBIRC.
  • The requirements on the minimum working capital which a foreign bank shall allocate to its branches in China will be reviewed on a consolidated basis. As long as the total amount of the working capital that a foreign bank has allocated to all its branches in China has met the regulatory requirements, there will be no need for the foreign bank to allocate further working capital to any newly established branch and the working capital of the new branch may be allocated by an existing branch as authorised by the foreign bank.

CBIRC Notice 19: Foreign-invested insurance brokers now enjoy national treatment

According to the relevant commitments of China for accession to the WTO,foreign-invested insurance brokers were only allowed to provide insurance brokerage services in respect of large scale commercial risks, reinsurance, international marine, aviation, and transport insurance and related reinsurance. The CBIRC Notice 19, effective from 27 April 2018, has fully released such business scope limitation. Foreign-invested insurance brokers are allowed to compete with domestic insurance brokers on equal footing to engage in full categories of insurance brokerage services including:

  • working out insurance plan, selecting insurers and handling formalities for effecting the insurance for the policyholders;
  • assisting the insured or beneficiaries in insurance claims;
  • engaging in reinsurance brokerage business;
  • providing disaster prevention, loss prevention or risk assessment, risk management consulting services for clients; and
  • conducting other businesses permitted by the CBIRC.

According to CBIRC Notice 19, a qualified foreign-invested insurance broker shall apply for updating its business scope on its Insurance Operation Permit with the local counterpart of CBIRC so as to effect such business expansion. According to public sources, the local subsidiary of Willis Insurance Brokers in Shanghai has already obtained the first updated Insurance Operation Permit with the expanded business scope.

Section II: Guiding opinions are in place to regulate the investment into financial institutions by non-financial entities 

On 27 April 2018, the People’s Bank of China (PBOC), CBIRC and the China Security Regulatory Commission (CSRC) jointly issued the Guiding Opinions on Strengthening the Management on Investment into Financial Institutions by Non-financial Entities (the Opinions). The Opinions set out guidelines on the requirements applicable to the investment by non-financial entities (Non-FIs) into financial institutions (FIs) in terms of, inter alia, shareholders’ qualification, source of funds for investment, corporate governance and related party transactions in order to avoid improper transfer of interest between FIs and Non-FIs and cross-market pass-through of risks.   

We summarise below the major requirements as set out in the Opinions for your information:

Stringent market entry requirements

Generally speaking, the major shareholder4 and the controlling shareholder5 of a FI shall have solid capital capability, good management and corporate governance, an appropriate debt/asset and leverage ratio and a clean shareholding structure.

Under the Opinions, for a Non-FI to qualify as a controlling shareholder of a FI, it must satisfy the following in-principle requirements:

  • have an outstanding core business and a sustainable business prospect;
  • be financially strong and having a sustainable funding capability, and in more specific terms, (i) being profitable for the past three consecutive accounting years, (ii) its year-end net assets after allocation representing 40 per cent of its total assets, and (iii) the balance of its equity investment not exceeding 40 per cent of its net assets;
  • have a compliant corporate governance, a simple and clear organization structure and a transparent ownership structure; and
  • have management capability meeting applicable standards and be equipped with qualified professionals in the financial sector.

A Non-FI is prohibited from becoming a controlling shareholder of a FI for 5 years if it bears significant liabilities in the operational failure or material misconduct of a FI that the Non-FI has invested. A Non-FI would also be regarded as unqualified to invest into a FI in any of the following circumstances:

  • deviates from the needs of its core business and enters into the FI industry without justifiable purpose;
  • is weak in risk management;
  • conducts high leverage investment;
  • has a complex and opaque shareholding structure involving too many affiliates;
  • conducts frequent and abnormal related party transactions; and

    abuses its market monopoly position or technology advantages and conducts unfair completion in the market.

In addition, the Opinions re-emphasize the reporting requirements on the FIs where there is an equity pledge, equity transfer or auction sale involving the equity interest in a FI and the qualification requirements on the in-coming major/controlling shareholder of the FI as a result of any of these transactions. In particular, the regulatory authority may, for the sake of prudent administration, impose limits on the percentage of the equity interest in a Non-FI on which any of its shareholders, its affiliates and concerted parties may set up pledge.

Requirements on source of fund for the investment

A Non-FI shall invest into a FI by using its own funds and the source of funds shall be true and legitimate. Investments using non-self-owned funds such as entrusted funds, indebted funds or “actual debts disguised as equity” are explicitly prohibited.

The Opinions make it very clear that the ownership structure of a FI will be examined up to the de facto controller and ultimate beneficiary(ies). The conduct of concerted parties and ultimate beneficiary(ies) is strictly regulated. It is expressly prohibited to make an investment in a FI by way of a nominee structure or in any other noncompliant manner.

Requirements on corporate governance

An investment into a FI is required to be structured in a simple and transparent manner and in particular, amongst other requirements,

  • Cross-shareholding arrangement between a Non-FI and the FI into which the former has invested as a controlling shareholder, is strictly prohibited;
  • Appropriate board decision-making mechanism and an effective system balancing the powers of decision-making, execution and supervision shall be established by a FI to avoid the majority shareholder or de facto controller from abusing its power; and
  • A senior management personnel of a Non-FI shareholder shall not hold a senior management position concurrently in the FI into which the Non-FI has invested, nor shall senior management personnel concurrently hold positions in different FIs where the same Non-FI is the controlling shareholder of both or all.

Requirements on related party transactions

Transactions between a Non-FI and the FI into which the former has invested are strictly regulated.

Related party transactions must comply with the applicable laws and regulations and accounting rules, follow the “at arm’s length” principle and be reported to the regulatory authorities on a regular basis. Significant related party transactions must be reported on a case-by-case basis.

A Non-FI shall, upon becoming a major shareholder or the controlling shareholder of a FI, submit an undertaking letter to the regulatory authority stating that it has no related-party relationship with any other existing shareholders of the FI other than its affiliates, nor will it conduct any improper related party transactions.

FIs are required to follow the “look-through” principle in managing its related party transactions and shall regard each of its major shareholders and their respective controlling shareholders, actual controllers, related parties, concerted parties and ultimate beneficiaries as related parties of the FI concerned.  

The Opinions emphasize that the regulatory authorities will utilize big data and other creative supervisory methods in the administration of Non-FIs’ investment into FIs in order to ensure a dynamic and well-governed development of the financial services market of China. Any new investment into the FI industry by Non-FIs shall strictly comply with the requirements under the Opinions. With regard to any existing investment of Non-FIs into FIs by using non-self-owned funds or via noncompliant related party transactions, the regulatory authorities may require the relevant parties to rectify or, when deemed necessary, require the Non-FI to exit from its investment.

Prior to the issuance of the Opinions, private capital already entered certain sectors of the FI industry and the Opinions aim to address the noncompliance and risks which have arisen from the market practice. The competent regulatory authority governing each relevant sector (e.g. banking, insurance and asset management) of the FI industry is expected to promulgate detailed rules to implement the requirements under the Opinions.

Section III: The conduct of assets management business is subject to a tightened up control by the financial regulators

On 27 April 2018, PBOC, CBIRC, CSRC and the State Administration of Foreign Exchange (collectively, Financial Regulators), jointly issued the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (the Asset Management Guidelines). Although the asset management business has already been regulated by individual Financial Regulators for years, this is the first time that all Financial Regulators have jointly issued guideline rules aiming to standardise the asset management business in China and thereby prevent regulatory arbitrage.

After the issuance of the Asset Management Guidelines, Financial Regulators involved are expected to issue detailed rules to further implement the Asset Management Guidelines. The Asset Management Guidelines also provide a transition period from the issuance date until the end of 2020 (Transition Period), during which, for those existing asset management products (the AM Products) which have been issued prior to the issuance of the Asset Management Guidelines and invested into unmatured assets, the relevant FIs are permitted to issue connected AM Products in order to maintain liquidity. Any new AM Products after the issuance date of the Asset Management Guidelines must strictly follow requirements under the Asset Management Guidelines. Once the Transition Period expires, except in very limited circumstance, no AM Product which is not in line with the Asset Management Guidelines can continue to exist. 

We summarise in this briefing some major points of the Asset Management Guidelines which may be of interest.

Asset management business

Asset management business is defined as financial services provided by FIs (including but not limited to banks, trust companies, securities firms, fund houses, insurance asset management institutions, and financial asset investment companies), which are entrusted by investors to invest and manage the entrusted assets of the investors. As a regulated business, unless otherwise permitted (e.g. issuance and distribution of privately raised funds), Non-FIs are not permitted to engage in asset management business.

Asset management business is an off-balance sheet business, and thus no FI is permitted to guarantee the principal or return when conducting the asset management business. When there is any repayment difficulty, FIs are not allowed to advance funds for repayment purpose.

AM Products

According to the Asset Management Guidelines, AM Products include (but are not limited to) the following products denominated either in Renminbi or foreign currencies:

  • non-principal guaranteed wealth management products of banks;
  • trust schemes; and
  • AM Products issued by securities firms, fund management companies, futures companies, and their subsidiaries, insurance asset management institutions, and financial asset investment companies.

Products relating to securitisation business or pension products do not fall within the scope of AM Products under the Asset Management Guidelines.

AM Products can be divided into publicly raised asset management products and privately raised asset management products. Also, according to investment natures, AM Products can be divided into  (i) fixed income AM Products (80 per cent or more being invested into deposits and bonds etc.), (ii) equity AM Products (80 per cent or more being invested into stocks and unlisted equities etc.), (iii) commodity and financial derivative AM Products (80 per cent or more being invested into commodities and financial derivatives), and (iv) mixed AM Products (being invested into any or all three types of AM Products above with the investment ratio in each type of AM Products being lower than 80 per cent).

When managing the AM Products, FIs are required to expressly specify the type of AM Products which cannot be changed during the period between the establishment date and the mature date of the AM Products.


There are two types of investors under the Asset Management Guidelines, including unspecified public investors and qualified investors. Investors may not use non-proprietary funds (such as external loans or funds raised through issued bonds etc.) to invest into AM Products.

Compared with unspecified public investors, qualified investors should have corresponding risk identification capability and bear higher risk tolerance capability. The Asset Management Guidelines provide the standards for such qualified investors (including both individuals and entities) as follows:

  • any individuals having investment experience for at least 2 years, and satisfying any of the following requirements: (i) family financial net assets being no less than RMB 3 million, (ii) family financial assets being no less than RMB 5 million; or (iii) average annual income of an individual being no less than RMB 400,000 in the latest 3 years;
  • any legal entity having net assets of no less than RMB 10 million at the end of the preceding year; and
  • any other qualified investors recognised by the Financial Regulators.

Permitted and restrictive investment

Publicly raised AM Products can invest into (i) standardised debts assets, (ii) listed stocks, and (iii) commodities and financial derivatives. Unless otherwise permitted, publicly raised AM Products cannot invest in unlisted enterprise equities.

Privately raised AM Products can invest in a much wider scope of target assets, including: (i) both standardised and unstandardised debts assets, (ii) listed or exchange traded stocks, (iii) unlisted enterprise equities (including convertible bonds) and the relevant income rights.

AM Products cannot invest into banks’ credit assets directly, and restriction on investment into income rights over the banks’ credit assets will be regulated by the Financial Regulators separately.

Business separation

FIs, whose main business does not include asset management business, must either establish a subsidiary or (if it is unable to set up a subsidiary) to establish a separate department to specifically engage in asset management business. FIs shall comply with the following business separation principles:

  • separation of asset management business from other businesses;
  • separation of AM Products from other financial products distributed;
  • separation of one AM Product from the other; and
  • separation of practice guidelines between asset management business and other businesses.

In addition, FIs are not allowed to commit to provide encumbrance on or repurchase, directly or indirectly, explicitly or impliedly, non-standardised debt assets or equity assets which are invested by the AM Products.

No more guaranteed return of AM Products

The Asset Management Guidelines expressly prohibit the following the guaranteed return of AM Products, which may subject the breaching FIs to penalties:

  • issuers or managers of AM Products determine the net value not based on the genuine and fair principle and guarantee the principals and returns of AM Products;
  • the issuance of AM Products is on rolling basis, which causes the transfer of principals, returns and risks among various investors, and thus achieves the guarantee on principals and returns of AM Products; and
  • when AM Products are unable to effect repayment or are facing repayment difficulty, issuers or managers of the relevant AM Products privately, or entrust other entities to, raise funds for repayment purpose.

Restrictions on multiple layers of investment structure

A FI is generally permitted to invest its AM Products into another FI’s AM Products. However, the AM Management Guidelines expressly prohibit one FI from providing “channel services” for AM Products of the other FI, which may enable such other FI to circumvent the relevant investment restrictions.

AM Products are generally permitted to invest into another layer of AM Products. However, such invested AM Products can only further invest into mutual funds, i.e. publicly raised securities investment funds.


The AM Management Guidelines for the first time set out requirements for robo-advisory services, which can only be provided by qualified investment advisors.

When conducting asset management business by using robo-advisors, FIs shall also comply with the relevant requirements contained in the Asset Management Guidelines relating to appropriateness of investors, investment scope, disclosure and risk separation, etc., and must file/report requisite information to the Financial Regulators, which may include but is not limited to key parameters of robo-advisory models, main logic of asset allocation, robo-managed accounts separately set up for investors, disclosure on inherent defects and risks of robo arithmetic, etc. Non-FIs are not permitted to conduct asset management business by using robo-advisors.



Under these measures a single foreign shareholder shall not hold more than 20 per cent equity interest in a domestic financial institution and the aggregate foreign shareholding in a domestic financial institution shall not exceed 25 per cent.


Some of the relaxation methods hereof above have already been addressed in CBIRC Notice 16.


This relaxation method was addressed in the speech of Mr Yi Gang at the Boao Forum but not set out in the Measures.


Under the Opinions, a major shareholder refers to a shareholder holding more than 5 per cent equity interest in a FI.


Under the Opinions, a controlling shareholder refers to a shareholder holding over 50 per cent equity interest in a FI, or although holding less than 50 per cent equity interest but having an actual control on the FI.



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