CBIRC issued a draft decision to continue the opening up of the financial services industry

On 8 June 2018, China Banking and Insurance Regulatory Commission (CBIRC) published on its website the draft Decision of CBIRC on the Abolishment and Amendment of certain Regulations (Draft Decision) for public consultation. This represents a further step taken by the Chinese government to lift foreign shareholding 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 on 27 April 2018 (please refer to our previous briefing related thereto: http://www.nortonrosefulbright.com/knowledge/publications/167203/china-now-regulatory-reform-in-the-financial-services-industry). If the Draft Decision is officially promulgated as is, foreign investors may make investment in domestic banks and financial asset management companies without being subject to shareholding restrictions any more.

Under the Draft Decision, the following regulations issued by China Banking Regulatory Commission (the predecessor of CBIRC regulating China’s banking sector) are to be abolished or amended:

The Draft Decision also clarifies that based on the principle of national treatment, foreign investment into Chinese-funded commercial banks or small and medium-sized rural financial institutions will not change the classification of the target commercial banks/or rural financial institutions, which shall continue to be governed by the regulations applicable to them prior to the foreign investment. According to CBIRC, this is intended to provide foreign investors with a desirable policy predictability when making investment into China’s financial services sector, to create a unified, fair and transparent ruling system for both foreign and Chinese investors and to retain the sustainability and consistency of China’s financial regulatory regime.

Notwithstanding the liberalisation of shareholding restrictions as mentioned above, the Draft Decision makes it clear that when making investment into China’s financial institutions, foreign investors shall not only satisfy the requirements of financial prudent management (which are more related to the substantial requirements on qualification and suitability of foreign investors) but also comply with China’s basic laws and regulations governing foreign investment in general. China has been in the process of establishing and reforming its basic legal system applicable to foreign investment, a big achievement of which includes the introduction and implementation of the competition law regime. The national security review regime is still in its infancy - noting in particular that the current rules on national security review expressly provide that the national security review regime of foreign investment in financial institutions shall be subject to separate laws and regulations which have yet to be promulgated. In addition, it is worthwhile watching where the draft Foreign Investment Law will land eventually.