Do senior bank staff, including non-executive directors, have to be registered with your national regulatory authority?
If your national regulatory authority requires registration of senior bank staff what are the requirements?
The major regulations in place are the Supervisory Law on Banking Industry (Banking Supervisory Law) issued by the Standing Committee of China's National People's Congress in 2003 (amended in 2006) and the Administrative Measures on the Qualifications and Appointment of the Directors (Council Members) and Senior Management Personnel of Banking Financial Institutions issued by the China Banking Regulatory Commission (CBRC) in 2013 (collectively, the Qualifications Measures), and the Implementation Measures for the Administrative Licensing Matters of Foreign-Invested Banks issued by CBRC in 2015 and the Implementation Measures for the Administrative Licensing Matters of Domestic-Invested Commercial Banks issued by CBRC in 2013 and amended in 2015 (collectively, the Implementation Measures).
According to the Implementation Measures, the appointment of directors or senior management personnel of a bank is subject to the approval of, or filing with the CBRC or its local counterparts depending on the seniority of the person concerned. The qualification requirements for different members of the senior management vary. The CBRC approval and qualification requirements apply to both domestic and foreign-invested banks.
In general, appointments of senior bank staff of foreign-invested banks and their branches are subject to the following requirements:
- the appointments of chairmen and vice-chairmen of the board, presidents/chief executive officers, directors, secretaries of the board, vice-presidents, general managers and vice-general managers, assistant presidents, chief operating officers, chief risk officers, chief finance officers, chief information/technology officers, persons-in-charge of internal auditing, persons-in-charge of compliance of (i) wholly foreign-owned banks or (ii) Sino-foreign joint venture banks, which are directly regulated by central CBRC, are subject to CBRC approval.
- the appointments of chairmen of the board, presidents/chief executive officers and general managers of (i) wholly foreign-owned banks or (ii) Sino-foreign joint venture banks, which are not directly regulated by central CBRC, are subject to initial review of local counterparts of CBRC and final approval from central CBRC, unless these senior bank staff were for the first time appointed when the relevant banks were registered and approved to start business, in which circumstance the appointments of these staff may be approved by local counterparts of CBRC
- all other senior bank staff of wholly foreign-owned banks and Sino-foreign joint venture banks (including their locally incorporated branches), and branches of foreign banks are generally speaking only subject to the approval of local counterparts of CBRC.
Since 2016, CBRC has requested banks to establish a position for general counsel of a bank. A bank may discretionarily decide if the general counsel position falls within the scope of its senior bank staff; and if decided to be so, the general counsel shall be subject to the relevant qualification requirements and his/her appointments shall be subject to the relevant CBRC approval.
The CBRC or its relevant local counterpart shall decide whether or not to grant approval within a certain period of time (usually 30 days) after receiving the application.
Is there legislation specific to the banking sector that provides for penalties to be levied against senior staff for mis-managing a bank?
Yes, senior bank staff may be held liable for mismanaging a bank. While several different laws and regulations will apply, three of the most significant pieces of legislation are the Qualifications Measures, the Banking Supervisory Law, and the Administrative Penalties Measures issued by CBRC in 2015.
Generally speaking, directors, senior management personnel and other senior staff could be subject to penalties in a number of circumstances: including, inter alia:
- the bank violates laws and regulations;
- the bank suffers heavy losses or commits serious financial crimes as a result of inadequate or unsound internal management or inadequate control systems;
- the bank violates the rules of prudent operation, resulting in heavy losses or serious financial crimes;
- the bank submits statements, reports and other documents or data that are false or conceal material facts to the regulatory authority; and
- the bank fails to submit or disclose required information to the regulatory authority, and/or refuses to make corrections despite written requests from the regulatory authority.
Depending on the severity of the misconduct and their consequences, the penalties imposed on a bank's senior management may include:
- disciplinary sanctions given by the bank;
- disciplinary warnings given by CBRC and a fine between RMB 50,000 and RMB 500,000, if the act committed is not serious enough to constitute a crime;
- a potential monetary fine exceeding RMB 500,000, if the act committed is deemed as serious;
- disqualification from taking on any senior management position in the banking industry for a specific period of time or for life;
- prohibition from working in the banking industry for a specific period of time or for life; and
- criminal liabilities where the act constitutes a crime.
There are also other specific regulations applicable to directors and senior staff in the case of mismanagement. For example, the Administrative Measures for Associated Transactions Between Commercial Banks, Insiders and Shareholders (issued by CBRC in 2004) impose penalties for misconduct in respect of connected transactions.
What is the maximum amount the regulator can fine an individual?
As mentioned in question 3 above, the amount of administrative penalties that may be imposed on directors or senior bank staff could exceed RMB 500,000. Also, it is important to note that the monetary penalties imposed under any criminal sanction could be much larger.
Is there legislation in place that requires banks to have in place remuneration policies and practices that are consistent with effective risk management?
Yes. The two major regulations in place are the Supervisory Guidelines on Moderate Remuneration Scheme of Commercial Banks and the Guidelines on Corporate Governance of Commercial Banks (collectively, the Remuneration Guidelines), which were issued by CBRC in 2010 and 2013, respectively.
According to the Remuneration Guidelines, one principle is that remuneration levels must be compatible to the operational performance and take the costs of risks into consideration. Generally speaking, determination on basic remuneration and performance remuneration must take into consideration and reflect various types of risks.
In respect of senior management personnel and employees whose decisions have a significant impact on the risks borne by the bank, the payment of certain portions of their performance remuneration must be deferred by several years.
Is there any legislation planned in your jurisdiction that will strengthen the accountability of senior bank staff?
CBRC has already issued several regulations in China to strengthen the accountability of bank staff (including senior bank staff). Senior bank staff, who are in breach of statutory requirements or articles of association of the banks in which they serve may be held accountable.
In 2013, CBRC issued the Interim Measures on the Administration of Works of Accountability for Cases involved by Banking Financial Institutions (the Accountability Measures) which apply to bank staff (including senior staff) who have committed misconduct causing losses to banks or to the funds of banks' clients and such misconduct may have constituted a criminal offence. Most recently, CBRC issued the Circular on Effectively Making up Regulatory Weakness and Enhancing Regulatory Efficiency and Effectiveness in April 2017 which emphasize that bank staff (including senior staff) are subject to stringent administrative penalties for non-compliant conduct.
The level of liability to which a bank staff member is exposed to is subject to various factors such as the seriousness of their activities, the amounts involved and the losses incurred.