27 March 2017
CBRC Issues Circular on Investment Banking Business of Foreign-Invested Banks
The China Banking Regulatory Commission (CBRC) recently issued the Circular on Matters Concerning Certain Business Undertaken by Foreign-Invested Banks, clearly stating that locally incorporated foreign-invested banks are allowed to invest in domestic banking financial institutions (see details in Chinese).
Before 2006, foreign-invested banks in China mostly operated as branch offices and did not have the status of investment banking financial institutions. In 2006, some of them became locally incorporated, but they were small in scale and their comprehensive management capability was still in a preliminary stage. They did not have the capabilities of investment banking financial institutions. For this reason, the investment banking financial institutions of foreign-invested banks in China mostly conducted this business through their offshore parent banks. After nearly a decade, locally incorporated foreign-invested banks have gradually strengthened their business development foundation in China and have acquired considerable capabilities in consolidated management. Accordingly, the CBRC clarified its regulatory policies for re-investment by locally incorporated foreign-invested banks. In future, on the premise of compliance with existing laws and regulations, foreign-invested banks may choose to invest in domestic banking financial institutions through their offshore parent banks or through locally incorporated foreign-invested banks.
According to the Circular, locally incorporated foreign-invested banks may provide comprehensive financial services to Chinese enterprises in offshore bond issuance, listing, merger and acquisition, and financing through internal co-operation with their parent bank groups. They may also underwrite treasury bonds and offer financial advisory services. Most custodian services may be undertaken without CBRC’s administrative pre-approval and only need to be reported to the banking regulator afterwards.
By undertaking internal cross-border co-operation through its parent bank group or associated banks, a foreign-invested bank in China may provide its parent bank group with services such as routine maintenance of customer relations, cross-border co-operation, communication and liaison, and assist the offshore parent bank group or associated banks in providing different financial products and services to Chinese-funded enterprises both onshore and offshore, said the CBRC. The issuance of the Circular will help foreign-invested banks better leverage their leading edge in global services in order to play a more active role in the Belt and Road Initiative, in supporting Chinese-funded enterprises in “going out”, as well as in China’s economic restructuring.
By the end of last year, foreign-invested banks had set up 39 locally-incorporated entities (with 315 branch offices), 121 local subsidiaries and 166 representative offices in China. A total of 1,031 foreign-invested business institutions were operating in 70 Chinese cities.