CBRC Issued Notification on Regulating Bank-Trust Cooperation Business

 

In order to facilitate the healthy development of bank-trust cooperation business and guard against financial risks, the CBRC recently issued the Notification on Regulating Bank-Trust Cooperation Business (hereinafter refereed to as the “Notification”).

 

The Notification comprises of 10 articles, which regulates bank-trust cooperation business cooperation undertaken by both commercial banks and trust companies, and requires tightened regulation on bank-trust cooperation business.

 

Firstly, the Notification defines bank-trust cooperation business and bank-trust conduit business. The Notification includes, for the first time, banks’ on- and off-balance sheet funds and beneficiary rights into the definition of bank-trust cooperation business. Thereby, it defines the bank-trust conduit business as the business that the trustor decides the management, use and disposition of trust funds, and bear full responsibility for risk management and for any losses incurred by inappropriate management.

 

Secondly, the Notification regulates commercial banks’ conduct in bank-trust cooperation business. The Notification requires that in bank-trust cooperation business, banks should follow the principle of “substance over form”, and implement the “look-through” principle in regulation on bank-trust conduit business; banks should carry out authentic business, and refrain from using trust conduits to evade regulatory requirements or move assets onto off-balance sheet in a false manner. In addition, the Notification requires commercial banks to manage trust companies through a name list and select appropriate trust companies and products for clients according to their own risk appetite and risk-bearing capability.

 

Thirdly, the Notification regulates trust companies’ conduct during bank-trust cooperation business. The Notification requires trust companies to proactively transform business growth model and focus on their core business and function to support the real economy. The Notification states that, in bank-trust cooperation business, trust companies shall not accept guarantee explicitly or implicitly provided by bank trustors, sign drawer agreements with them, help them evade regulatory requirements, or provide conduit services for third parties that violate the laws and regulations. In addition, the Notification requires bank-trust cooperation business to conform to macro-economic adjustment policies.

 

Fourthly, the Notification strengthens regulation on bank-trust cooperation business. The Notification states that the CBRC and its local offices should tighten regulation over bank-trust cooperation business. When irregularities occur, the regulatory authority should take regulatory measures including the increase of capital and provision requirement in accordance with the business in essence, and impose administrative punishment as necessary. The regulatory authority will also further specify regulatory requirements on conduit business undertaken by trust companies. Besides, the Notification requires the CBRC local offices to strengthen daily operation of bank-trust cooperation business in their respective jurisdiction.

 

The implementation of the Notification will help to better regulate bank-trust cooperation business, guide commercial banks to shrink bank-trust conduit business, and lead trust companies back to their traditional trust business.

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Copyright: China Banking Regulatory Commission
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