The 19th session of the Standing Committee of the 14th National People's Congress recently conducted its first review of the "Draft Amendment to the Banking Supervision and Administration Law of the People's Republic of China" (hereinafter referred to as the "Draft Amendment"), and began soliciting public opinions on December 27.
It is understood that the draft revision consists of 6 chapters and 80 articles, which significantly expands and improves the current "Banking Supervision and Administration Law of the People's Republic of China" (hereinafter referred to as the "CBRC Law"). The revision focuses on strengthening institutional supervision, behavioral supervision, functional supervision, penetrating supervision, and continuous supervision. It aims to eliminate regulatory gaps, make up for regulatory shortcomings, and clarify regulatory authorization, so as to effectively improve the foresight, accuracy, effectiveness, and coordination of supervision. The revision aims to better leverage the fundamental, stabilizing, and long-term guarantee role of the rule of law, and effectively improve the modernization level of the financial governance system and governance capabilities.
Wang Weiguo, president of the China Banking Law Research Association and professor at China University of Political Science and Law, said that the revision of the Banking Regulatory Law is in line with the times and can be said to be an important "system upgrade" on the basis of adhering to and consolidating the "strong regulation" financial system with Chinese characteristics.
Focus on key areas and address shortcomings
The Banking Regulatory Law is undergoing a systemic revision.
The stability of banking financial institutions is crucial to the stability of my country's financial system and the safety of people's property. "Systematically revising the Banking Supervision Law is an inherent requirement and urgent task to meet the demands of high-quality development in the financial industry, build a modern financial regulatory framework, and improve the transparency and rule of law in financial supervision," said Zhou Daoxu, director of the Financial Security Research Center at Tsinghua University's PBC School of Finance.
It is understood that the current Banking Regulatory Law has been in effect since February 2004, with minor amendments made in 2006. As a specialized regulatory law, the promulgation and implementation of the Banking Regulatory Law met the objective needs of establishing and improving my country's banking regulatory system, provided legal guarantees for banking regulatory authorities to perform their regulatory duties, and played an important role in promoting the sound development of the banking industry, improving the efficiency and effectiveness of serving the real economy, and preventing systemic risks.
Since the promulgation of the Banking Regulatory Law more than 20 years ago, my country's banking industry has achieved groundbreaking development, and the internal and external environment for its development has also undergone profound changes. In recent years, the risks faced by the banking industry have become more complex and diverse, making it necessary to systematically improve the current Banking Regulatory Law, focusing on addressing prominent issues such as regulatory gaps in certain areas and insufficient regulatory effectiveness, further enhancing regulatory efficiency, and maintaining the continued sound operation of the banking industry.
Against this backdrop, the draft revision significantly expands and improves the existing Banking Regulatory Law, increasing it from 6 chapters and 52 articles to 6 chapters and 80 articles. Through a series of institutional innovations, such as establishing a full-process shareholder supervision system, improving risk disposal mechanisms, expanding the scope of supervision, significantly increasing the cost of violations, strengthening behavioral supervision and consumer protection, and adding extraterritorial application clauses, it provides a solid legal guarantee for the sound operation and high-quality development of the banking industry.
"This revision is not a patching of individual clauses, but rather a consolidation of mature and effective practices from years of regulatory experience into legal systems, based on the idea of 'more complete regulatory targets, more systematic regulatory rules, more tiered regulatory tools, more interconnected risk disposal, and stronger legal responsibilities,' and providing a higher-level legal interface for dealing with new forms of risk," Zeng Gang, chief expert and director of the Shanghai Financial and Development Laboratory, told reporters.
Shareholders and actual controllers will be included in the scope of supervision.
Achieve full regulatory coverage
Overall, Zhou Daoxu stated that the core content of the draft revision is to build a comprehensive regulatory system that covers the entire chain from market access, continuous supervision, risk disposal to market exit, and includes institutions, shareholders, practitioners, and third-party organizations.
Of particular note is the revision to strengthen equity management in banking financial institutions. Addressing instances where major shareholders and actual controllers of banking institutions have improperly overstepped their authority, interfered with operations, or even engaged in fraudulent capital contributions, capital withdrawals, improper related-party transactions, and the transfer of benefits, this revision implements the requirements of the Central Financial Work Conference regarding "penetrating supervision." It further extends the regulatory chain, bringing major shareholders and actual controllers of institutions under supervision and establishing a full-process supervision system encompassing pre-event, during-event, and post-event stages. The revision clarifies the eligibility criteria for major shareholders and actual controllers, strengthens thorough review, adds requirements for document submission and equity disclosure by major shareholders and actual controllers, and increases obligations such as contributing their own funds, severely cracking down on illegal related-party transactions and capital withdrawals.
"The focus of regulation is gradually shifting from 'only targeting licensed institutions' to 'the key relationships and crucial links surrounding the operation of these institutions'," Zeng Gang stated. He explained that the revisions, on the one hand, more clearly define the existing spectrum of "banking financial institutions," including wealth management companies, consumer finance companies, auto finance companies, and money brokerage companies, providing clearer legal guidelines for regulatory resource allocation and inspection boundaries. On the other hand, and more importantly, the revisions aim to incorporate both the "sources of risk" and the "chain of risk transmission" into the governance framework, enabling regulation to cover the entire chain of "funds—equity—governance—operations—outsourcing—consumers."
Wang Weiguo believes that strengthening the supervision of financial institution shareholders and strictly enforcing shareholder responsibilities is a key aspect of addressing loopholes in contemporary financial law reform. The main content and highlight of the revision is to build a comprehensive, "teeth-and-barrels" regulatory system.
Enrich the risk management "toolbox"
Enhance the foresight and effectiveness of prevention and control
The institutional framework for addressing the financial crisis must first focus on the identification, early warning, mitigation, and handling of institutional risks.
The Central Financial Work Conference put forward clear requirements for improving the normalized risk disposal mechanism. To effectively fill the legislative gaps in banking risk disposal and market exit, this draft revision thoroughly summarizes the practices of banking risk disposal in recent years, establishes and improves a hard constraint mechanism for early correction, and authorizes regulatory authorities to take early corrective measures against potential risks in banking financial institutions. It improves the risk disposal framework, making systematic arrangements for risk disposal methods such as restructuring, rectification, takeover, and revocation, clarifying that regulatory authorities can flexibly adopt different disposal measures based on the institution's risk status and the financial market environment. Adhering to the principles of marketization and rule of law, it further refines the applicable circumstances for various disposal methods, enriches the regulatory "toolbox," and enhances the foresight, timeliness, and effectiveness of disposal work.
In response, Zeng Gang analyzed that the risk management mechanism addresses "what to do when risks arise, whether intervention can be earlier, and whether the cost can be minimized." To address the issues in practice where regulations are too general, early intervention is insufficient, and tools are inadequate, the draft revision focuses on clearer legal authorization, promoting a shift from a single, end-stage approach to a multi-tiered and coordinated system of management measures.
Specifically, the revisions include: first, enriching the enforcement measures and expanding their applicable basis; second, adding rectification mechanisms and improving disposal measures; and third, refining the takeover system and its subsequent coordination. "This revision focuses on the risk disposal process of banking financial institutions," said Wang Weiguo. He explained that early responses to banking financial risks rely on timely intervention from regulatory authorities, which requires a series of intervention tools and disposal measures. Among these, takeover, as a crucial means of handling crises in banking institutions, is an established and proven successful system.
Improve regulatory effectiveness
Significantly increase the cost of illegal activities
In recent years, illegal and irregular activities in the banking industry have become increasingly complex. To enhance the deterrent effect of administrative penalties, the draft revision focuses on "key individuals" who cause significant financial risks, "key events" that affect financial stability, and "key behaviors" that disrupt financial market order. It further improves the rules for administrative penalties, adheres to the principle of combining fines and confiscation, confiscates illegal gains in accordance with the law, increases the amount of fines, and expands the scope of multiple penalties. This aims to effectively reverse the situation where the cost of financial violations is low, penalties do not cover the losses, and penalties do not cover the gains, thereby urging institutions to operate in compliance and significantly improving the effectiveness of supervision.
"From the perspective of addressing shortcomings, the key issues that this revision needs to address in terms of regulatory capacity building are: First, introducing market factors and leveraging the cooperative and service role of third-party institutions in regulation. Second, strengthening the legal basis for enforcement, increasing penalties, and raising the cost of violations. For example, increasing the fines in the penalty rules for violating institutions and individuals, and providing regulatory agencies with more comprehensive legal basis for enforcement."
Zeng Gang believes that the effectiveness of regulation depends not only on "what to regulate," but also on "whether it can be thoroughly investigated, whether it can be corrected, and whether it can create a deterrent effect." The draft revision significantly increases the cost of violations and expands the scope of responsible parties, exhibiting three significant characteristics: increased fines, expanded scope of responsible parties, and strengthened dual penalties.
