Chamber statement on the recent CRSC announcement on custodian licence requirements Go back »

2020-07-13 | All chapters

Background

On 10^th July 2020, the China Securities Regulatory Commission (CSRC) and China Banking and Insurance Regulatory Commission (CBIRC) issued a joint statement and policy document on new rules to manage securities investment fund custody enterprises. While the new rules cover a variety of different areas, such as the simplification of application procedures, the most significant change is in how the financial indicators of foreign bank branches in China are measured.

In the past, all banks in China were measured by financial indicators, such as net assets, when determining their suitability to receive licences to provide certain financial services. The relevant regulatory thresholds are intended to ensure that banks providing certain services have sufficient resources and backing to take on the risk related to said activities. This made it very difficult for foreign banks to obtain these licences, as their operations in China are comparatively very small due to being barred from entering the market for so many years. However, despite their small local size, foreign banks often have extensive resources and backing across their global operations, making them well suited to provide these services while appropriately managing risk.

The rules now allow foreign banks to use the financial indicators of their home offices when applying specifically for a custodian license for securities investment funds. In effect, it allows foreign banks to bring their global assets to bear in backing their operations in China so that they can now meet the necessary thresholds.

Read the CSRC English announcement of the rules here. Read the Chinese text of the new rules here.

Stance

The European Union Chamber of Commerce in China (European Chamber) views the China Securities Regulatory Commission’s (CSRC) and China Banking and Insurance Regulatory Commission’s (CBIRC) recently updated requirements for applying for onshore custodian licences as a very constructive development. With foreign banks in China now able to rely on their parent entity’s balance sheet to fulfil the CNY 20 billion net asset requirement, they will be able to contribute more efficiently to the Chinese economy and its capital markets. The European Chamber hopes to see the CSRC and the CBIRC, as well as other relevant regulators, apply this sound logic to the threshold requirements for licensing approval for other financial services. Doing so will build upon this success and help realise China’s commitment to building an open, healthy, sustainable environment for the country’s financial sector.

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