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China’s Banking Regulatory Authority Cracks Down on Rogue Institutions

In a bid to strengthen China’s financial stability and protect depositors’ interests, China’s banking regulatory authority has announced new measures to tackle rogue institutions.

Takeover and Restructuring

According to Article 38 of the new regulations, if a banking institution is experiencing or likely to experience a credit crisis that seriously prejudices the interests of depositors and/or other customers, the regulatory authority may take over the institution or assist in its restructuring. The takeover or restructuring will be carried out in accordance with relevant laws and administrative regulations.

Closure

In cases where a banking institution has been found to have serious violations of law and/or regulations, or significant unsafe or unsound practices that pose a grave danger to financial order or seriously threaten public interests, the regulatory authority may close the institution in accordance with relevant laws and regulations (Article 39).

Accountability

The regulatory authority also has the power to require directors, senior managers, and other staff of a banking institution to perform their duties according to its requirements during the course of takeover, restructuring, or liquidation after closure.

Additionally, the authority may take measures against directors and senior managers directly in charge and other staff directly held responsible for any wrongdoing. These measures include:

  • Preventing them from leaving China if their departure would be detrimental to the country’s interests
  • Prohibiting them from moving or transferring their properties (Article 40)

Inspections

The regulatory authority also has the power to inspect deposit accounts of suspected violators and request judicial institutions to freeze illegally obtained funds that are suspected to be transferred or concealed (Article 41).

Supervisory staff of the banking regulatory authority who commit any of the following acts may face administrative sanctions, including:

  • Embezzlement
  • Bribery
  • Divulgence of state or commercial confidential information

If the case constitutes a crime, they will be investigated for criminal liability according to law (Article 42).

Penalties

Banking institutions that violate regulations may face:

  • Closure by the regulatory authority if established without authorization
  • Fines ranging from one to five times the amount of illegal gains if found guilty of committing acts such as:
    • Establishing a branch without authorization
    • Offering a product or service without approval
  • Order to suspend business for consolidation or revocation of banking permit (Article 44)

Fines

Banking institutions that commit lesser violations, such as:

  • Appointing directors or senior managers without fit and proper tests
  • Refusing or obstructing off- or on-site examinations
  • Submitting false statements, reports, documents, or materials may face fines ranging from 200,000 yuan to 500,000 yuan (Article 45)

The regulatory authority will continue to monitor the banking sector closely and take swift action against institutions that violate regulations, in order to maintain financial stability and protect depositors’ interests.