China’s Banking Regulation Overhaul: A New Era of Supervision
In May 2023, China introduced a significant overhaul of its banking regulation system, creating a single “super” regulator for all financial sectors except securities. The National Financial Regulatory Administration (NFRA) has been granted sweeping powers to regulate financial holding companies, approve and supervise asset and wealth management institutions, and protect consumers.
A Familiar Regime
Industry experts say the new regime is similar to those found in large global banks and international financial institutions. “The idea is to have a single regulator with oversight of authorization, prudential, conduct, corporate governance, and other regulatory issues across different sectors,” said Liam Flynn, European Regional Forum Liaison Officer of the IBA Banking & Financial Law Committee.
Supervision and Regulation
Under the new regime, trust companies, insurance companies, banks, and financial holding companies will be supervised by the NFRA’s asset and wealth management institution supervision department. The reform aims to prevent institutions from exploiting regulatory arbitrage and ensure greater consistency in supervisory approaches.
Sector-Specific Measures
The NFRA has already published sector-specific measures to strengthen supervision of financial companies, including:
- Interim measures for trust company supervisory ratings
- Rules on risk management for banking and insurance institutions
Experts say the new regime will lead to higher requirements regarding compliance and risk control for domestic companies, as well as tougher enforcement actions by the regulator.
Compliance and Risk Control
Financial services compliance is already a rapidly growing area for Chinese law firms. “Lawyers should tailor legal documentation and style of interaction accordingly,” said Yuan Ting, partner at Zhong Lun.
Encouraging Bank Lending
The central government has announced policies to encourage banks to support the real economy and lend to qualified property developers to ease the crisis in the sector. Several other industries have been prioritized by the government for bank lending, including:
- Green and low-carbon initiatives
Opportunities for Foreign Companies
Foreign companies may see opportunities in China’s financial sector. The NFRA has relaxed approval conditions for foreign institutions and encouraged the establishment of foreign-invested financial institutions.
Unified Regulation of Bond Market
The unified regulation of the domestic bond market is also a key part of the reforms, with enterprise bonds now under the supervision of the China Securities Regulatory Commission (CSRC).
As China’s banking regulation overhaul takes effect, industry players are bracing themselves for a new era of supervision that promises to bring greater consistency and efficiency to the sector.