China Allows Foreign Bank Branches to Enter Fund Custody Business

Source: Regulation Asia Editors, Regulation Asia 2020-07-13

Applicant banks must be of “high quality”, specifically in relation to risk management, international reputation, operating performance, profitability and market share.

The CSRC (China Securities Regulatory Commission) and CBIRC (China Banking and Insurance Regulatory Commission) have finaled rules granting foreign financial institutions access to domestic fund custody business through their local branches.

Under existing rules, foreign banks’ local branches in China cannot apply for a fund custody licence, though their local subsidiaries can. Standard Chartered Bank became the first foreign bank to obtain such a licence for its subsidiary in October 2018.

The new rules, proposed in a May consultation, will allow local branches of foreign banks to apply for a fund custody licence, provided they satisfy qualifications on asset size and business experience, among other requirements.

The final rules clarify that applicant foreign banks must be of “high quality”, specifically in relation to their risk management and internal controls, international reputation, operating performance, and the scope of their existing fund custody businesses. Indicators such as profitability and market share should rank “among the highest in the world,” the rules say.

The rules make clear that any civil liabilities of local bank branches will be borne by head office, and that head office is also expected to establish a liquidity support mechanism commensurate with the scale of its fund custody business in China.

Applicant foreign banks must have been in operation for at least three years and have net assets exceeding CNY 20 billion (USD 2.8 billion). Under previous rules, the net asset requirement for fund custody business in China was set at CNY 2 billion.

In practice, banks engaging in the settlement of fund products are already required to have at least CNY 40 billion in net assets.

The final rules are published here.

Granting US foreign banks greater access to provide fund custody services in China was part of the January trade agreement.

China Securities Regulatory Commission

CBIRC

China Allows Foreign Bank Branches to Enter Fund Custody Business

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