PBOC Issues Draft Rules ‘Fully Revising’ Commercial Bank Law

The revisions will enhance governance, improve board and senior management accountability, strengthen capital and risk management requirements, and raise penalties for violations. 

The PBOC (People's Bank of China) has issued draft revisions to its commercial bank law to strengthen the financial rule of law and support the development of the domestic banking industry.

China's commercial bank law was enacted in 1995, implemented in 2003, and revised in 2003 and 2015.

The PBOC says a large number of clauses are no longer suitable for the actual conditions in the banking sector and that international needs require the law to be fully revised "urgently".

The revisions will help guide banks to "return to their origins" and serve the real economy. They will also help to prevent and defuse financial risks and maintain financial stability, the PBOC said, highlighting recent risk events encountered by small and medium-sized banks.

"It is urgent to improve the commercial bank's governance requirements, strengthen internal control and capital constraints, and improve disposal and exit arrangements."

The revisions will also strengthen financial consumer protections, enhance fair market competition, impose obligations on shareholders, and emphasise the core role of the board of directors.

In addition, the new law will improve internal controls at commercial banks, standardise incentive and restraint mechanisms, and strengthen information disclosure and related party transaction management.

A new chapter is also focused on strengthening capital and risk management, including to implement Basel III capital requirements, the PBOC says.

Under the revisions, the registered capital for establishing a national commercial bank is CNY 10 billion; for a city commercial bank CNY 1 billion; and for a rural commercial bank CNY 100 million.

Interest rate regulations are also modified to allow banks to independently to deposit and loan interest rates with customers, while specifying that banks "shall not use improper means to absorb deposits and issue loans".

The revisions also increase the penalties for violations of law and regulations, where major shareholders, actual controllers, and persons directly responsible for risk events (including directors, supervisors and senior managers) are also liable.