|
Guidelines for Financial Innovation of Commercial Banks
December 6, 2006
Chapter I General Provisions
Article 1
In order to encourage commercial banks to accelerate financial innovation, regulate financial innovation activities, and promote
continuous and healthy development of financial innovations in the banking industry, these Guidelines are formulated in accordance
with the “Banking Supervision Law of the People’s Republic of China”, the “Commercial Bank Law of the People’s Republic of China”
as well as other related laws and regulations.
Article 2
These Guidelines apply to all the Chinese-invested commercial banks, solely foreign-invested banks and Chinese-foreign equity joint
banks which are set up within the territory of the People’s Republic of China.
The policy banks, rural cooperative banks, urban credit cooperatives, rural credit cooperatives, and branches of foreign banks, which
are set up within the territory of the People’s Republic of China, shall refer to these Guidelines when making financial innovations.
The financial asset management companies, trust and investment corporations, financial lease companies, financial companies of business
groups, auto financing companies, currency brokerage companies, and other non-bank financial institutions, which are supervised by
China Banking Regulatory Commission and set up within the territory of the People’s Republic of China, shall refer to these Guidelines
when making financial innovations.
Article 3
The term “financial innovations” refers to the various innovative activities in respect of strategic decision making, system arranging,
institutional setting, personnel preparing, mode of management, business flow and financial products and so on, which are carried
out by commercial banks through bringing in new technologies, applying new methods, expanding new markets and establishing new organizations
in order to adapt to the development of economics, and which are finally embodied into continuous improvement of the risk management
capacities of banks, and the creations and updating of service products and service methods offered to customers.
Article 4
Financial innovation places the interests of the consumers at the core, and follows basic market principles in approach. Through
financial innovation, commercial banks raise their competitive strengths, improve their risk management skills, and better satisfy
the needs of their customers and market requirements. Financial innovation is one of the most important elements of the commercial
banks’ sustainable growth strategy.
Article 5
Commercial banks shall be fully aware that financial innovations and risk management are two sides of the same coin. A pre-condition
of financial innovation is proper risk management. Commercial banks must identify, measure, monitor and control new risks on a timely
basis.
Article 6
Commercial banks shall guarantee the existence of various necessary resources such as staff, funds, information technologies, internal
control resource and risk management resource and so on to carry out financial innovation activities.
Article 7
The China Banking Regulatory Commission (hereinafter referred to as The CBRC) shall take the promotion of financial stability and
the advancement of financial innovation as the prime criteria of sound supervision, insist in taking the principle of paying equal
attention to both encouragement and regulation and attaching importance to both cultivation and risk prevention, and supervise and
administer financial innovation activities of commercial banks subject to the related laws, regulations and these Guidelines.
Article 8
The CBRC will actively create an system and legal environment which is propitious for financial innovations, timely amend related
provisions which are not suitable for financial innovations, and follow up and appraise the supervision rules and policies at regular
intervals and update them timely on the basis of fully considering the market changes and the public needs, so as to continuously
enhance the supervision validity.
Article 9
THE CBRC shall actively drive the construction of a market environment that is suitable for financial innovations, promote the formation
of fair trading rules for financial innovation activities, create a market environment for fair competition, and establish a good
order for financial competition.
Chapter II Basic Principles
Article 10
Commercial banks shall insist on the principle of legality and compliance, abide by laws, administrative regulations, and rules in
the process of financial innovation. No commercial bank shall be allowed to violate any laws and regulations or evade supervision
in any disguised form under the name of financial innovation.
Article 11
Commercial banks shall insist on the principle of fair competition, other than make low-price dumping, vicious competition or other
kinds of unfair competitive behaviors for the purpose of squeezing out competition counter-parties in the process of financial innovation.
Article 12
Commercial banks shall fully respect others’ intellectual property rights other than infringe upon the intellectual property rights
or commercial secrets of others in the process of financial innovation. Commercial banks shall make effective strategies to protect
intellectual property and protect independently innovated financial products and services.
Article 13
Commercial banks shall insist on the principles that the costs can be calculated, the risks can be controlled and the information
shall be fully disclosed in the process of financial innovation.
Article 14
Commercial banks shall “know its own business” in the process of financial innovation. The board of directors and the senior management
shall guarantee themselves to have a good understanding of the bank’s financial innovation business, operation, and market situation
with certain effective methods.
Article 15
Commercial banks shall “know its own risks” in the process of financial innovation. The board of directors and the senior management
shall have an adequate knowledge of the risks in financial innovation activities, appraise, examine and approve the policies concerning
financial innovation activities and the risk limitation of different kinds of new products at regular intervals, so as to limit the
risks of financial innovation activities within a controllable scope.
Article 16
Commercial banks shall “know its own customers” in the process of financial innovation. Commercial banks shall define the target
customer groups, fully investigate the customer’s risk preference, risk recognition capacity and risk tolerance, appraise customers
with the need of business, and provide different financial products and services in the light of different target customer groups.
No commercial bank shall be allowed to provide products and services which are incompatible with the customers’ true needs and risk
tolerance to its customers.
Article 17
Commercial banks shall “know its own counter-parties” in the process of financial innovation. When the commercial banks carries out
business concerning with investment or trading, it shall make a careful analysis and research on its counter party’s credit risks,
market risks and legal risks, make a good management of the counter party’s risks, closely follow up the status of the counter party’s
risks and take effective counter-measures especially when the market circumstance changed greatly.
Article 18
Commercial banks shall comply with code of professional ethics and code of conduct, completely accomplish the duty obligation, and
fully ensure the interests of financial consumers and investors in the process of financial innovation.
Chapter III Operation Mechanism
Article 19
The board of directors of a commercial bank shall be responsible for making financial innovation development strategies and corresponding
risk management policies, and supervise the implementation of the strategies and policies. The board of directors shall make sure
that the senior management staff have adequate funds and qualified professional talented people in order to effectively carry out
the strategies and manage the risks brought about in the process of innovation. The board of directors shall make sure that the development
strategies and risk management policies of financial innovations are in accordance with the overall strategies and risk management
policies of the whole bank.
The senior management shall be responsible for carrying out the development strategies and risk management policies of financial innovations
formulated by the board of directors. The senior management shall set up systems of risk management, internal control, documents
management, audit flow management and institutions concerning trainings and information feedback, which can be applied for effectively
managing innovation activities.
Article 20
Commercial banks shall optimize the internal institutional structure and the business flow, form a business implementation framework
with sound functions of marketing services in the foreground, rigorous risk control in the middle ground, and powerful guaranty and
support in the background, and in light of its real situation, simplify the management levels, gradually reconstruct the existing
“departmental bank”, establish a “flow bank” suitable for financial innovations to realize the separation of foreground, middle ground
and background from each other and their effective coordination and cooperation.
Article 21
Commercial banks shall formulate and improve the internal management procedures concerning products and services of financial innovations,
and the procedures shall at least contain such stages as demand initiation, project initiation, design, development, test, risk evaluation,
examination and approval, commissioning, trainings, sales, post evaluation, and regular renewing; the commercial bank shall analyze
the market demand, target customer and cost-income detailedly, make scientific risk evaluation and risk pricing, accurately measure
the benefits after risk adjustment.
Article 22
Commercial banks shall make bylaws in advance before introducing financial innovation products and services, and formulate operation
provisions, institution of internal management, and reminding contents for customers in accordance with each type of business, and
that whose conditions are mature shall formulate a product manual.
Article 23
Commercial banks shall enhance the input of the information of science and technology for financial innovations, set up an effective
technology support system and management information system for innovation business, guarantee the integrity and safety of data information,
as well as the continuously carrying out operating plans and business flow, and improve the advanced technology of financial innovations.
Article 24
Commercial banks shall establish and improve a customer relationship management system which is considered customer as center regarding
its reality, effectively integrate the information of customers, and provide customers with more innovative products and services
through data analysis and mining, continuously improve the service level for customers, and enhance customer satisfaction.
Article 25
Commercial banks shall gradually set up a performance evaluation and appraisal mechanism suitable for financial innovation activities
so as to form an effective incentive mechanism and enterprise culture atmosphere which can promote financial innovations.
Article 26
Commercial banks shall gradually formulate salary bylaws, training plans and human resource strategies suitable for financial innovation
activities in order to continuously attract professional people with rich experiences, and enhance the professional capacity of financial
innovation.
Article 27
Commercial banks shall organize training activities for financial innovation with different kinds, so as to ensure its staff to have
an intimate knowledge of the features and the work flow of innovative products and services, establish and improve the mechanism
of qualification confirmation and evaluation of the jobholders of related business, and make sure its staff who are engaged in the
innovation business have necessary professional qualifications and practical work experiences.
Chapter IV Protection of Customers’ Interests
Article 28
Commercial banks shall comply with the standard of behavior in its industry and the business conduct for employees of banks, provide
customers with accurate, fair information without misleading, and fully reveal the rights, obligations and risks related to the innovative
products and services in the process of financial innovation.
Article 29
Commercial banks shall comply with the requirements of laws and regulations, as well as the agreements with customers, and perform
necessary confidentiality obligations.
Article 30
Commercial banks shall provide customers with professional, objective and fair suggestions, and especially attach great importance
to and faithfully perform the obligations and duties to customers in accordance with requirements of the related laws in the process
of financial innovation. .
Article 31
Commercial banks shall be competent to identify and appropriately handle different kinds of interest conflicts arising out of financial
innovations, and fairly deal with the interest conflicts between the bank and the customers, or between the bank and the third-party
service provider.
Article 32
Commercial banks shall strictly define bank assets and customer’s assets and separate them, make effective risk separation management,
and make an adequate protection of customer’s assets.
Article 33
Commercial banks shall establish corresponding records about customer information fitting for the requirements of innovation services,
do a good job in the evaluation of customers’ suitability to the innovative products and services, and induct customers to invest
and consume rationally.
Article 34
Commercial banks shall, in the process of financial innovation, establish channels to effectively take up the complaints and suggestions
from customers, timely, efficiently, and responsibly deal with the customers’ complaints, summarize and analyze the information from
customers’ complaints at regular intervals, report the customers’ complaints and the corresponding settlement to the related persons
and departments at regular intervals, study and handle customers’ potential requirements and improvement suggestions regarding financial
innovations, and continuously improve the service quality and service level of financial innovations.
Chapter V Risk Management
Article 35
The risk management of financial innovation activities shall be involved into the uniform risk management system of the whole bank
by a commercial bank’s board of directors and the senior management.
The risk management committee under the board of directors shall implement unified management on the risks in financial innovation
activities and other traditional business, formulate proper procedures of risk management and measures of risk control, and clearly
define the detailed duties of each business line and related departments.
Article 36
Commercial banks shall formulate perfect risk management policies, procedures and risk limitations, and make sure that the different
kinds of financial innovation activities are in accordance with its management capacity and professional level.
Article 37
Commercial banks shall establish and improve a framework for risk management by the way of effective management information system,
fully identify, measure, monitor and control the risks brought from financial innovation activities.
Article 38
Commercial banks shall establish perfect internal control bylaws fitting for the nature and scale of the different kinds of financial
innovation business, and examine the establishment and implementation of the internal control institutions through independent internal
audit and external audit.
Article 39
Commercial banks shall make rigid compliance examination to the financial innovation activities to be carried out, accurately define
the different kinds of juridical relationships involved in thereof, clarify the laws and policies which might be concerned, study
and formulate corresponding settlement measures, and earnestly prevent compliance risks.
Article 40
Commercial banks shall verify and modify the critical models, assumed conditions and model parameters at regular intervals in the
light of the policy adjustments and market environment changes, and regarding the features of financial innovation activities, and
formulate risk forewarning and pre-arranged for risk disposal. The board of directors and the senior management shall be responsible
for making plans responded to business emergency and continuity plans.
Chapter VI Supervision and Administration
Article 41
The CBRC encourages commercial banks with following conditions to make financial innovations:
(1)
Its capital adequacy ratio is up to the standards;
(2)
It has good corporate governance structure;
(3)
It has rigorous internal control;
(4)
Its core index of risk supervision is in accordance with the prudence requirements of the regulatory authorities; and
(5)
There is no significant behavior to offend against the law or break the rule in the latest three years.
Article 42
As regards the financial innovation activities, the CBRC will simplify the procedures of examination and approval, change the way
of supervision, formulate the standards for prudent supervision and procedures for operating supervision for different kinds of new
business, intensify persistency supervision, pay more attention to the whole course risk control of risk management, internal audit,
pricing mechanism, information disclosure and other procedures concerning innovation activities, and warn the risks in time.
Article 43
The CBRC encourages commercial banks to make business communications with the CBRC in advance, and exchange opinions in light of
the focused risks and the risk control measures in order to improve the efficiency of examination and approval.
Article 44
The CBRC encourages commercial banks to establish more open and more cooperative relationship between the regulating department and
the regulated departments in the activities of financial innovation, timely report the risk incidents or significant changes in the
market environment to the regulatory authority with responsibility.
Article 45
The CBRC, commercial banks and the banking association shall have responsibility to jointly enhance the promulgation and education
of financial knowledge to the public, promote the public’s knowledge of financial innovations and recognition of the principle that
the buyer is to be responsible for one’s own action, enhance the public’s comprehension to the modern financial knowledge, and continuously
strengthen the public’s risk prevention consciousness and risk tolerance.
Article 46
If a commercial bank violates these Guidelines, the CBRC shall penalize it by related laws and regulations, and by taking other corresponding
supervisory measures.
Chapter VII Supplementary Provisions
Article 47
The CBRC shall be responsible for the interpretation of these Guidelines.
Article 48
These Guidelines shall enter into force as of December 11, 2006.
|
