China Banking Regulatory Commission Order of the China Banking Regulatory Commission No. 1 Interim Measures for the Management of the Dealings of Derivative Products of Financial Institutions have been adopted at the chairman Liu Mingkang, Chairman of the China Banking Regulatory Commission February 4, 2004 Interim Measures for the Management of the Dealings of Derivative Products of Financial Institutions Chapter I General Provisions Article 1 With a view to regulating the dealings of derivative products of banking institutions, effectively controlling the risk of banking Article 2 The term of financial institutions as mentioned in the present Measures refers to the banks, trust and investment companies, finance Article 3 The term of derivative products as mentioned in the present Measures refers to a certain type of financing contract the value of which Article 4 The dealings of derivation products of financial institutions referred to in the present Measures can be divided into two categories (1) The derivative product transactions for the purpose of making profit or avoiding risk of their own capital and debt. The financial (2) Financial institutions provide the derivative product transactions to clients (including financial institutions). Financial institutions Article 5 China Banking Regulating Commission (hereinafter referred as to CBRC) shall be responsible for supervision over the derivative product Any non-financial entity shall not provide the dealing services of derivative product to the clients. Article 6 Financial institutions shall observe the provisions on foreign exchange and other relevant provisions in operating the derivative Chapter II Administration of Market Access Article 7 Financial institutions that apply for the operation of the derivative product transactions shall meet the following requirements (1) Having a perfect risk control system and internal controlling system of the derivative product transactions; (2) Having a operating system of auto-connection of the derivative product transactions and real-time risk control system; (3) Operating staff of the derivative product transactions shall has an experience of directly operating the derivative product transactions (4) Having at least 2 operating staff that has over 2 years experience of the derivative product transactions and related derivative product (5) Having appropriate trading floor and equipment; (6) If the branches of foreign banks plan to run the derivative product transactions, the registered country shall have a legal system (7) Other requirements of CBRC. The branches of foreign banks plans to run the derivative product transactions that can not meet the requirements of Item 1 to Item (1) Having formal authorization concerning type and quota of the derivative product transactions and other matters from its headquarter, (2) Except definite provisions of its headquarter, all the derivative product transactions of the branches shall be operated through the Article 8 The Policy banks, Chinese-funded commercial banks (except the city commercial banks, rural commercial banks and rural cooperative City commercial banks, rural commercial banks and rural cooperative banks shall, if they operate transactions of derivative products, Foreign-funded financial institutions shall, if they operate the transactions of derivative products, submit application materials Article 9 Where financial institutions apply for the operation of the derivative product transactions, they shall submit the following documents (1) Application report, feasibility report, operation program or the derivative product transactions acquisition plan; (2) Internal executive regulation of the derivative product transactions; (3) Accounting system of the derivative product transactions; (4) List and resume of the governor and main derivative product transactions staff; (5) Authorized administrative system of risk exposure qualification or limitation; (6) Security testing report of trading floor, equipment and system; (7) Other documents and materials required by CBRC. Branches of foreign banks operating the derivative product transactions that do not satisfy criteria listed in Item 1 to Item 5 of (1) Documents of formal written authorization from the headquarter to the branches of operating the derivative product transactions, (2) Promising letter from the headquarter of insuring the real-time derivative product transactions of all the derivative product transactions Article 10 Internal executive regulations of the financial institutions that operate the derivative product transactions shall essentially involve (1) Rudder, operational procedure that shall reflect the principle of separation of pre-phase, middle-phase and after-phase, emergency (2) Risk model index and qualification operation index; (3) Type of derivative product transactions and correspondent risk control system; (4) Risk report and internal audit system; (5) Executive and evaluation system of research and development of the derivative product transactions; (6) Rules of brokers; (7) Job responsibility system of derivative product transactions governors and questioning mechanism and prompting and restricting mechanism (8) Training program for the persons-in-charge and workers; (9) Other contents required by CBRC. Article 11 CBRC shall give response within 60 days after the reception of all application materials submitted by the financial institutions according Article 12 Legal person in the territory of China shall strictly examine the capability of risk control of its agencies in authorizing them to The aforesaid agencies shall report to the local Banking Regulatory Bureau within 30 days after the receipt of authorization or authorization-altering Chapter III Risk Management Article 13 Financial institutions shall, according to its own characteristic of operating target, assets scale, managing ability and risk of Article 14 Financial institutions shall, according to the classification of Article 4 , set up the sound systems of risk control, internal control Article 15 Higher executives of financial institutions shall know the risk of the derivative product transactions, comprehensive management framework Article 16 Higher executives of the financial institutions shall decide the calculating method and index of risk exposure of the derivative product Article 17 Financial institutions shall make clear criteria of working certificate of traders, analyzers and other staff and arrange training Article 18 Financial institutions shall make sound policy of evaluating the other party of the derivative product transactions, including whether Financial institutions shall make special provisions on the qualification of the other party under the circumstance of high-risk derivative Financial institutions may reasonably rely on the formal written documents provided by the other party according to the principle Article 19 Financial institution shall explain the risk of the derivative product transactions to the institution or individual in operating The information exposed to the institution or individual by the banking institution shall at least involve following contents, (1) Content and risk summary of the contract on the derivative product transactions, (2) Important factors influencing potential loss of the derivative product. Article 20 Financial institutions shall appropriately and reasonably use all kinds of risk buffer measures like guarantee to reduce the credit Article 21 Financial institutions shall evaluate market risk of the derivative product transactions by using appropriate evaluation method or Article 22 Financial institutions shall make sound fluidity arrangements according to the scale and type of the derivative product transactions Article 23 Financial institutions shall establish and amplify sound systems and mechanisms of operating risk control so as to strictly control Article 24 Financial institutions shall establish and amplify sound systems and mechanisms of legal risk control so as to strictly examine the Article 25 Financial institutions shall submit accounting statement, statistic statement and other related reports of the derivative product Financial institutions shall disclose risk situation, loss situation, profit change and other unusual situation of the derivative Article 26 CBRC have the privilege of inspecting materials and statements of the derivative product transactions from financial institutions Article 27 Financial institutions shall timely and actively report to CBRC and submit corresponding solution under the circumstance of existing Financial institutions shall timely and actively report detailed information to CBRC under the circumstance of important change of Financial institutions shall simultaneously send a copy to the State Administration of Foreign Exchange in the case that the aforesaid Article 28 Financial institutions shall properly conserve all the operation documents and documents, accounting books, original evidences, telephone Chapter IV Penalty Provisions Article 29 Where the traders of the derivative product transactions in the financial institutions violate these Measures or relevant provisions Article 30 Financial institutions that operate the derivative product transactions without permission of CBRC shall be given penalty by CBRC Non-financing institutions that violate these Measures and provide service of the derivative product transactions to the clients shall Article 31 CBRC shall respectively give penalty to the financial institutions that do not submit relevant statements, materials or that do not CBRC shall give penalty to the financial institutions that provide fake information of the derivative product transactions or disguise Article 32 CBRC can suspend or revoke the qualification of operating the derivative product transactions of the financial institutions under Chapter V Supplementary Provisions Article 33 The power to interpret the present Measures shall remain with CBRC. Article 34 The present Measures shall enter into effect as of March 1, 2004. If any provisions governing the derivative product transactions |
China Banking Regulatory Commission
2004-02-04