Notice of the China Insurance Regulatory Commission on Printing and Distributing the Detailed Rules for the Implementation of the
Interim Measures for Administration of Overseas Use of Foreign Exchange Insurance Funds
Bao Jian Fa [2005] No. 77
All insurance companies and all insurance asset management companies:
With a view to further standardizing the investment activities and ensuring the effective implementation of the Interim Measures for
Administration of Overseas Use of Foreign Exchange Insurance Funds, upon the approval of the State Administration of Foreign Exchange,
the China Insurance Regulatory Commission has formulated the Detailed Rules for the Implementation of the Interim Measures for Administration
of Overseas Use of Foreign Exchange Insurance Funds, and hereby print and distribute them to you.
Please comply with and carry them out earnestly.
the China Insurance Regulatory Commission
September 1, 2005
Detailed Rules for the Implementation of the Interim Measures for Administration of Overseas Use of Foreign Exchange Insurance Funds
Chapter I General Provisions
Article 1
With a view to intensifying the administration of overseas investment of foreign exchange insurance funds, standardizing investment
operations, preventing market risks as well as business risks and guaranteeing the legitimate rights and interests of the parties
concerned, the present Detailed Rules are formulated in accordance with such laws and regulations as the Insurance Law of the People’s
Republic of China and the Interim Measures for the Administration of Overseas Use of Foreign Exchange Insurance Funds (hereinafter
referred to as the Measures).
Article 2
The overseas investment of foreign exchange insurance funds shall be decided by the board of directors of an insurance company (hereinafter
referred to as the entrusting party) and may be entrusted for management to an insurance asset management company within the territory
of China or an overseas investment management organization (hereinafter referred to as the entrusted party). The provisions on any
other methods of management of foreign exchange insurance funds shall be separately formulated by the China Insurance Regulatory
Commission (hereinafter referred to as the CIRC).
Article 3
An entrusting party shall, in accordance with the provisions of the Measures, entrust a commercial bank (hereinafter referred to as
the custodian party) to independently keep custody of its foreign exchange insurance funds used overseas as well as its foreign
exchange assets as formed in investment (hereinafter uniformly referred to as the foreign exchange insurance funds).
Article 4
An entrusting party shall choose its entrusted party and custodian party in an open, fair and impartial manner, and shall, in accordance
with the principles of safety, liquidity and profitability, prudently formulate a plan for strategic allocation of assets.
Article 5
An entrusted party or custodian party shall, in accordance with the principles of being honest and creditworthy, prudent and diligent,
loyal and duteous, manage the foreign exchange insurance funds in a fair manner, and guarantee the safety of the foreign exchange
insurance funds.
Article 6
The CIRC shall be responsible for formulating the policies for administration of overseas investment of the foreign exchange insurance
funds. The CIRC and the State Administration of Foreign Exchange (hereinafter referred to as the SAFE) shall, according to their
respective functions and duties, conduct supervision and administration on the overseas investment of the foreign exchange insurance
funds according to law.
Chapter II Administration of Application
Article 7
An entrusting party shall, when submitting to the CIRC an application for foreign exchange payment so as to make overseas investment
with its foreign exchange insurance funds, simultaneously submit the following documents and materials:
(1)
The documents and materials as prescribed in Article 7 of the Measures;
(2)
The original copy of the decision of the board of directors of the company on the overseas investment with its foreign exchange insurance
funds;
(3)
The management system and risk control system for overseas investment, which shall at least include the management rules on the entrusted
affairs, elements and procedures in the formulation of the guidance for overseas investment with its foreign exchange insurance funds
(hereinafter referred to as the investment guidance), standards for and procedures of selecting the relevant entrusted party and
the custodian party within the territory of China, standards for selecting trade partners, information communication mechanism, performance
evaluation mechanism, risk control mechanism, measures for supervision and examination, and the mechanism for handling major emergencies,
(4)
A plan of strategic allocation of overseas investment, stating at least the concept of investment, assets and liabilities, investment
objectives, investment products investment proportion, investment market, currency allocation, performance benchmark, and arrangement
of trading seats, etc.;
(5)
An independent custodian plan of the third party, stating at least the name of the custodian party within the territory of China,
the overseas custodian agent, and the name of the secondary custodian and the relevant county where it is located, and the related
party relationships with the aforesaid entrusting party and entrusted party;
(6)
A research report on that the relevant entrusted party and the custodian party have carried out their business operations in a law-abiding
and prudent manner for the latest 3 years;
(7)
A document of commitment, promising the authenticity of the materials it submits and the performance of functions and duties as prescribed
in the Measures and the present Detailed Rules; and
(8)
Other documents and materials as prescribed by the CIRC.
The CIRC shall carry out an examination over the conditions for management of overseas investment as made by an entrusting party according
to the relevant provisions of the Measures and the Detailed Rules.
Article 8
An entrusted party within the territory of China that manages the overseas investment of foreign exchange insurance funds shall submit
to the CIRC the following documents and materials:
(1)
An application signed by the legal representative or any person authorized thereby;
(2)
The management system and the risk control system for overseas investment, which shall at least include an investment authorization
system, an administration system to check out whether or not the relevant laws and regulations are observed, a research and report
system, a investment product selection system, a transaction management system, an information management system, and the procedures
for investment decision-making, standards for selecting trade partners, indicators of risk evaluation and performance assessment,
a risk control mechanism, rules of professional ethics, audit and examination measures and a mechanism for handing major emergencies,
etc;
(3)
A management scheme of overseas investment, operational strategies and the arrangement of trade seats, etc.;
(4)
The number of professionals who engage in overseas investment as well as the resumes thereof;
(5)
A statement on the technical supporting systems for the investment with foreign exchange insurance funds, such as the information
system, transaction system, and investment management system, etc.;
(6)
A statement on the related party relationship with the entrusting party, the custodian party within the territory of China and the
overseas custodian agent;
(7)
A document of commitment, promising the authenticity of the materials it submits and the performance of the functions and duties as
prescribed in the Measures and the present Detailed Rules; and
(8)
Other documents and materials as provided by the CIRC.
The CIRC shall, in accordance with the relevant provisions of the Interim Provisions on the Administration of Insurance Assets Management
Companies, the Measures and the present Detailed Rules, prudently carry out evaluation on the qualifications of an entrusted party
within the territory of China for engaging in the management of overseas investment of foreign exchange insurance funds in terms
of corporate governance, assets size, management experience, investment performance, research capability, internal control, and
market position, etc.
Article 9
An overseas entrusted party that manages the overseas investment of foreign exchange insurance funds shall satisfy not only the requirements
as prescribed in Article 14 of the Measures but also the following requirements:
(1)
Having the qualification of an independent legal-person;
(2)
Having experience in insurance assets management for 5 years or more; and
(3)
Having purchased the liability insurance corresponding to the size of the assets it managements.
Article 10
An overseas entrusted party under any of the following circumstances may be exempted from the restriction that the paid-in capital
and net assets or its equivalent in convertible currency may not be less than 60 million US dollars:
(1)
Being an entrusted party of mutual system or partnership, with the size of assets under its management or its equivalent in convertible
currency being not less than 200 billion US dollars; and
(2)
The relevant controlling shareholders satisfying the provisions of item (3) of Article 14 of the Measures on paid-in capital and
net assets and being able to offer full-liability guaranty.
Article 11
An overseas entrusted party who manages overseas investment of foreign exchange insurance funds shall submit to the CIRC the following
documents and materials:
(1)
An application with the signature of the legal representative or a person authorized by it;
(2)
A written statement conforming to the requirements as prescribed in Article 14 of the Measures, Articles 9 and 10 of the present
Detailed Rules, and if the sum of paid-in capital and net assets of the entrusted party or their equivalent in convertible currency
does not come up to 600 million US dollars, the full-liability guarantee letter of the controlling shareholder shall be provided;
(3)
The management system and risk control system for overseas investment, which shall at least include a investment authorization system,
a regularity management system, a research and report system, a variety selection system, a transaction management system, an information
management system, and the procedures for investment decision-making, standards for selecting trade partners, indicators of risk
evaluation and performance assessment, a risk control mechanism, rules of professional ethics, measures for inspection and examination
and a mechanism for handling major emergencies, etc.;
(4)
An overseas investment management plan, operational strategies and the arrangement of trade seats, etc.;
(5)
The number of overseas investment professionals as well as the resumes thereof;
(6)
A statement on the technical supporting systems for the investment with foreign exchange insurance funds such as the information system,
transaction system and investment management system;
(7)
The business license (duplicate) as issued by the supervisory organization of the country or region where it is located, or the valid
photocopy thereof;
(8)
The position paper on supervision as issued by the supervisory organization of the country or region where it is located or the announcement
as signed by the directors or partners of the company upon notarization;
(9)
Financial statements of the company of the latest year as audited by an accounting firm;
(10)
An audit report of the latest year on the internal control system of the company as issued by an accounting firm;
(11)
A photocopy of the valid guarantee slip of liability insurance;
(12)
A statement on the related party relationship between the entrusted party and the entrusting party, the custodian party within the
territory of China and the overseas custodian agent;
(13)
A document of commitment, promising the authenticity of the materials it submits and the performance of the functions and duties as
prescribed by the Measures and the present Detailed Rules; and
(14)
Other documents and materials as prescribed by the CIRC.
The position paper on supervision and the announcement as mentioned in item (8) of the preceding paragraph shall cover such contents
as paid-in capital, net assets, size of the assets under its management, business management experience, and the certification of
no major irregularity or rule-breaking act during the latest 3 years.
The CIRC shall, in accordance with the relevant provisions of the Measures and the present Detailed Rules, prudently carry out evaluation
on the qualifications of an overseas entrusted party for managing the foreign exchange insurance funds under its management in terms
of corporate governance, assets size, management experience, research capability, investment performance, internal control and market
position, and issue the opinions on the examination.
Article 12
A custodian party within the territory of China who, under custodianship, manage the overseas investment with foreign exchange insurance
funds of an entrusting party shall submit to the CIRC the following documents and materials:
(1)
An application with the signature of the legal representative or a person authorized by it;
(2)
A written statement satisfying the requirements as prescribed in Article 18 of the Measures;
(3)
The certification of qualifications for undertaking the custody business of the overseas investment with foreign exchange insurance
funds;
(4)
The procedures for independent custodian operation and management system, which shall at least include the opening of an account,
assets preservation, capital supplement and withdrawal, securities transaction and capital settlement, internal control and risk
prevention, verification of information with the entrusting party and the entrusted party, selection of the overseas agent and the
secondary custodian, the rules of professional ethics, the inspection and examination mechanism and the mechanism for handling major
emergencies;
(5)
Financial statements of the latest year of the company as audited by an accounting firm and the announcement as signed by the director
of the company upon notarization;
(6)
An audit report of the latest year on the internal control system of the company as issued by an accounting firm, which shall include
its custody business;
(7)
A list of global custodian network indicating the names of the overseas custodian agents relating to the entrustment of foreign exchange
insurance funds, and secondary custodian agents as well as the countries where they are located, and explanations meeting the requirements
as prescribed in Article 26 of the Measures;
(8)
A statement on its related party relationship with the entrusting party and entrusted party;
(9)
A document of commitment promising the authenticity of the materials it submits and the performance of the functions and duties as
prescribed by the Measures and the present Detailed Rules; and
(10)
Other documents and materials as prescribed by the CIRC.
The “statement” as mentioned in item (5) of the preceding paragraph shall cover such contents as the paid-in capital, net assets,
size of custody assets, experience in custody business, and the document certifying no major irregularity or rule-breaking act in
the latest 3 years.
The CIRC shall, in accordance with the Measures and the present Detailed Rules, prudently carry out evaluation on the qualifications
of the commercial banks within the territory of China for undertaking the custody business of the overseas investment of foreign
exchange insurance funds in terms of capital strength, corporate governance, size of custody assets, business experience, internal
control, market position and service level, and issue its opinions on examination.
Chapter III Management of Varieties
Article 13
The currency allocation of an entrusting party in the overseas investment with foreign exchange insurance funds shall be limited to
US dollar (USD), Euro (EUR), Japanese Yen (JPY), Great Britain Pound (GBP), Canadian Dollar (CAD), Swiss Franc (CHF), Australian
Dollar (AUD), Singapore Dollar (SGD), Hong Kong Dollar and other currencies as approved by the CIRC.
The strategy of currency allocation in the overseas investment with foreign exchange insurance funds shall be subject to the approval
of the Investment Decision-making Commission of the entrusting party or the authorized department thereof. The currency allocation
shall conform to the provisions of the Measures and the present Detailed Rules as well as the agreement on the management of the
overseas investment of foreign exchange insurance funds (hereinafter referred to as the investment management agreement) and the
stipulations of the investment guidance.
Article 14
The term “bank deposit” as mentioned in item (1) of Article 9 of the Measures refers to the money required by the entrusted party
to be deposited in an overseas bank that promises to pay the principal and interest for it on a periodic basis, including the structured
deposit with guaranteed principal and interest as issued by an overseas bank.
The term “foreign government bonds” as mentioned in item (2) of Article 9 of the Measures refers to the bonds issued by a sovereign
state in the name of its central government, which promises to pay the relevant principal and interest on a periodic basis, including
the mortgage-backed securities (MBS) as guaranteed by the government for duly payment of the principal and interest.
The term “bonds of an international financial institution” as mentioned in item (2) of the Measures refers to the bonds as issued
by a policy-related multi-lateral financial institution.
The term “monetary market products” as mentioned in item (4) of Article 9 of the Measures includes the monetary market funds.
Article 15
The investment made by an entrusting party in overseas stocks with the foreign exchange insurance funds shall be limited to the stocks
of Chinese enterprises that are listed on the New York Stock Exchange, London Stock Exchange, Frankfurt Stock Exchange, Tokyo Stock
Exchange, Singapore Stock Exchange or Hong Kong Stock Exchange.
Article 16
The means of subscription in the primary market and transaction in the secondary market may be adopted for the investment as made
by an entrusting party in overseas stocks with its foreign exchange insurance funds. The subscription in the primary market includes
the allotment, placement and the participation in the allotment in the name of a strategic investor.
Article 17
As for the financial products in which an entrusting party made the overseas investment with foreign exchange insurance funds, the
credit rating as assessed by an international rating institution shall conform to the provisions of Article 9 of the Measures, in
particular:
(1)
The credit rating of the bank issuing the structured deposits during the latest three years shall be Grade A or above;
(2)
The credit rating of a Chinese enterprise issuing bonds abroad shall be Grade BBB or above;
(3)
The credit rating of mortgage-backed securities (MBS) shall Grade AAA or the equivalent of Grade AAA; and
(4)
The credit rating of the monetary market funds shall be Grade A-1 or the equivalent of Grade A-1.
Article 18
The proportion of overseas investment as made by an entrusting party with its foreign exchange insurance funds shall comply with the
provisions of Article 10 of the Measures, in particular:
(1)
The balance of the structured deposits calculated at the cost price may not exceed 5% of the amount of the foreign exchange payment
for investment as approved by the SAFE;
(2)
The balance of the mortgage-backed securities (MBS) calculated at the cost price may not exceed 20% of the amount of the foreign exchange
payment for investment as approved by the SAFE;
(3)
The total amount of the stocks as issued abroad by a Chinese enterprise calculated at the cost price may not exceed 10% of the amount
of the foreign exchange payment for investment as approved by the SAFE; the amount of the stocks as issued by an enterprise with
single investment may not exceed 5% of the total amount of the stocks.
(4)
The bank deposits of a single related party may not exceed 10% of the amount of the foreign exchange payment for investment as approved
by the SAFE; the bonds as issued by a single related party may not exceed 3% of the amount of the foreign exchange payment for investment
as approved by the SAFE and may not exceed 10% of the total amount of bonds in the very issuance; the stocks as issued by a single
party may not exceed 2% of the total amount of the stocks.
The term “related party” as mentioned in item (4) of the preceding paragraph refers to:
(1)
An entrusting party that directly or indirectly holds more than 10 % of the shares of the enterprise;
(2)
An enterprise that holds directly or indirectly more than 10% of the shares of the entrusting party;
(3)
An enterprise that simultaneously holds more than 10 % of the shares of the entrusting party and the enterprise in a direct or indirect
way; or
(4)
Any other enterprise as recognized by the CIRC that has an interest relationship with the entrusting party.
Chapter IV Administration of Agreement
Article 19
Where an entrusting party and an entrusted party conclude an agreement on the management of investment, they shall be required to
provide the examination opinions as issued by the CIRC. The investment management agreement shall comply with not only all the provisions
of the Measures and the present Detailed Rules and the general practice of entrustment but also the following provisions:
(1)
Clarifying the responsibilities and obligations of the entrusting party and the entrusted party;
(2)
Clarifying the restrictions on the investment varieties, investment proportion and investment market, and determining the measures
for handling any overstepping of investment quota due to such factors as market fluctuation and credit rating adjustment;
(3)
Clarifying the supervisory responsibilities of the entrusting party and the CIRC on the entrusted party. An entrusted party shall,
according to the stipulations and requirements of the investment management agreement, provide all of the information on the management
of the foreign exchange insurance funds and related information to the entrusting party and the CIRC in a timely manner;
(4)
Clarifying that the entrusted party shall observe the principle of avoiding interest conflicts;
(5)
Clarifying that the entrusted party shall employ an accounting firm to conduct an audit on the implementation of internal control
on an annual basis and the audit report shall cover the foreign exchange insurance funds under its management; and clarifying that
the entrusting party has the right to employ an accounting firm to carry out an audit on the foreign exchange insurance funds under
the management of the entrusted party and the entrusted party shall be cooperative.
(6)
Clarifying that the entrusted party shall cooperate with the custodian party within the territory to conduct inspection on complying
with relevant provisions, and to check the foreign exchange insurance funds, provide relevant information and guarantee the authenticity
and accuracy of the information;
(7)
Clarifying that the entrusted party shall, according to the principles of being prudent and duteous, manage the overseas investment
of foreign exchange insurance funds and, if any loss has been incurred due to its negligence, misconduct, insufficient balance of
securities or capital, any flaw in any article of the agreement as concluded with a third party, system failure or personnel fraudulence,
the entrusted party shall be liable for the loss directly arising therefrom and shall bear civil liabilities. The entrusted party
shall bear the burden of proving that it is prudent and duteous;
(8)
Clarifying that an entrusted party, who violates the relevant laws and regulations, the provisions of the Measures or the present
Detailed Rules, or the stipulations of the investment management agreement or the investment guidance, and thus causes any loss of
foreign exchange insurance funds, shall be liable for the loss and shall bear civil liabilities. Resignation of the entrusted party
from entrustment may not exempt it from compensation or civil liabilities.
(9)
Clarifying that where an entrusted party violates the relevant laws and regulations, the provisions of the Measures or the present
Detailed Rules, uses the foreign exchange insurance funds under its management to seek any improper benefits for himself or any other
person, the said illegal benefits shall be incorporated into the foreign exchange insurance funds. And if any loss of the foreign
exchange insurance funds is inflicted, the entrusted party shall be liable for the loss and shall bear civil liabilities. Resignation
of the entrusted party from entrustment may not exempt it from compensation and civil liabilities.
(10)
Clarifying the methods of withdrawal and payment of investment management fees;
(11)
Clarifying that it is stipulated in the arbitration clause of the investment management agreement that any dispute shall be submitted
to an arbitration institution of China or the Hong Kong Special Administrative Region of China;
(12)
Clarifying other relevant matters relating to the rescission and termination of the investment management agreement;
(13)
Clarifying that the Chinese version of the investment management agreement shall prevail. And if foreign language version will prevail
according to the agreement, market practice or any other requirement, a Chinese translation shall be attached; and
(14)
Clarifying any other matter that needs to be clarified.
Before an entrusting party and an entrusted party conclude an investment management agreement, they shall employ a professional lawyer
with more than 5 years practicing experience to examine the investment management agreement and give legal advice.
Article 20
Where an entrusted party and a custodian party within China conclude a custody agreement on overseas investment of foreign exchange
insurance funds (hereinafter referred to the custody agreement ), they shall be required to provide the examination position paper
as issued by the CIRC. The custody agreement shall comply with not only all the provisions of the Measures and the present Detailed
Rules and the common practice in custody but also the following provisions:
(1)
Clarifying the responsibilities and obligations of the entrusting party and the custodian party within the territory of China;
(2)
Clarifying that the entrusting party shall cooperate with the custodian party within the territory of China to make inspection on
complying with the relevant laws and regulations. The custodian party within the territory of China shall cooperate with the CIRC
to make inspection on complying with the relevant laws and regulations and to check the foreign exchange insurance funds in a timely
manner, provide other relevant information and guarantee the authenticity and accuracy of the information;
(3)
Clarifying the supervisory functions and responsibilities of the entrusting party and the CIRC on the custodian party within the territory
of China. The custodian party shall, according to the stipulations and requirements of the custody agreement, provide all the information
and the relevant information of the foreign exchange insurance funds under its custody to the entrusting party and the CIRC in a
timely manner;
(4)
Clarifying that where the custodian party within the territory of China needs to employ an overseas custodian agent or a secondary
custodian, it shall clarify to the entrusting party the standards for selecting an overseas custodian agent or a secondary custodian,
the management procedures and supervisory measures, and shall obtain the recognition thereof. The custodian party within the territory
of China shall report to the CIRC the result of selection of an overseas custodian agent or a secondary custodian;
(5)
Clarifying that the custodian party within the territory of China shall employ an accounting firm to conduct an audit on the implementation
of its internal control on an annual basis and the audit report shall include the foreign exchange insurance funds under its custody;
and clarifying that the entrusting party has the right to employ an accounting firm to conduct an audit on the foreign exchange insurance
funds under the custody of the custodian party and the custodian party within the territory of China shall provide assistance;
(6)
Clarifying that the custodian party within the territory of China shall, according to the principles of being prudent and duteous,
supervise the business operations of the foreign exchange insurance funds under the custody of an overseas custodian agent or a secondary
custodian, and if any loss is incurred due to any negligence, misconduct, position deficiency or flaw in any article of the agreement
as concluded with a third party, system failure or personnel fraudulence, the custodian party within the territory of China shall
be liable for the loss as directly resulted in therefrom and shall bear civil liabilities. The custodian party within the territory
of China shall bear the burden of proving that it is prudent and duteous;
(7)
Clarifying that a custodian party within the territory of China who violates the relevant laws and regulations, the provisions of
the Measures or the present Detailed Rules, or the stipulations of the investment management
