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Circular of the General Office of the China Banking Regulatory Commission on Intensifying Risk Disclosure of Partial Business of Trust
Investment Companies
Yin Jian Ban Fa [2005] No. 212
Each banking regulatory bureau:
After this year’s working conference on the supervision of non-bank financial institutions, all banking regulatory bureaus have attach
much importance to the delivering of the spirit of the conference to lower levels and its implementation, and all trust investment
companies have also intensified the management of their trust plans. By the end of May, 42% of the total plans of the whole year
have been returned under collective trust plans, with the amount accounting for 47%. The operation of trust projects and the repayment
of due debts are steady on the whole. All banking regulatory bureaus shall go on maintaining the good methods, and further do well
in the risk supervision of trust investment companies.
In the first half of the year, some problems occurred in the securities business and real estate business of some trust projects.
In some areas, funds were even collected in violation of rules by means of taking advantage of transfer of the beneficiary right
to trust property in a disguised form. Firstly, since last year, the securities business involving most trust investment companies
has been consecutively exposed under the influences of the securities market risks, and some undue trust plans are already facing
the risk of repayment when they become due. Some of the projects of the real estate business of trust investment companies have also
manifested great risks. By the end of May, there have been some due trust projects which fail to be liquidated in time, covering
11% in aspects of stock investment business, and 61% in aspects of real estate business. Secondly, some trust investment companies
have delayed the risks by means of renewal, prepayment with fixed-funds, purchase by affiliated transactions, replacement with new
trust plans, etc. with regard to the trust projects which fail to be liquidated on time. Lastly, in some few areas, funds were collected
in violation of rules in a disguised form from the public for trust of property right by way of assignment of the beneficiary right
to trust property, etc., so the risks spread to the public, and the severity must be attached great importance to.
For the purpose of driving the trust investment companies within your jurisdiction to keep away and get rid of the risks of the trust
business, rectify the rule-breaking business activities, we hereby present our Notification as follows concerning the related matters
on reinforcing risk disclosure, etc. of some business of trust investment companies:
1.
Each banking regulatory bureau shall remind the trust investment companies to attach much importance to the variations of the risks
in stock in securities and real estate business, to carefully analyze the arrangement, structure, safety, proceeds and risks of the
funds, and to focus on whether the funds are misappropriated by the trading partners; to attach importance to the changes of the
risks from trading partners, and to hinder the risks of trading counterparts from diverting to trust investment companies. Considering
securities business, the market-to-market and timely monitored risk hindrance measures shall be set up, the stop loss limit of risks
shall be decided, and effective margin-cut operations must be ensured.
2.
Each banking regulatory bureau shall require the trust investment companies to strictly carry out the “Circular of the General Office
of China Banking Regulatory Commission on Related Matters Concerning the Regulation of the Operation and Management of Securities
Business of Trust Investment Companies” ( Yin Jian Ban Tong [2004] No. 265) for the new securities investment business; the real
estate business newly opened shall be in line with the state’s macro-control policies, and sever due diligence investigation shall
be made for such business, while loans shall not be granted for the projects for which the Certificate for Using State-owned Land,
the Planning Permit for Land Used for Construction, the Planning Permit for Construction Project, and the Permit for the Undertaking
Construction of the Project (“four certificates”) have not been gotten; the qualification of an real estate development enterprise
applying for loans shall not be lower than Grade 2 real estate development qualification as ratified by the national administrative
department of construction, and the rate of capital of the development project shall not be lower than 35%.
3.
Each banking regulatory bureau shall drive the trust investment companies to intensify the construction of risk management abilities,
and, by intensifying the institutional construction of internal control, set up and elevate the working regulations, establish the
risk management system sound, strengthen efforts in implementation, and further elevate the abilities in identification, metrology,
supervising and control of the risks in securities and real estate business; it shall make the trust investment companies realize
the importance of professional talented staff, select trading counterparts in earnest, prudentially conduct securities and real estate
business, specify persons responsible for risk management of each project, and set up rules on confirming and investigating obligations
for risks. Each banking regulatory bureau shall also request the companies facing problems recently to carefully check the losses
which have occurred, analyze in details the reasons for being failing to work normally or problems encountered by the due liquidation
projects; in event of operational risks, the relevant persons must bear liabilities.
Each banking regulatory bureau shall timely organize supervision conference with relevant companies, and keep informed of the results
of internal examination and the elevation in respect of institutional defects in trust investment companies, liabilities of persons,
etc.
4.
Each banking regulatory bureau shall closely focus on the liquidation and delivery of the due trust plans, hinder trust investment
companies from delaying risks by violating rules; and shall pay special attention to trust investment companies’ veiling risks by
replacing due collective fund trust with singular trust, and remind trust investment companies not to set up fund pools with single
substitutive trust funds and not to mix up the fund composition risks in mind.
5.
Each banking regulatory bureau shall, according to the principle of prudential supervision, intensify the supervision over property
right trust, and shall, before the Measures on the Administration of Property Right Trusts are announced, run supervision on fund
raising business by way of assignment of the beneficiary right of properties according to the supervisory principle for the fund
trust business. The number of copies of trust contracts shall be computed at the sum of the number of entrusting parties plus the
number of beneficiaries who paid consideration to obtain the beneficiary right, in order to hinder trust investment companies from
collecting funds from the public in a disguised form in violation of the relevant rules.
6.
Each banking regulatory bureau shall, on a monthly basis, conduct a risk monitoring analysis on the securities and real estate business
of the trust investment companies within its jurisdiction, do well in window direction and risk pre-warning; any risk involving social
stability shall be appointed as a major event. It shall adopt effective supervision measures to avoid risks from accumulating and
spreading, and shall report the matters on risks to CBRC in time in accordance with provisions.
7.
Each banking regulatory bureau shall further elevate the non-on-site supervision report, and shall, by considering the risk supervision
as the key point, elevate the work of non-on-site supervision with scientific philosophy and method of risk supervision. In the supervision
report of the second half of the year, it shall focus on analyzing five categories of risks: first, credit risks chiefly subject
to arduous collection of the original assets, lack of abilities to recover the loan trust on time, and breach of contracts by securities
trading partners; second, market risks chiefly subject to securities market fluctuation; third, liquidity risks caused by the repayment
of the original debts and lack of abilities to repay the due collective trust; fourth, operational risks and moral risks caused by
shareholders or associated parties by virtue of their enclosure of funds or by virtue of rule-breaking operation of senior managers
or employees of companies; fifth, reputation risks of the company and even the whole industry by virtue of inability to repay the
single collective trust plan.
The General Office of the China Banking Regulatory Commission
August 28, 2005
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