China is set to strengthen supervision of foreign banks operating in the country to contain potential risks, as more foreign banks are poised to move in the Chinese market following a slew of opening measures, according to a draft regulation released on Wednesday.
The draft regulation released by the China Banking and Insurance Regulatory Commission (CBIRC) made several revisions to the country's management rules of foreign banks, the commission said in the draft, which is open for public comment through December 27.
The revisions are made "in order to further expand the opening-up of the banking industry, promote the competitiveness of the banking sector, enhance the risk resilience of foreign banks and increase the protection of consumers' rights," the CBIRC said.
The new regulation would require foreign banks that have set up wholly owned branches or joint ventures in China to meet additional "prudential conditions."
Such conditions could include foreign banks having to have a "good" corporate management structure, comprehensive risk management mechanisms to deal with all kinds of risks and qualified strategic investors, among others, according to Li Daxiao, chief economist at the Shenzhen-based Yingda Securities.
The draft regulation also included revisions to the allocation of operating capital from foreign banks to branches in China and areas of operation that require registration with the authorities. While Chinese branches of foreign banks are allowed to handle business both within and outside the Chinese market in collaboration, they are required to report such activities to regulators.
Foreign banks are also required to inform clients whether their deposits would be insured or not.
"These are proactive measures to help foreign banks manage risks as they operate in China," Li told the Global Times, adding that such measures are necessary as more foreign banks are allowed to operate in the Chinese market.
As part of its efforts to further open up the domestic financial market, China has announced measures to allow more foreign banks in the Chinese market, including adjusting restrictions on foreign banks' proportion of stakes or range of operations.
