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China Sets Rules for Overseas Operations of Commercial Banks (August 21, 2001)
The People's Bank of China (PBOC) on Monday issued supervisional guidelines for the operations of overseas branches of Chinese commercial banks in a bid to make them operate in a prudent and healthy way.

All commercial banks must apply to the PBOC before they set up or purchase overseas branches, upgrade overseas branches, cancel, integrate, restructure, add or reduce capital funds or operating funds, adjust equity structure and forms, transfer equity and rectify charters, the guidelines say.

Concerning all this, the commercial banks may apply to the supervision authorities of host countries only after they get approval from the PBOC, the guidelines say.

Commercial banks are required to build up internal control systems concerning the management of overseas branches, and upgrade the systems in accordance with changes in supervision regulations and the growth of their own operations.

Commercial banks must strengthen the authorized management of overseas branches, improve report systems, strictly punish acts in excess of authority, and guarantee that all services of overseas branches be under authorization, the guidelines say.

The guidelines demand that commercial banks, together with overseas branches, build up risk-management systems to ensure the security of parent banks by supervising, evaluating and managing effectively all risks, including credit risks, market risks, liquidity risks and operating risks of overseas branches.

Commercial banks are obliged to improve personnel systems concerning nomination and management of high-level staff, according to the guidelines.

The guidelines say that the PBOC must make annual supervision plans for overseas branches of commercial banks, sets up remote supervision information systems concerning commercial banks and their overseas branches, carry out comprehensive supervision over commercial banks and choose at least two overseas branches annually for special review or audit.

The guidelines point out that referring to regulations concerning trans-border banking supervision issued by the Basle Committee on Banking Supervision, PBOC will strengthen cooperation and exchange supervision information with local authorities on the basis of dividing supervision obligations, in a bid to guarantee the full supervision over commercial banking branches.

The guidelines say that overseas representative offices and non- banking institutions set up or purchased by commercial banks are subject to administrative regulations on overseas financial branches, noting that those branches set or purchased in Hong Kong, Macao and Taiwan are under the governance of the guidelines.

The guidelines have been formulated in line with Chinese laws on the central bank, commercial banks and administrative regulations on overseas financial branches, as well as in light of principles set by the Basle Committee on Banking Supervision and the common practice of other countries.

Overseas branches of commercial banks named in the guidelines refer to overseas banking branches set up or purchased by wholly state-owned or joint-stock commercial banks, including bank branches, full subsidiary banks and banks in which the commercial banks have controlling or non-controlling stakes.
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