China's top banking regulator has drafted a regulation on equity management for commercial banks to tighten controls on financial risk and combat illegal activities.
The China Banking Regulatory Commission started soliciting public opinion on Thursday on the interim regulation on equity management, which would impose stricter supervision on major shareholders of commercial banks.
"Currently, social capital's enthusiasm for initiating the founding of, holding a stake in, or acquiring banking institutions keeps rising. But the enthusiasm has been followed by disorder. For example, some shareholders violated the rule by using funds out of others' pockets to buy shares in a commercial bank, holding shares on behalf of another, or abusing shareholder's rights to harm the interests of a bank. To rectify the chaos and remedy the regulatory weak link, the CBRC organized the drafting of the latest regulation," the regulator said in a statement posted on its website.
The CBRC said it hopes to establish a regulatory framework that will target three relevant parties - the commercial bank, the shareholders and the regulatory authorities. They will require major shareholders of a commercial bank to explain each layer of their equity structure, disclosing their actual controller and ultimate beneficiaries, as well as their association with other shareholders or the relationship of parties acting in concert.
Zeng Gang, director of banking research at the Institute of Finance and Banking under the Chinese Academy of Social Sciences, said the CBRC had listed equity management for commercial banks as a major task to bolster regulatory weak spots.
"In recent years, various capital acquired shares of commercial banks. People learned from time to time that some investors explored ways to hold stakes in a bank by making a detour or to avoid shareholder management requirements. Such violations brought hidden risks to bank operations. The strengthening of equity management will help contain the risks associated with the shareholders of a bank," Zeng said.
According to the draft regulation, if an investor, either by itself or together with its connected persons and parties acting in concert, plans to hold a stake of more than 5 percent in a commercial bank for the first time or to cumulatively increase shareholding by more than 5 percent, it should report to banking regulators beforehand for approval.
The same investor, along with its connected persons and parties acting in concert, are allowed to become a major shareholder of no more than two commercial banks or the controlling shareholder of only one bank.
The same issuer or manager of a financial product and its connected persons are allowed to hold a stake of no more than 5 percent altogether in a commercial bank via the product, whereas major shareholders of a commercial bank are forbidden to hold stake in the same bank via financial products they issued, managed or controlled by other means, according to the CBRC.