Systemically important financial institutions have an important status in the financial system, and their operations and risk status are directly related to the overall robustness of China's financial system and their capabilities to service the real economy. For the purposes of improving the regulatory framework for systemically important financial institutions in China, establishing an identification, regulation and resolution mechanisms of systemically important financial institutions, preventing systemic risk, and effectively maintaining the sound operation of the financial system, with the approval of the CPC Committee and the State Council, the following opinions are hereby offered.
I . General provisions
1. Definition. “Systemically important financial institution” means a financial institution which will, on account of its large size, complexity of its structure and business, strong relevancy to other financial institutions, and its provision of critical services difficult to replace in the financial system, have a significant adverse impact on the financial system and the real economy and may give rise to systemic risk, if a material risk event disables the financial institution from continual operation.
2. Scope of institutions. For the purpose of these Opinions, systemically important financial institutions include systemically important banking institutions, systemically important securities institutions, systemically important insurance institutions, and other systemically important institutions engaging in financial business as determined by the Financial Stability and Development Committee under the State Council (hereinafter referred to as the “Financial Committee”).
“Banking institution” means a commercial bank, development bank or policy bank established according to the law; “securities institution” means a corporate institution established in accordance with the law engaging in securities, futures and fund business; and “insurance institution” means a corporate institution established in accordance with the law engaging in insurance business.
3. Improving principal regulatory methods. The regulation of systemically important financial institutions shall be improved primarily by two methods:
(1) Special regulatory requirements for systemically important financial institutions shall be developed to heighten their continual operation capabilities so as to reduce the probability of material risk.
(2) A special resolution mechanism for systemically important financial institutions shall be established to ensure that in the event of material risk, they are able to be safely, quickly and effectively resolved to ensure that their critical business and services not are interrupted and prevent the “too-big-to-fail” risk.
The special regulatory requirements as set out in these Opinions are additional regulatory measures for systemically important financial institutions and shall not supersede the routine regulatory duties of banking, securities, and insurance regulatory authorities.
4. Working mechanisms. Systemically important financial institutions shall be determined by the Financial Committee on the basis of the work of the People's Bank of China (“PBC”), the China Banking and Insurance Regulatory Commission (“CBIRC”) and the China Securities Regulatory Commission (“CSRC”). The PBC shall be responsible for developing fundamental rules, monitoring and analyzing, and conducting consolidated supervision of systemically important financial institutions, instruct relevant regulatory authorities to adopt correlative regulatory measures according to the circumstances and, if necessary, inspect and supervise financial institutions with the approval of the State Council. The CBIRC and the CSRC shall be responsible for data collection, score calculation and list submission in relation to assessment of systemically important financial institutions and implement micro-prudential regulation of systemically important financial institutions in corresponding industries as legally required. The PBC shall establish a special resolution mechanism for systemically important financial institutions with the CBIRC, the CSRC, the Ministry of Finance and other relevant entities. The member entities of the Financial Committee shall dutifully strengthen information sharing and regulatory cooperation regarding systemically important financial institutions.
5. Regulatory responsibilities. Relevant authorities shall, in accordance with the division of labor as specified in these Opinions, dutifully perform their responsibilities for supervising and administering systemically important financial institutions. If a relevant authority' failure to perform supervisory and administrative responsibilities, or ineffective performance of such responsibilities, gives rise to material risk, the General Office of the Financial Committee shall take the lead in instituting regulatory accountability according to the procedures.
6. Identification tests and fundamental regulatory rules. The General Office of the Financial Committee shall arrange for the PBC, the CBIRC, and the CSRC, according to these Opinions, to propose identification tests of banking, securities, and insurance institutions and detailed implementation rules for regulation, and implement them upon deliberation and adoption by the Financial Committee.
II . Assessment and identification
7. Evaluation process. The assessment of systemically important financial institutions shall be carried out once a year according to the following process:
(1) The scope of institutions under assessment shall be determined.
(2) The indicator method shall be adopted to identify systemically important financial institutions, quantitative assessment indicators and rating methods shall be determined, a data collection template shall be prepared, and data necessary for the assessment shall be gathered from institutions under assessment.
(3) The systemically important score of each institution under assessment shall be calculated, the threshold value for the determination of systemically important financial institutions shall be determined, and a preliminary list of systemically important financial institutions shall be prepared.
(4) Regulatory judgment shall be made in light of other quantitative and qualitative analyses to adjust the preliminary list of systemically important financial institutions.
(5) Determining and releasing the final list of systemically important financial institutions.
8. Scope of institutions under assessment. The PBC shall, in conjunction with the CBIRC and the CSRC, according to the development characteristics of various industries, develop an objective, quantitative, simple and comparable test and fix the scope of institutions under assessment. The test of institutions under assessment may be the size indicator of financial institutions, to wit: the total on- and off-balance-sheet assets of all institutions under assessment account for not less than 75% of the total year-end assets of the industry for the previous year under the same standards as calculated by the regulatory authorities; or the quantity indicator of financial institutions, to wit: banking, securities, and insurance institutions under the assessment are respectively not less than 30, ten and ten.
9. Assessment indicators. Quantitative assessment indicators shall be used to calculate the systemic importance scores of institutions under assessment. Assessment indicators mainly measure the potential impact the failure of systemic financial institutions has on the financial system and the real economy, including size of institutions, interconnectedness, complexity, substitutability, accounting liquidity and other Level 1 indicators. The PBC shall, in conjunction with the CBIRC and the CSRC, set Level 2 indicators and corresponding weights according to the characteristics and development status of various industries.
10. Data collection. The CBIRC and the CSRC shall prepare data submission templates and data entry instructions based on the assessment indicators and the scope of institutions under assessment as deliberated and adopted by the Financial Committee. The data entry instructions shall include the definition of each Level 2 indicator, the change in the template from the previous year and other contents. Institutions under assessment shall enter and submit the data for the previous fiscal year before the end of June, each year. Regulatory authorities shall conduct quality inspection, supplement, and amendment of data and share the regulatory reports, entered data and other relevant information from institutions under assessment with the PBC.
11. Systemic importance score. The CBIRC and the CSRC shall, upon completion of data collection, calculate the systemic importance scores of institutions under assessment. The systemic importance score of an institution under assessment is calculated by summing all the amounts each of which the proportion of the amount for an indicator of the institution to the aggregate amount for the indicator summed across all institutions under assessment times the corresponding weight of the indicator equals, unless otherwise provided. The CBIRC and the CSRC shall, according to the overall score, determine the threshold for systemically important financial institutions, prepare preliminary lists of systemically important financial institutions, and submit them to the General Office of the Financial Committee.
12. Supervisory judgment. The PBC, the CBIRC, and the CSRC may, based on other quantitative or qualitative ancillary information, make a supervisory judgment proposal that financial institutions whose system importance scores are below the threshold be put on the list of systemically important financial institutions and submit the proposal to the General Office of the Financial Committee together with the preliminary list. When necessary, the PBC, the CBIRC, and the CSRC shall categorize systemically important financial institutions according to their systemic importance scores to implement differentiated regulation.
13. Determination and disclosure of lists. The preliminary lists of systemically important financial institutions, the data entered by and system importance scores of corresponding financial institutions, and proposals and basis for regulatory judgment shall be submitted to the Financial Committee for deliberation before the end of August, each year. The final list of systemically important financial institutions shall be determined by the Financial Committee and jointly released by the PBC and relevant regulatory authorities.
14. Review and adjustment of assessment process and methods. The Financial Committee shall review the process and methods of assessment of systemically important financial institutions every three years and make necessary adjustments and improvements. If the industry changes significantly, and the existing assessment process and methods fail to meet the actual needs to prevent systemic risks, the Financial Committee may additionally review the assessment process and methods.
III . Special regulatory requirements
15. Additional regulatory requirements. The PBC shall, in conjunction with the CBIRC and the CSRC, propose additional capital requirements and leverage ratio requirements for systemically important financial institutions, in addition to minimum capital requirements, capital conservation and countercyclical capital requirements, and implement the proposed requirements upon the deliberation of Financial Committee. In order to reflect the systemic importance of financial institutions, additional capital shall be calculated continuously, to wit: the financial institution with the highest system importance score is elected as the benchmark institution, and when its additional capital requirement is determined, that for another institution is calculated based on the ratio of its system importance score to that of the benchmark institution. When systemically important financial institutions are regulated by categories, an institution with the highest system importance score from each category may be elected as the benchmark institution for each category, and the additional capital requirements for other institutions in each group shall be determined continuously.
According to the development characteristics of industries, the PBC may, in conjunction with the CBIRC and the CSRC, propose liquidity, large exposures, and other additional regulatory requirements for systemically important financial institutions from high-score categories according to the circumstances and implement the requirements as deliberated and adopted by the Financial Committee.
16. Corporate governance. On the basis of the existing regulatory requirements for governance, a systemically important financial institution shall further establish a governance structure of blanket risk coverage and transparent and effective management, further specify the remit of its board of directors, board of supervisors and senior management, and set up a risk management committee under the board of directors, charged with assessing the systemic risk factors existing in the institution, setting forth systemic risk management objectives, developing measures relating to risk prevention and control, and supervising the management implementing the relevant work.
17. Risk management. A systemically important financial institution shall conduct consolidated risk management, fully and continually manage and control overall governance, capital, risk and finance, among others, continually optimize risk appetite, establish a blanket risk management structure, develop or update a risk management plan each year, and file it with the PBC and corresponding regulatory authorities. The risk management plan of a systemically important financial institution shall include a comprehensive analysis of the institution's risk, an assessment of the effectiveness of the risk prevention and control system, and specific measures to improve risk management.
18. Information systems. A systemically important financial institution shall establish an efficient data collection and information system to achieve the effective monitoring of overall risk, continually optimize relevant information reporting mechanisms, and strengthen information disclosure.
IV . Prudential regulation
19. Routine regulation. The CBIRC and the CSRC shall implement routine regulation of systemically important financial institutions in accordance with the law, including the implementation of market access administration of the institutions and their business scopes, examination of the qualifications or conditions for senior management of the institutions, implementation of on-site inspection and off-site regulation of the institutions, collection of relevant regulatory data on the institutions, risk and compliance assessment, establishment of risk monitoring, evaluation and advance warning systems, and lawful investigation and punishment of violations of laws and regulations. The Ministry of Finance shall regulate development banks, policy banks and their development and policy business in accordance with the rules.
20. Risk monitoring. The PBC, the CBIRC, and the CSRC shall regularly conduct risk assessment on the overall operation or individual business of institutions, require the institutions to comply with higher information disclosure standards, and adopt other measures conducive to monitoring and analyzing the risk status of institutions.
21. Stress testing. The PBC shall, in conjunction with the CBIRC and the CSRC, regularly perform stress testing on systemically important financial institutions and, based on the results of stress testing, propose additional regulatory requirements or adopt corresponding regulatory measures in respect of systemically important financial institutions.
22. Regulatory recommendations. The PBC may, based on the risk judgment with respect to systemically important financial institutions, recommend relevant regulatory authorities to adopt corresponding regulatory measures. Relevant regulatory authorities shall actively adopt the recommendations and make a timely reply.
23. Macroprudential measures. If a systemically important financial institution violates the prudential business rules or threatens financial stability, the PBC may directly issue risk alerts to the institution. When necessary, the PBC shall, in conjunction with relevant authorities, propose adjustment of the business structure, business strategy and organizational structure of systemically important financial institutions in accordance with legal procedures and advance effective implementation, so as to reduce the probability of their causing systemic risks. A systemically important financial institution shall take corrective action as required and submit reports to the PBC and relevant regulatory authorities.
V . Special resolution mechanisms
24. Crisis management group. The PBC shall lead the CBIRC, the CSRC, the Ministry of Finance and other relevant entities forming a crisis management group responsible for establishing a special resolution mechanism for systemically important financial institutions, promoting the development of recovery and resolution plans, and conducting resolvability assessment, so as to ensure that when a systemically important financial institution fails, it can be safely, quickly and effectively resolved to guarantee the continuity of critical business and services and avoid systemic risks.
25. Recovery plans. A systemically important financial institution shall develop a recovery plan subject to annual updating and implement that as deliberated and revised by the crisis management group. The recovery plan shall be intended to ensure that the financial institution is able to resume normal operations by taking relevant measures in extreme stress scenarios. The recovery plan shall include without limitation the profile of the institution, governance structure for executing the recovery plan, identification of key functions and core business, design and analysis of stress scenarios, recovery triggers, specific implementation plan, feasibility analysis, barriers to execution, and recommendations for improvement.
26. Resolution plans. The crisis management group shall develop resolution plans subject to annual updating in conjunction with systemically important financial institutions, and the resolution plans as deliberated and revised by the crisis management group shall be implemented. A resolution plan shall be intended to ensure that when an institution experiences substantial financial difficulties or is unable to continue operating, it can be quickly and systematically resolved and maintain the continuity of critical business and services during the resolution process to avoid systemic risks. The resolution plan shall include without limitation the profile of the institution, governance structure for executing the resolution plan, identification of key functions and core business, resolution triggers, information and data necessary for the implementation of the resolution plan, analysis of resolution strategies, analysis of resolution power and resolution tools, specific implementation plan, feasibility analysis, economic and financial impact the resolution has, barriers to execution, and recommendations for improvement.
27. Resolvability assessment. The crisis management group shall conduct resolvability assessment of systemically important financial institutions on a yearly basis and assess the feasibility and reliability of resolution mechanisms and the aspects required to be improved to heighten resolvability. The assessment shall include without limitation whether the resolution mechanism and resolution tools are legal and feasible, whether the funding source and funding arrangements are determinate, whether the key function identification methods of financial institutions are reasonable, whether key functions are able to continue operating during resolution, whether the organizational structure and management information system are able to support resolution, whether the cross-border cooperation in and information sharing arrangements for resolution are feasible, whether financial market infrastructure is continuously accessible, and the economic and financial impact the resolution has. If a systemically important financial institution experiences a material change such as merger, acquisition, and restructuring, the crisis management group shall promptly assess the changes in its resolvability.
28. Information submission requirements. A systemically important financial institution shall provide the crisis management group with relevant information necessary for the examination of recovery and resolution plans and the performance of resolvability assessments in a timely manner, so as to ensure that its management information system is able to quickly and comprehensively meet the relevant information submission requirements.
29. Principles for resolution of institutions facing problems. When a systemically important financial institution experiences material risk, the PBC shall, as authorized, in conjunction with relevant authorities, form a task force on risk resolution to conduct tackling and resolution. In the course of resolution, the responsibility for resolution shall be specified, and while the minimum requirements are met to prevent systemic risks, laws and regulations shall be observed to prevent moral hazards. According to the recovery and resolution plans, the resolution shall be funded in the following order: the self-owned assets of the financial institution shall be used, or funds shall be raised in a market-oriented manner for self-rescue; if the foregoing measures are unable to resolve the risks, the corresponding industry protection funds may provide liquidity support or bailout according to the law; and when none of the foregoing measures can resolve the risks, when systemic risks are possible and pose a threat to the stability of the financial system, the systemically important financial institution may apply to the PBC for emergency liquidity support or bailout subject to a prerequisite, and if necessary, the PBC shall, in conjunction with relevant authorities, conduct a review and perform implementation with approval by the procedures.
VI . International coordination and cooperation
30. Cooperation with international organizations. The PBC, the Ministry of Finance, the CBIRC, and the CSRC shall strengthen exchanges and cooperation with international organizations such as the Financial Stability Board, the Basel Committee on Banking Supervision, the International Organization of Securities Regulatory Commissions, and the International Association of Insurance Supervisors and duly drive the domestic regulatory framework for systemically important financial institutions to meet international standards in light of China's actual circumstances. A global systemically important financial institution determined as a domestic systemically important financial institution shall be governed in principle by the special regulatory requirements for systemically important financial institutions, either global or domestic, whichever are stricter.
31. Cooperation with overseas regulatory authorities. The PBC, the CBIRC, and the CSRC shall continually improve the cooperation with overseas regulatory authorities, strengthen the regulation of the overseas branches of systemically important financial institutions, and when necessary, enter into a cross-border cooperation agreement with relevant authority of the host country to strengthen regulation and the coordination and cooperation in the course of resolution.
VII . Implementation
These Opinions shall come into force upon issuance.
A financial holding company shall be governed by the rules of the state regarding the regulation of financial holding companies, and a financial holding company determined as systemically important by the Financial Committee shall be also governed by these Opinions.
The People's Bank of China,
China Banking and Insurance Regulatory Commission
China Securities Regulatory Commission
November 26, 2018
