Provision of Free Trade Account Financial Services by Financial Institutions in Shanghai

 2018-06-15  55


· Document Number:No. 59 [2015] of the Shanghai Headquarters of the People's Bank of China

· Area of Law: Banking & Finance General Provisions on Pilot Free Trade Zone

· Level of Authority: Local Regulatory Documents

· Date issued:08-07-2015

· Effective Date:08-07-2015

· Status: Effective

· Issuing Authority: People's Bank of China, Shanghai Head Office

 

Notice of the Shanghai Headquarters of the People's Bank of China on Issues concerning the Provision of Free Trade Account Financial Services by Financial Institutions in Shanghai
(No. 59 [2015] of the Shanghai Headquarters of the People's Bank of China)
Branches in Shanghai and China (Shanghai) Pilot Free Trade Zone (“SHFTZ”) of China Development Bank, all policy banks, state-owned commercial banks, joint-stock commercial banks, and Postal Savings Bank of China; Bank of Communications, Shanghai Pudong Development Bank, Bank of Shanghai, and Shanghai Rural Commercial Bank; Shanghai branches of other urban commercial banks; all foreign-funded banks in Shanghai; and all non-bank financial institutions in Shanghai:
For purposes of further supporting the construction of SHFTZ and expanding the coverage of free trade account financial services, you are hereby notified of the following matters on the provision of free trade account financial services by banking financial institutions in Shanghai:
I. Shanghai banking institutions at the municipal level that have not set up the free trade accounting unit (“FTU”) may, at their discretion, choose to conduct business related to free trade accounts in the model of “direct participation” or “indirect participation”.
II. “Direct participation” means the model under which Shanghai banking institutions at the municipal level directly conduct business related to free trade accounts by internally setting up a FTU in accordance with the provisions of the Detailed Rules for the Implementation of Independent Free Trade Accounting in China (Shanghai) Pilot Free Trade Zone (for Trial Implementation) and the Detailed Rules for the Prudential Risk Management of Independent Free Trade Accounting in China (Shanghai) Pilot Free Trade Zone (for Trial Implementation) (No. 46 [2014], PBC Shanghai Headquarters).
“Indirect participation” means the model under which Shanghai banking institutions at the municipal level do not set up independent free trade accounting but choose one banking institution that has set up an FTU as the agency bank to open fund clearing accounts and thus indirectly participate in business related to free trade accounts.
III. The free trade account business of indirect participation institutions may be divided into two models, i.e. services for the account of a client and proprietary business. For the purpose of effectively segregating risks, indirect participation institutions that provide free trade account services for the account of a client shall not conduct proprietary business, and indirect participation institutions that conduct the free trade account proprietary business shall not provide services for the account of a client.
IV. An indirect participation institution must choose one direct participation bank and enter into an agency service agreement with it. The agency service agreement shall specify whether the indirect participation institution provides free trade account services for the account of a client or free trade account proprietary business.
V. An indirect participation institution must handle all fund settlement and clearing related to free trade account business through a direct participation institution. An indirect participation institution that provides free trade account services for the account of a client shall open an FTU fund clearing account with the direct participation institution with which it enters into an agreement to handle fund settlement and clearing related to the free trade account business for its clients. An indirect participation institution that conducts the free trade account proprietary business shall open an FTE account with the direct participation institution with which it enters into an agreement to handle the relevant fund settlement and clearing.
VI. Indirect participation institutions shall abide by the free trade account clearing mechanisms for indirect participation, i.e. the 20 Chinese characters requirements “separate identifiers, independent clearing, separate statements, special reports, and self-balance,” and implement the following principles:
“Separate identifiers” means that an indirect participation institution may refer to the current requirements for the prefix identifiers of NRA accounts, i.e. externally displayed account numbers must be accompanied with identifiers; and the accounts may be internally categorized based on product numbers and department numbers and in other methods. Indirect participation institutions shall have in place the corresponding mechanisms to ensure the proper external display of identifiers of clients' free trade accounts.
“Independent clearing” means that an indirect participation institution must realize the back-office fund clearing of free trade accounts through the clearing account opened with the direct participation institution with which it enters into an agreement. Fund position management shall be uniformly included in the direct participation institution's FTU for management, be uniformly subjected by the direct participation institution to the three formula requirements for the daily management of FTU clearing accounts as mentioned in Document No. 46 [2014] issued by the PBC Shanghai Headquarters. Indirect participation institutions shall no longer separately implement the three formula requirements.
“Separate statements” means that indirect participation institutions shall form separate statements (paper form is acceptable) one business related to free trade accounts and submit them to the PBC.
The requirements for “special reports” are the same as those for direct participation institutions.
“Self-balance” means that the rules for domestic incorporated banks of indirect participation institutions to provide ultimate liquidity support shall remain unchanged. As agreed upon in the agency agreement by a direct participation institution and an indirect participation institution, the direct participation institution may also provide the relevant liquidity support to the indirect participation institution through its FTU.
VII. The content of and the management requirements for free trade account services provided by indirect participation institutions to their clients shall be the same as the content of and the management requirements for free trade account services provided by direct participation institutions, including but not limited to deposits, loans, settlement and exchange conducted under clients' free trade accounts and overseas financing conducted for clients under free trade accounting, but the Detailed Rules for the Implementation of Macro-Prudential Management of Overseas Financing and Cross-Border Capital Flow in Free Trade Accounting in China (Shanghai) Pilot Free Trade Zone (for Trial Implementation) (No. 8 [2015], PBC Shanghai Headquarters) do not apply to indirect participation institutions themselves that provide services for the account of a client, and they shall not conduct overseas financing under free trade accounting.
An indirect participation institution that conducts proprietary business may conduct, through its FTE account opened with the FTU of the direct participation institution, its own relevant business in SHFTZ and overseas financial markets, and may conduct overseas financing under free trade accounting in accordance with the provisions of Document No. 8 [2015] issued by the PBC Shanghai Headquarters, and the financing leverage ratio shall be 5% of the tier-I capital of its domestic incorporated institution or the confirmed operating funds of its Shanghai branch (applicable to foreign banks without incorporated institutions in China).
VIII. The agency service agreement entered into by and between a direct participation institution and an indirect participation institution shall specify the methods for the indirect participation institution to submit various data to the PBC Shanghai Headquarters (including foreign exchange authorities), the responsibilities for compliance with the three business development principles, the responsibilities for anti-money laundering, combating financing of terrorism, and anti-tax evasion examination, and other relevant content.
IX. A direct participation institution shall submit the agency service agreement entered into with an indirect participation institution to the PBC Shanghai Headquarters for recordation. The direct participation institution is obligated to provide financial services related to free trade accounts with consistent rights and responsibilities.
X. Banking financial institutions in Shanghai that conduct business related to free trade accounts shall accept the supervision and guidance of their business from PBC Shanghai Headquarters.
XI. This Notice shall come into force on the date of issuance.
Shanghai Headquarters of the People's Bank of China
August 7, 2015