Detailed Implementing Rules for the Administration of Recordation of Foreign Institutional Investors' Investment in the Inter-Bank Bond Market

· Document Number：Announcement No. 2 [2016] of the Shanghai Head Office of the People's Bank of China

· Area of Law： Securities

· Level of Authority： Local Regulatory Documents

· Date issued：05-27-2016

· Effective Date：05-27-2016

· Status： Effective

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

Announcement of the Shanghai Head Office of the People's Bank of China
(No. 2 [2016])
In accordance with the provisions of Announcement No. 3 [2016] of the People's Bank of China (“PBC”), the PBC Shanghai Head Office has developed the Detailed Implementing Rules for the Administration of Recordation of Foreign Institutional Investors' Investment in the Inter-Bank Bond Market, which are hereby issued for implementation.
PBC Shanghai Head Office
May 27, 2016

Detailed Implementing Rules for the Administration of Recordation of Foreign Institutional Investors' Investment in the Inter-Bank Bond Market
Article 1 For the purpose of effectively conducting the administration of recordation of foreign institutional investors' investment in the inter-bank bond market, these Detailed Implementing Rules are developed in accordance with the provisions of Announcement No. 3 [2016], PBC (hereinafter referred to as the “Announcement”).
Article 2 For the purpose of these Detailed Implementing Rules, “foreign institutional investors” mean foreign institutional investors prescribed in the Announcement.
For the purpose of these Detailed Implementing Rules, “settlement agent” means the settlement agent on the inter-bank market that has the capability to conduct international settlement, and is entrusted as the settlement agent on the inter-bank market to conduct bond transactions and settlement on behalf of foreign institutional investors.
Article 3 A settlement agent shall, under the principles of “knowing your clients,” “knowing your business” and “due diligence,” effectively perform the functions of examining the qualifications of foreign institutional investors.
Article 4 A qualified foreign institutional investor may entrust a settlement agent to apply to the PBC Shanghai Head Office for investment recordation, and the settlement agent shall submit the Recordation Form for a Foreign Institutional Investor's Investment in the China Inter-Bank Bond Market (see Annex for format) and the settlement agency agreement on behalf of the investor. A foreign institutional investor that has entered the inter-bank bond market is not required to undergo recordation formalities anew unless it is otherwise provided for by the PBC.
Article 5 Where a settlement agent conducts investment recordation on behalf of a foreign institutional investor for the first time, it shall also submit the following materials to the PBC Shanghai Head Office:
(1) a photocopy of the administrative licensing decision on the settlement agent on the inter-bank bond market issued by the PBC upon approval;
(2) an explanation on the capability for conducting international settlement;
(3) an explanation on complete separation between its proprietary investment management business and its investment business as an agent in terms of assets, personnel, systems, and rules, etc.;
(4) the management rules for bond transactions and settlement as an agent, including, but not limited to, the measures for the administration of bond transactions and settlement as an agent, business operating procedures, risk management rules, and codes of conduct for employees;
(5) an explanation on information technology facilities, technical support professionals, and information system management rules, etc., as required for bond transactions and settlement as an agent;
(6) a photocopy of the certificates obtained for participating in training relating to the inter-bank bond market by the person in charge and business personnel of the department responsible for bond transactions and settlement management as an agent and other relevant personnel;
(7) an explanation on no violation of law or serious regulatory violation in the past three years;
(8) a letter of commitment that it is responsible for the authenticity, accuracy and integrity of materials submitted for recordation, the materials have no false records, misleading statements or material omissions, and it is aware of and has performed the functions of examining the qualifications of foreign institutional investors; and
(9) other materials as required by the PBC.
Article 6 Where a settlement agent is entrusted for the first time to provide asset custody services to foreign institutional investors, it shall submit the following supplementary materials to the PBC Shanghai Head Office for recordation.
(1) an explanation on the company's business scope, governance structure, internal audit and monitoring rules and risk control rules;
(2) a statement regarding whether it has set up a special custody business department, sound custody business capability, completely separated its own assets from the assets entrusted for management, and set up different accounts for the assets under its custody for separate management;
(3) its custody business rules, including, but not limited to, the measures for the management of the custody business, business operating procedures, risk management rules, codes of conduct for employees, and accounting methods;
(4) an explanation on technical facilities, technical support personnel, and information system management rules required for the custody business;
(5) a photocopy of the certificates obtained for participating in training relating to the inter-bank bond market by the principal person in charge of the custody business, person in charge of the department, and business personnel, etc.;
(6) an explanation on no violation of law or serious regulatory violation in the last three years;
(7) a letter of commitment that it is responsible for the authenticity, accuracy and integrity of materials submitted for recordation, and the materials have no false records, misleading statements or material omissions; and
(8) other materials as required by the PBC.
Article 7 The PBC Shanghai Head Office shall, within 20 working days as of the date of acceptance of the recordation application, issue a recordation notice according to prescribed conditions and procedures, and the recordation notice shall be valid for three months as of the date of issuance. If a new application is filed for recordation, the relevant information shall be stated.
Article 8 Where the investment principal funds remitted by a foreign institutional investor is less than 50% of the recorded funds for investment within nine months as of the day when recordation was made, the investor shall report the funds to be invested and other information once again. If the foreign institutional investor modifies the relevant recordation information or exits the inter-bank bond market, it shall entrust a settlement agent to submit an application and the relevant materials to the PBC Shanghai Head Office.
Article 9 A foreign institutional investor shall, according to the relevant provisions of the Announcement, conduct the investment business in the inter-bank bond market in accordance with the laws and regulations.
Article 10 A settlement agent shall appropriately retain the relevant materials involved in recordation, and effectively perform the prescribed duties. It shall, within the first five working days of each month, submit to the PBC Shanghai Head Office the information on foreign institutional investors in the last month and a report on the implementation of the investment business. If any major issue or abnormal circumstance is discovered, it shall report to the PBC Shanghai Head Office in a timely manner.
Article 11 The National Interbank Funding Center and bond registration, custody and settlement institutions shall, according to their respective functions, effectively provide relevant services and conduct monitoring. They shall, within the first five working days of each month, submit to the PBC Shanghai Head Office the information on foreign institutional investors' business operation in the last month.
Article 12 The PBC Shanghai Head Office shall have the right to conduct supervision and administration of relevant business operations conducted by foreign institutional investors and settlement agents by such means as interviews and on-site inspection, which shall cover:
(1) compliance with the laws and regulations of investment made by the foreign institutional investor in the inter-bank bond market;
(2) settlement agent's recordation and provision of services on behalf of the foreign institutional investor, especially the performance of all functions as set forth in Article 14 of the Announcement; and
(3) cooperation in the competent department's work provided by the foreign institutional investor and settlement agent and the timeliness, accuracy and integrity, etc., of the submitted monthly reports, and the reports on significant or abnormal circumstances.
Article 13 Where a foreign institutional investor or settlement agent commits any violation of law or regulation when conducting business operations in the inter-bank bond market, the PBC Shanghai Head Office shall, according to the seriousness of circumstances, take such regulatory measures as holding admonitory talks, giving a warning notice, suspending business, and compulsory exit and impose administrative penalties.
Article 14 The PBC Shanghai Head Office shall, by such means as convening the settlement agent's meeting from time to time, conduct research to improve recordation administration, and report relevant suggestions to the PBC in a timely manner.
Article 15 These Detailed Implementing Rules shall be subject to interpretation and revision by the PBC Shanghai Head Office.
Article 16 These Detailed Implementing Rules shall come into force on the date of issuance.