Regulations on the Supervision and Administration of Financing Guarantee Companies

 2018-04-09  1020


Regulations on the Supervision and Administration of Financing Guarantee Companies

Order of the State Council of the People's Republic of China No.683

August 2, 2017

The Regulations on the Supervision and Administration of Financing Guarantee Companies adopted at the 177th Executive Meeting of the State Council on June 21, 2017 are hereby promulgated for implementation as of October 1, 2017.

Premier Li Keqiang

Regulations on the Supervision and Administration of Financing Guarantee Companies

Chapter I General Provisions

Article 1 The Regulations on the Supervision and Administration of Financing Guarantee Companies (the "Regulations") are formulated with a view to supporting the development of Inclusive Finance, promoting the accommodation of funds, regulating the conduct of financing guarantee companies and preventing risks.

Article 2 For the purposes hereof, "financing guarantee" refers to the act of providing a guarantee for the guarantor for its borrowings, issue of bonds and other debt financing; and financing guarantee companies refer to limited liability companies or companies limited by shares established in accordance with the law and operating financing guarantee business.

Article 3 In carrying out business, a financing guarantee company shall abide by the laws and regulations, operate prudently and maintain its honesty and trustworthiness, and may not harm the interests of the state, the public interest or the lawful rights and interests of others.

Article 4 Departments designated by the people's governments of provinces, autonomous regions and municipalities directly under the Central Government (the "Competent Authorities") shall be responsible for the supervision and administration of the financing guarantee companies within their jurisdictions.
The people's governments of provinces, autonomous regions and municipalities directly under the Central Government shall be responsible for formulating policies and measures to promote the development of the financing guarantee industry in their jurisdictions, and to handle risks of the financing guarantee companies, and urge the Competent Authorities to strictly perform their duties.
The State Council will establish an inter-ministerial joint conference on the supervision of financing guarantee business, which will formulate a supervision and management system applicable to financing guarantee companies, coordinate and solve major problems in the supervision and management thereof, and urge and guide local people's governments in terms of the supervision and management of financing guarantee companies and risk disposal. The inter-ministerial joint conference on the supervision of financing guarantee business is led by banking supervisory authorities under the State Council and participated in by the related departments thereunder.

Article 5 The State promotes the establishment of a financing guarantee system of government nature, develops financing guarantee companies supported by governments, establishes mechanisms under which the government, banking financial institutions and financing guarantee companies cooperate each other, and expands the scale of financing guarantee business made available to small and micro businesses and fields of agriculture, rural areas and farmers at low rates.
The financial departments of the people's governments at all levels will provide financial support through capital investment, establishment of a risk sharing mechanism and other ways for financing guarantee companies that primarily serve small and micro businesses and fields of agriculture, rural areas and farmers with specific measures to be formulated by the financial department of the State Council.

Chapter II Establishment, Modification and Termination

Article 6 To establish a financing guarantee company, an approval from the Competent Authorities must be secured.
"Financing guarantee" shall be indicated in the name of a financing guarantee company.
No unit or individual may operate any financing guarantee business or use the word "financing guarantee" in its name without the approval of the Competent Authorities, unless otherwise stipulated by the State.

Article 7 The establishment of a financing guarantee company shall conform to the Company Law of the People's Republic of China and the following conditions must be satisfied:
1. shareholders of the financing guarantee company enjoy a sound reputation and have no record of major illegal or rule-making in the last three years;
2. the registered capital of the financing guarantee company shall be no less than CNY20 million, and be paid in real terms;
3. the proposed directors, supervisors and senior officers of the financing guarantee company are familiar with the laws and regulations related to the financing guarantee business, and have the experience and management ability required to perform their duties; and
4. the financing guarantee company has in place sound business standards and risk control and other internal control systems.
The provinces, autonomous regions and municipalities directly under the Central Government may raise the minimum threshold of registered capital stipulated in the preceding paragraph in light of their economic development levels and the actual development situation of the financing guarantee industry within their jurisdictions.

Article 8 To apply to establish a financing guarantee company, an application shall be made to and materials proving the satisfaction of conditions listed in Article 7 hereof shall be submitted to the Competent Authorities.
The Competent Authorities shall, within 30 days of the date of accepting the application, make a decision on whether to approve it or not. If the application is approved, a business license for financing guarantee business will be issued; otherwise, the applicant will be notified in writing with the reasons explained.
Financing guarantee companies which are approved will be announced by the Competent Authorities.

Article 9 To combine or divide a financing guarantee company or decrease the registered capital thereof, an approval from the Competent Authorities must be secured.
A financing guarantee company shall report the setting up of its branches and changes in name, shareholders holding more than 5% of shares or directors, supervisors and senior officers within the provinces, autonomous regions and municipalities directly under the Central Government of its locality, if any, to the Competent Authorities for the record within 30 days of the establishment of branches or changes of related matters. The relevant matters after alteration shall accord with Paragraph 2 of Article 6 and Article 7 hereof.

Article 10 Where a financing guarantee company intends to set up branches in other provinces, autonomous regions or municipalities directly under the Central Government, it shall meet the following conditions, and obtain the approval of the Competent Authorities where the branches are located:
1. the registered capital is not less than CNY1 billion;
2. it has operated financing guarantee business for more than three years and has consecutively made a profit in the last two accounting years; and
3. it has no major illegal or rule-making record in the last two years.
For the examination and approval procedures and time limit of the Competent Authorities where the proposed branches are located, Article 8 hereof shall apply.
A financing guarantee company shall report the relevant information to the Competent Authorities of the locality of the proposed branches within 30 days of the establishment date thereof.
The Competent Authorities of the locality of the branches will be responsible for the daily supervision and administration of the branches established by a financing guarantee company in other provinces, autonomous regions and municipalities directly under the Central Government, and the Competent Authorities where the financing guarantee company is located shall provide cooperation.

Article 11 Where a financing guarantee company is dissolved, a liquidation team shall be established to carry out liquidation, and definite arrangements shall be made for the undertaking of guarantee liability for the financing that does not fall due. The liquidation process shall be subject to the supervision of the Competent Authorities.
Where a financing guarantee company is dissolved or declared bankrupt according to the law, it shall surrender its business license for financing guarantee business to the Competent Authorities for cancelation purposes, and the Competent Authorities will make an announcement.

Chapter III Operational Rules

Article 12 In addition to loan guarantees, bonds issue for guarantees and other financing guarantee business, a financing guarantee company enjoying stable operation and strong financial condition can also operate bid guarantee, performance guarantee, litigation preservation guarantee and other non-financing guarantee business and consulting related to guarantee business and other services.

Article 13 A financing guarantee company shall, under the principle of prudent management, and establish and improve business rules, risk management and internal control systems in aspects of financing guarantee project review, post guarantee management, compensation liability recovery, etc.
A financing guarantee company supported by governments shall enhance its ability to use such modern information technology means as big data so as to serve the financing needs of small and micro businesses and agriculture, rural areas and farmers.

Article 14 A financing guarantee company shall measure the guarantee liability balance in accordance with the risk weights prescribed by the State.

Article 15 A financing guarantee company's guarantee liability balance may not exceed ten times the said company's net assets.
For a financing guarantee company that mainly serves small and micro businesses and agriculture, rural areas and farmers, the upper limit of the multiples stipulated in the preceding paragraph may be raised to 15 times.

Article 16 The ratio of balance of guarantee liability provided by a financing guarantee company for the same warrantee may not exceed 10% of the said company's net assets, and for the same warrantee and its related parties, may not exceed 15%.

Article 17 A financing guarantee company is not allowed to provide financing guarantees for controlling shareholders and actual controllers, or provide financing guarantees for other related parties under conditions more favorable to those offered to non-related parties.
Where a financing guarantee company provides financing guarantees for related parties, it shall report the same to the Competent Authorities within 30 days of the provision of such guarantees and make disclosure in the notes to the accounting statements.

Article 18 A financing guarantee company shall provide a corresponding reserve according to the related provisions of the State.

Article 19 The financing guarantee rate will be determined by the financing guarantee company and the warrantee upon negotiations.
A financing guarantee company incorporated into a financing guarantee risk sharing mechanism established with the promotion of the government shall lower the financing guarantee rates offered to small and micro businesses and agriculture, rural areas and farmers in accordance with the relevant provisions of the State.

Article 20 If a warrantee or a third party provides a financing guarantee company with a counter guarantee by mortgage or pledge, which shall be registered in accordance with the law, the competent registration authority shall handle it according to the law.

Article 21 A financing guarantee company has the right to require the warrantee to provide information about the business activities and financial status relating to financing guarantees.
A financing guarantee company shall provide the warrantee's creditors with information about the business activities and financial status relating to financing guarantees.

Article 22 A financing guarantee company shall meet the relevant provisions of the State concerning the safety and liquidity of its assets in the use of its own funds.

Article 23 A financing guarantee company may not engage in the following activities:
1. absorb deposits or do so in a disguised form;
2. operate loans or entrusted loans; or
3. be entrusted with investment.

Chapter IV Supervision and Administration

Article 24 The Competent Authorities are required to establish and perfect supervision and management systems, monitor risks in a real-time manner by the use of big data and other means of modern information technology, strengthen off-site supervision and on-site inspection of financing guarantee companies, and set up with the relevant departments regulatory coordination mechanisms and information sharing mechanisms.

Article 25 The Competent Authorities shall, according to the scale of operation, main clients, internal management level, risk situation and others of financing guarantee companies, carry out classified supervision and administration of them.

Article 26 The Competent Authorities shall, as required by the State's statistical system for financing guarantees, submit statistics on the financing guarantee companies within their jurisdictions to the people's government at the corresponding level and the banking regulatory authority under the State Council.

Article 27 The Competent Authorities shall analyze and evaluate the development and supervision and administration of the financing guarantee industry within their own jurisdictions, report the same to the people's government at the corresponding level and the banking regulatory authority of the State Council on a yearly basis, and make the same known to the public.

Article 28 To carry out on-site inspection, the Competent Authorities may take the following measures:
1. request access to financing guarantee companies for inspection;
2. contact inquiry personnel of financing guarantee companies, requiring them to give explanations of the matters under investigation;
3. check the computer information management system of the financing guarantee companies; and
4. request access to, copy and check documents and materials related to the matters under investigation, as well as seal up the documents, materials and electronic equipment that may be transferred, concealed or destroyed.
Before on-site inspection, the approval from the head of the Competent Authorities must be secured. The inspectors shall be no less than 2 and are required to produce lawful documents and inspection notices.

Article 29 When required to perform their duties, the Competent Authorities may talk with directors, supervisors and senior officers of the financing guarantee companies in terms of supervision and administration, requiring them to explain the important matters concerning the financing guarantee companies' business activities and risk management.
The Competent Authorities may notify the warrantee's creditors of the illegal activities or risks of financing guarantee companies.

Article 30 If the Competent Authorities find that the business activities of a financing guarantee company may amount to major risks, the following measures may be taken as the case may be with the approval of the principal of the Competent Authorities:
1. order it to suspend some of its business;
2. limit the size and mode of use of its own funds; or
3. order it to stop the establishment of branches.
A financing guarantee company shall take timely measures to eliminate major risks or hidden dangers and report the case to the Competent Authorities. If a major risk or hidden danger has been eliminated with the confirmation by the Competent Authorities, the Competent Authorities shall, within three days of the confirmation date, remove the measures prescribed in the preceding paragraph.

Article 31 A financing guarantee company shall submit business reports, financial reports, annual audit reports issued by certified public accountants and other documents and materials to the Competent Authorities.
Where a financing guarantee company conducts business in other provinces, autonomous regions and municipalities directly under the Central Government, it shall submit a business development report to the Competent Authorities where it is located and the business development on a quarterly basis.

Article 32 A financing guarantee company shall cooperate with and may not refuse or hinder the supervision and inspection conducted by the Competent Authorities in accordance with the law.

Article 33 The Competent Authorities shall establish and improve a credit record system for financing guarantee companies. Credit records of the financing guarantee companies shall be included in the national credit information sharing platform.

Article 34 The Competent Authorities shall, in concert with the relevant departments, establish an early warning, prevention and disposal mechanism for major risk events of financing guarantee companies, and formulate emergency plans for the major risk events thereof.
A financing guarantee company shall forthwith take emergency measures for major risk events and timely report them to the Competent Authorities. The Competent Authorities shall timely dispose of and report the same to the people's government at the corresponding level, the banking regulatory authority of the State Council and the People's Bank of China.

Article 35 The Competent Authorities and their staff members shall keep confidential the trade secrets they come to know during supervision and administration.

Chapter V Legal Liabilities

Article 36 For any person who goes against the Regulations and establishes a financing guarantee company or operates financing guarantee business without approval, the Competent Authorities shall ban it or order it to stop business and impose a fine of above CNY500,000 but below CNY1 million; any illegal income, if any, shall be confiscated; if a crime is constituted, criminal responsibilities shall be investigated according to the law.
Where any person uses a financing guarantee in its name without approval in violation hereof, it shall be ordered by the Competent Authorities to effect rectification within a time limit; where it fails to make corrections within the specified time limit, a fine of over CNY50,000 but less than CNY100,000 shall be imposed, and any illegal income, if any, shall be confiscated.

Article 37 Where any financing guarantee companies fall under any of the following circumstances, they shall be ordered to make corrections within a time limit by the Competent Authorities and fined more than CNY100,000 but less than CNY500,000; any illegal income, if any, shall be confiscated. If they fail to make corrections within the time limit, they shall be ordered to suspend business for rectification and where the circumstances are serious, as follows, their business license for financing guarantee shall be revoked:
1. merger or division without approval;
2. decrease of their registered capital without approval; and
3. establishment of branches in other provinces, autonomous regions and municipalities directly under the Central Government without approval.

Article 38 The Competent Authorities shall order a financing guarantee company to make corrections within a time limit if the said company fails to report its change in related matters for the record according hereto, or any of the relevant matters if the change is not in conformity with the Regulations; where it fails to make corrections within the specified time limit, a fine of over CNY50,000 but less than CNY100,000 shall be imposed, and in the event that the case is serious, it shall be ordered to suspend business for rectification.

Article 39 Where any financing guarantee companies are entrusted with investment business, they shall be ordered to make corrections within a time limit by the Competent Authorities and fined more than CNY500,000 but less than CNY1 million; any illegal income, if any, shall be confiscated. If they fail to make corrections within the time limit, they shall be ordered to suspend business for rectification and where the circumstances are serious, their business license for financing guarantee shall be revoked.
Where a financing guarantee company absorbs public deposits or does so in a disguised form, or engages in loans or entrusted loans, it shall be punished in accordance with relevant laws and administrative regulations.

Article 40 Where any financing guarantee companies fall under any of the following circumstances, they shall be ordered to make corrections within a time limit by the Competent Authorities; where it fails to make corrections within the specified time limit, a fine of over CNY100,000 but less than CNY500,000 shall be imposed; any illegal income, if any, shall be confiscated and they may be ordered to suspend business for rectification. Where the circumstances are serious, as follows, their business license for financing guarantee shall be revoked:
1. the proportion of the guarantee liability balance and its net assets do not conform to the provisions;
2. financing guarantees are provided for controlling shareholders and actual controllers, or for other related parties under conditions more favorable to those offered to non-related parties;
3. fail to provide a corresponding reserve according to the regulations; or
4. the use of their own funds does not meet the relevant provisions of the State concerning the safety and liquidity of the assets of financing guarantee companies.

Article 41 Where a financing guarantee company fails to submit a business report, financial report, annual audit report and other documents and materials or the situation of business development, or fails to report the occurrence of any major risk event to the Competent Authorities as required, the Competent Authorities shall order them to make corrections within a time limit and impose a fine of more than CNY50,000 but less than CNY200,000; if it fails to make corrections within the time limit, it shall be ordered to suspend business for rectification and where the circumstances are serious, its business license for financing guarantee shall be revoked.

Article 42 Where any financing guarantee companies fall under any of the following circumstances, they shall be ordered to make corrections within a time limit by the Competent Authorities and fined more than CNY200,000 but less than CNY500,000; if they fail to make corrections within the time limit, they shall be ordered to suspend business for rectification and where the circumstances are serious, their business license for financing guarantee shall be revoked; where their acts constitute a violation of public order control, they shall be punished as per the Law of the People's Republic of China on Penalties for the Violation of Public Security Administration; if a crime is constituted, criminal liabilities shall be investigated according to the law:
1. refusal of or hindering the supervision and inspection carried out by the Competent Authorities according to the law;
2. submission of a false business report, financial report, annual audit report or other documents and materials to the Competent Authorities; or
3. refusal to implement the measures taken by the Competent Authorities pursuant to Paragraph 1 of Article 30 hereof.

Article 43 Where a financing guarantee company is fined in accordance with the Regulations, its directors, supervisors and senior officers who are held directly liable shall be fined not less than CNY50,000 at the same time.
In the event that a financing guarantee company violates the Regulations, and the circumstance is serious, regarding its directors, supervisors and senior officers who are held directly liable, the Competent Authorities may ban them from taking posts in financing guarantee companies as directors, supervisors and senior officers for a certain period of time or for life.

Article 44 If personnel of the Competent Authorities abuse their powers, commit dereliction of duty or resort to deception for personal gains during the supervision and administration of financing guarantee companies, punishment shall be imposed in accordance with the law; where a crime is constituted, criminal liability shall be investigated in accordance with the law.

Chapter VI Supplementary Provisions

Article 45 The financing guarantee industry association shall, in accordance with laws and regulations and its articles of association, play its role in terms of the provision of services, coordination and industry self-regulation, and guide financing guarantee companies to operate in accordance with the law and exercise fair competition.

Article 46 Where government funds or government departments intend to directly establish operating institutions for carrying out financing guarantee business in order to promote employment and entrepreneurship, the relevant provisions of the State shall prevail.
The Regulations do not apply to guarantee business operated by mutual-aid financing guarantee organizations in rural areas and forest right purchase and storage guarantee business among forest business entities.

Article 47 Measures governing refinancing guarantee business are otherwise formulated by the banking supervisory authorities under the State Council in concert with the related departments thereunder and submitted to the State Council for approval.

Article 48 Where any financing guarantee company established before the implementation hereof does not meet the conditions as required in the Regulations, it shall meet the conditions stipulated herein within the time limit prescribed by the Competent Authorities; otherwise, no new financing guarantee business may be carried out.

Article 49 The Regulations will come into force as of October 1, 2017.