Notice of the China Insurance Regulatory Commission and the State Administration of Foreign Exchange on Regulating the Issues concerning the Onshore Guarantees for Offshore Loans Provided by Insurance Institutions

· Document Number：No. 5 [2018] of the China Insurance Regulatory Commission

· Area of Law： Insurance

· Level of Authority： Departmental Regulatory Documents

· Date issued：02-01-2018

· Effective Date：02-01-2018

· Status： Effective

· Issuing Authority： China Insurance Regulatory Commission State Administration of Foreign Exchange

Notice of the China Insurance Regulatory Commission and the State Administration of Foreign Exchange on Regulating the Issues concerning the Onshore Guarantees for Offshore Loans Provided by Insurance Institutions
(No. 5 [2018] of the China Insurance Regulatory Commission)
All insurance group (holding) companies, insurance companies, insurance asset management companies and relevant custody institutions:
For the purposes of regulating the onshore guarantees for offshore loans provided by insurance group (holding) companies and insurance companies (hereinafter referred to as “insurance institutions”), strengthening the supervision and administration of overseas financing, and preventing overseas financing risks, in accordance with the Interim Measures for the Administration of the Utilization of Insurance Funds, the Interim Measures for the Administration of Overseas Investment with Insurance Funds, the Detailed Implementation Rules for the Interim Measures for the Administration of Overseas Investment with Insurance Funds, the Provisions of the State Administration of Foreign Exchange on the Foreign Exchange Administration of Cross-border Guarantees and other relevant policies, you are hereby notified of the matters as follows:
I. For the purpose of this Notice, “onshore guarantees for offshore loans” means the financing act that an insurance institution applies to a domestic bank for opening a letter of guarantee or a standby letter of credit and a domestic bank provides guarantee for a special-purpose company, or an insurance group (holding) company directly provides guarantee for a special-purpose company to obtain loans granted by an overseas bank to the aforesaid special-purpose company.
For the purpose of this Notice, “special-purpose companies” means overseas companies that are directly established by insurance institutions with the domestic and overseas assets or equities lawfully held thereby for the purpose of overseas investment and financing or whose 95% or more shares are indirectly controlled by insurance institutions.
II. Insurance group (holding) companies providing onshore guarantees for offshore loans may provide counter guarantee for domestic banks. An insurance company providing onshore guarantees for offshore loans may provide counter guarantee for domestic banks through its subordinate insurance group (holding) companies.
III. An insurance group (holding) company may provide guarantee or counter guarantee by surety guarantee or asset mortgage (pledge). Where asset mortgage (pledge) is adopted, assets formed from capital fund, capital reserve, undistributed profits and other self-owned funds shall be used.
IV. An insurance institution shall, under the principle of asset-liability matching management and in comprehensive consideration of the liquidity of asset portfolios, interest rate and exchange rate levels on the international financial market and future change tendencies, financing costs, revenue and other factors, prudently provide onshore guarantees for offshore loans, improve the risk-control mechanism, regulate the business operating procedures, and effectively prevent relevant risks.
V. Insurance institutions providing onshore guarantees for offshore loans shall meet the qualification conditions for overseas investment with insurance funds, be approved to make overseas investment with insurance funds, have relatively strong asset-liability matching management capacity and financing management capacity, have developed sound overseas financing management rules, have employed professional overseas financing managers, and have specified overseas financing decision-making mechanism, division of functions, business flows, risk management and other relevant contents.
When providing onshore guarantees for offshore loans, an insurance institutions shall have comprehensive solvency adequacy ratio not lower than 150% at the end of the previous quarter and an insurance company shall have comprehensive solvency risk rating not lower than the regulatory category of Class A. The special-purpose company of an insurance institution providing onshore guarantees for offshore loans shall assume the liability for the first repayer, and have expected stable cash flow and relatively strong solvency.
VI. The onshore guarantees for offshore loans to be provided by an insurance institution shall be deliberated and adopted by its general meeting of shareholders or board of directors, and the insurance institution shall form a written resolution, regulate the internal operating procedures, and establish an accountability mechanism.
VII. An insurance institution that provides onshore guarantees for offshore loans and whose special-purpose company has obtained 50 million USD (or equivalent) or more loans for a single investment project shall report to the Insurance Asset Management Association of China in advance, and may only carry out business after the Insurance Asset Management Association of China conducts assessment.
VIII. To provide onshore guarantees for offshore loans, an insurance institution shall, according to its asset-liability matching management situation, scientifically and rationally control its financial leverage ratio to ensure that the balance of funds raised through onshore guarantees for offshore loans do not exceed 20% of its net assets at the end of the previous quarter and incorporate it into its financial leverage monitoring ratio management. The net assets of an insurance group (holding) company shall be the net assets at the group level.
IX. The funds raised by an insurance institution through onshore guarantees for offshore loans shall only be used for the investment projects of their special-purpose company. The investment projects of a special-purpose company shall satisfy the policy direction and relevant requirements of the state on overseas investment, strictly comply with the regulations on encouraged, restricted and prohibited overseas investments, and follow the relevant policies of the China Insurance Regulatory Commission (“CIRC”) and the State Administration of Foreign Exchange (“SAFE”) on the use of insurance funds overseas.
X. An insurance institution making investment in an overseas project that is major equity investment through onshore guarantees for offshore loans shall undergo the approval procedures, undergo the reporting procedures in accordance with the relevant provisions for investment in other projects, specify the source of funds for investment in projects in the approval and report for specific investment projects, and undergo the formalities of approval and recordation for overseas investment projects according to the requirements of the relevant policies of the National Development and Reform Commission.
XI. An insurance institution making overseas investment through onshore guarantees for offshore loans shall, under the penetration principle, determine the general asset category of the investment projects or the underlying assets thereof, and calculate the ratio of insurance funds used in overseas investment and domestic investment on a consolidated basis, to ensure that the policies on the supervision and administration of the ratio of insurance funds used are complied with.
XII. An insurance institution making overseas project investment shall retain an independent professional third-party institution to conduct comprehensive due diligence investigation on the investment project to ensure that there are no significant legal obstacles or legal defects and avoid property right disputes. In the process of the transaction of the overseas investment projects, the relevant transaction documents shall specifically require that the counterparties undergo the registration recordation formalities for assets concerned at the necessary link and provide the relevant asset certifications and confirmation documents when assets are delivered, to ensure that the insurance institution truly, legally and effectively obtain the ownership of the assets concerned.
An insurance institution shall develop perfect document filing rules to timely and appropriately keep all transaction documents, and shall, in the event of any controversy or dispute over rights of assets, lawfully protect its lawful rights and interests, mutatis mutandis to, the relevant laws and specific contract clauses.
XIII. An insurance institution shall notify the custodian of overseas investment of the onshore guarantees for offshore loans to be provided, and put the funds raised through onshore guarantees for offshore loans and the investment projects under custody of the custodian. The revenues and expenditures of the funds raised through onshore guarantees for offshore loans by an insurance institution shall be conducted through the special account of its special-purpose company with its overseas custodian.
A custodian of overseas investment shall, under the penetration principle, conduct valuation and financial accounting of the overseas investment projects of insurance institutions and their special-purpose companies, supervise the operation of investments on a consolidated basis, and submit the supervision reports and relevant data and statements to the CIRC. An insurance institution shall cooperate with the custodian of overseas investment to fulfill the custody responsibilities, and provide the information relevant to the fulfillment of functions under custody for the custodian of overseas investment in a timely, accurate and complete manner.
XIV. To provide onshore guarantees for offshore loans, an insurance institution shall choose to cooperate with relevant domestic and foreign institutions with perfect management mechanisms, sound market reputation and scientific and efficient operation, scientifically design the capital structure of the special-purpose company, make reasonable arrangements for the currency, amount, costs and term of the funds raised, and effectively make arrangements for repayment or refinancing in advance, to effectively manage and control liquidity risk and exchange rate risk.
XV. An insurance institution providing onshore guarantees for offshore loans shall strengthen operation management of the investment projects, regularly monitor the dynamic development of the relevant overseas markets, assess the asset value and quality of investment projects, and improve the operational efficiency and risk prevention capability of the special-purpose company, to prevent sudden solvency risk and operating risk caused by temporary recovery of loans by overseas banks or bankruptcy liquidation of the special-purpose company and other matters.
XVI. Where the onshore guarantees for offshore loans provided by an insurance institution may lead to performance of guarantee contract, the insurance institution shall firstly resolve the risk of performance of guarantee contract through handling of overseas investment projects of special-purpose company or other overseas lawful financing and other market-oriented methods, to prevent the impact of performance of guarantee contract on cross-border capital flow.
XVII. An insurance institution providing onshore guarantees for offshore loans shall strictly comply with the relevant domestic and foreign laws and regulations, the provisions of the industry regulatory department, and the provisions on the administration of cross-border RMB and foreign exchange, regulate the financing, and strengthen compliance management, to prevent legal risks. The person in charge of the risk in overseas investment of an insurance institution shall assume liability for the legality and compliance of the onshore guarantees for offshore loans.
XVIII. To provide onshore guarantees for offshore loans, an insurance institution shall not have any of the following conducts:
(1) providing onshore guarantees for offshore loans in a disguised manner to obtain credit loans overseas;
(2) providing onshore guarantees for offshore loans for overseas enterprises other than the special-purpose company as prescribed in this Notice;
(3) using liability reserves and other assets obtained from investment with debt capital in any form for providing guarantee or counter guarantee;
(4) having investment projects or underlying assets of the investment projects in violation of the macro-control policies, industrial policies or overseas investment policies of the state;
(5) using the funds raised through onshore guarantees for offshore loans for carrying out business other than the investment projects of the special-purpose company or granting loans to any third party;
(6) deliberately honoring an agreement on onshore guarantees for offshore loans for obtaining foreign exchange by fraud or transferring assets overseas;
(7) fabricating business background for arbitrage or illegal speculative transactions; or
(8) other conducts prohibited by the CIRC.
XIX. An insurance institution shall report the relevant data and information according to the requirements of the CIRC, and report the specific business situation to the CIRC within five working days after the contract on onshore guarantees for offshore loans is signed. The contents of report shall include, but not be limited to, the basic information on the investment projects, funding sources and arrangements, information on the cooperative banks and the special-purpose company, essential elements of financing, relevant documents on financing and provision of guarantee and counter guarantee measures, among others.
In the event of extension of onshore guarantees for offshore loans, an insurance institution shall, within five working days after the extension contract on onshore guarantees for offshore loans is signed, report to the CIRC the operations and risk status of the investment projects, the reasons for the extension of onshore guarantees for offshore loans, essential elements for extension and relevant documents on extension, among others.
In the event of any significant risk event that may lead to performance of guarantee contract, an insurance institution shall report to the CIRC and the SAFE within three days of the occurrence of the event. Where the significant risk event remains unresolved after the measures for resolving the risks associated with the performance of guarantee contract as prescribed in Article XVI of this Notice are taken, and performance of guarantee contract is ultimately required, the insurance institution shall, within three days after the performance of guarantee contract, report to the CIRC, and shall, according to the provisions on foreign exchange administration, make the domestic guarantor or domestic counter-guarantor becoming external creditor handle registration of external creditor's rights.
XX. An insurance institution that has provided onshore guarantees for offshore loans shall, within three months of the date when this Notice is issued, adjust the onshore guarantees for offshore loans in strict accordance with the requirements of this Notice to ensure that its onshore guarantees for offshore loans comply with the regulatory provisions.
XXI. The CIRC shall strengthen information sharing and coordinated supervision with the People's Bank of China, the SAFE and other relevant ministries and commissions, strengthen the monitoring and risk early warning of the overseas investment with insurance funds, and prevent cross-market, cross-industry and cross-currency transfer of overseas investment risks.
XXII. Where an insurance institution violates the provisions of this Notice when providing onshore guarantees for offshore loans, the CIRC shall record its misconduct and order it to make rectification; and where the circumstances are serious, the CIRC may suspend the onshore guarantees for offshore loans or overseas investment business of the insurance institution and take other regulatory measures.
XXIII. This Notice shall come into force on the date of issuance.
State Administration of Foreign Exchange
China Insurance Regulatory Commission
February 1, 2018