Administrative Measures for Trust Companies

Order of the China Banking Regulatory Commission [2007] No. 2

January 23, 2007

The Administrative Measures for Trust Companies adopted at the 55th Chairman Meeting on 28 December 2006 are hereby promulgated and shall be effective as of 1 March, 2007.
Chairman: Liu Mingkang

Appendix: Administrative Measures for Trust Companies

Chapter I General Provisions
　
Article 1 These Measures are formulated in accordance with the Trust Law of the People's Republic of China, the Banking Supervision Law of the People's Republic of China and other laws and regulations in order to strengthen the supervision of trust companies, regulate the operation activities of trust companies and promote the healthy development of the trust industry.
　
Article 2 For the purposes of these Measures, the term "trust companies" refers to financial institutions mainly engaged in trust business that are established pursuant to the Company Law of the People's Republic of China and these Measures.
For the purposes of these Measures, the term "trust business" refers to the business activities of undertaking trust and handling trust affairs by trust companies in the name of trustee for the purposes of business and remuneration.
　
Article 3 Trust property is not the inherent property of trust companies nor is it the liability of trust companies to the beneficiary. Where a trust company is terminated, the trust property does not belong to its liquidated property.
　
Article 4 When trust companies engage in trust activities, they shall comply with the provisions of laws and regulations and the agreement of trust documents. No harm shall be done to the interests of the state, social and public interests and the legal rights and interests of the beneficiary.
　
Article 5 The China Banking Regulatory Commission shall exercise supervision of trust companies and their business activities.

Chapter II Establishment, Change and Termination of Institutions
　
Article 6 The establishment of trust companies shall adopt the form of limited liability company or holding company.
　
Article 7 The establishment of trust companies shall be subject to the approval of the China Banking Regulatory Commission and the obtaining of financial permit.
No unit or individual shall operate trust business nor shall any business unit uses the wordings "trust company" in its name without the approval of the China Banking Regulatory Commission unless otherwise stated by laws and regulations.
　
Article 8 To establish a trust company, the following conditions shall be fulfilled:
1. The company's articles of association is in compliance with the Company Law of the People's Republic of China and the provisions of the China Banking Regulatory Commission;
2. It has the shareholders with capital contribution qualification as prescribed by the China Banking Regulatory Commission;
3. It has the minimum registered capital prescribed by these Measures;
4. It has directors and senior management personnel with employment qualifications prescribed by the China Banking Regulatory Commission and trust practitioners commensurate with its business.
5. It has sound organisations and institutions, trust business operational guidelines and risk control system;
6. It has the business establishment, security safeguarding measures and other facilities relevant to its business that comply with requirements; and
7. other conditions prescribed by the China Banking Regulatory Commission.
　
Article 9 The China Banking Regulatory Commission shall examine the establishment application of trust companies pursuant to laws and regulations and the principle of prudent regulation, and make a decision of approval or disapproval. If the application is disapproved, the reasons shall be stated.
　
Article 10 The minimum registered capital of trust companies shall be RMB 300 million or equivalent in freely convertible currency. The registered capital shall be paid-up monetary capital.
Applications for operating businesses such as enterprise annuity fund, securities underwriting and asset securitization, the requirement on the minimum registered capital of the relevant laws and regulations shall be fulfilled.
The China Banking Regulatory Commission may, subject to the needs of industry development of trust companies, adjust the minimum limit of the registered capital of trust companies.
　
Article 11 No trust companies may establish or establish in disguise any branch without the approval of the China Banking Regulatory Commission.
　
Article 12 Trust companies shall obtain the approval of the China Banking Regulatory Commission under any of the following circumstances:
1. change of name;
2. change of registered capital;
3. change of company domicile;
4. change of organisational structure;
5. adjustment of scope of business
6. replacement of directors or senior management personnel;
7. change of shareholders or adjustment of equity structure; except in cases where the holding of the tradable shares of listed companies does not reach 5% of the total shares of the company;
8. amendment of company's articles of association;
9. merger or division;
10. other circumstances prescribed by the China Banking Regulatory Commission.
　
Article 13 If there is a division or merger of a trust company or the reasons for dissolution exist and the trust company applies for dissolution, it shall be dissolved upon the approval of the China Banking Regulatory Commission and shall organise a liquidation committee to carry out liquidation in accordance with the law.
　
Article 14 If a trust company fails to repay its debts on due date and its assets are not sufficient for repayment or it obviously lacks the repayment ability, it may apply to the people's court for bankruptcy upon the consent of the China Banking Regulatory Commission.
The China Banking Regulatory Commission may submit an application to the people's court directly for the reorganisation or bankruptcy liquidation of the trust company.
　
Article 15 Where a trust company is terminated, its administration duty of trust affairs shall cease at the same time. The liquidation committee shall properly keep the trust property, make a report on handling trust affairs and handle the transfer of trust property to the new trustee. If the trust document agrees otherwise, such agreement shall prevail.

Chapter III Scope of Business
　
Article 16 Trust companies may apply for operating the following businesses in Renminbi and foreign currency in part or in whole:
1. fund trust;
2. trust of movable property;
3. trust of immovable property;
4. trust of negotiable securities;
5. trust of other property or property rights;
6. acting as sponsor of investment funds or fund management companies and engaging in fund investment business;
7. engaging in reorganization and merger and acquisition of enterprise assets and businesses such as project financing, corporate finance and financial consultancy;
8. engaging in securities underwriting business on trust as approved by the relevant department of the State Council;
9. handling brokerage, consultancy and credit investigation businesses;
10. safe custody and safe deposit businesses:
11. other businesses prescribed by laws and regulations or approved by the China Banking Regulatory Commission.
　
Article 17 Trust companies may conduct public welfare trust activities in accordance with the Trust Law of the People's Republic of China and the provisions of other laws and regulations.
　
Article 18 Trust companies may, subject to market needs, set up different varieties of trust business in accordance with the purposes of trust, the categories of trust property or the management method of trust property.
　
Article 19 When trust companies manage and use or dispose of trust property, they may do so by means of investment, sales, due from banks, purchase for resale, lease and loans in accordance with the agreement of trust documents. If the China Banking Regulatory Commission provides otherwise, such provisions shall prevail.
Trust companies shall not manage and use trust property by means of repurchase after sales.
　
Article 20 Trust companies may conduct businesses such as due from banks, call loans to banks, loans, lease and investment under existing businesses. Investment businesses are limited to equity investment in financial companies, investment in financial products and investment in self-use fixed assets.
No trust companies may make industrial investment by inherent property, unless otherwise provided by the China Banking Regulatory Commission.
　
Article 21 No trust companies shall conduct liability business other than interbank borrowing, the balance thereof shall not exceed 20% of the net assets, unless otherwise provided by the China Banking Regulatory Commission.
　
Article 22 Trust companies may conduct external security business, and the balance thereof shall not exceed 50% of the net assets.
　
Article 23 Where trust companies operate foreign exchange trust business, they shall comply with the relevant provisions of the State Administration of Foreign Exchange and accept the inspection and supervision of the relevant department in charge of foreign exchange.

Chapter IV Operation Rules
　
Article 24 Where trust companies manage and use or dispose of trust property, they must be diligent, perform the obligations of honesty, creditworthiness, prudence and effective management and protect the maximum benefits of the beneficiary.
　
Article 25 Trust companies shall avoid conflict of interests in handling trust affairs. If it is not possible, they shall make due information disclosure to the trustor and the beneficiary or refuse to engage in such business.
　
Article 26 Trust companies shall handle trust affairs in person. Other persons may be entrusted with handling trust affairs if the trust document agrees otherwise or there is unavoidable reason. However, trust companies shall perform due supervision obligation and be liable to the activities of trust affairs handled by other parties.
　
Article 27 Trust companies have the confidentiality obligation according to law towards the trustor, the beneficiary and the status and information of the trust affairs, unless otherwise provided by laws and regulations or agreed by trust documents.
　
Article 28 Trust companies shall properly keep the full record of trust affairs they have handled, and periodically report to the trustor and the beneficiary the trust property and the management and use, and disposal and income and expenditure thereof.
The trustor and the beneficiary shall have the right to know the management and use, disposal and income and expenditure of the trust property and to request the trust company to make explanations.
　
Article 29 Trust companies shall separately manage and open separate accounts for trust property and the inherent property, and separately manage and open separate accounts of trust property for different trustors.
　
Article 30 Trust companies shall set up accounts in accordance with the law and prepare separate accounts for trust business and non-trust business, and perform separate accounting for each trust business.
　
Article 31 The trust department of trust companies shall be independent from other departments of the companies. Their personnel shall not take up concurrent posts in other departments of the companies and business information shall not be shared with other departments of the companies.
　
Article 32 To establish a trust by means of trust contract, the trust contract shall set out the following matters:
1.purposes of trust;
2.name or title and domicile of the trustor and the trustee;
3.the beneficiary or the scope of beneficiary;
4.scope, category and status of trust property;
5.rights and obligations of the trust parties;
6.disclosure and liability to the risks in trust property management;
7.management methods of trust property and the authority of operation of the trustor;
8.calculation of trust benefits, and the means and methods of delivery of trust benefits to the beneficiary;
9.calculation and payment of the remunerations to trust companies;
10.responsibility to payment of tax and expenses of trust property and the calculation of other expenses;
11.the time limit of trust and the termination of trust;
12.the vesting of trust property upon the termination of trust;
13.report of trust affairs;
14.liability for breach of contract of the trust parties and the methods of resolution of disputes;
15.appointment methods of new trustee; and
16.other matters considered necessary to be set out by the trust parties.
Where a trust is set up by means of other written documents other than a trust contract, the matters to be set out in such written documents shall follow the provisions of the relevant laws and regulations.
　
Article 33 None of the following acts shall be performed by trust companies when conducting inherent business:
1.fund financing or transfer of property to affiliated parties;
2.provision of security to affiliated parties; and
3.financing by means of pledging the company's equity held by the shareholders.
The affiliated parties of trust companies shall be defined in accordance with the Company Law of the People's Republic of China and the Enterprise Accounting Standards.
　
Article 34 None of the following acts shall be performed by trust companies when conducting trust business:
1.solicit improper benefits by utilizing the capacity of trustee;
2.misappropriate trust property for non-trust purposes;
3.undertake that there is no loss of trust property or guarantee minimum returns;
4.provision of security with trust property; and
5.other activities prohibited by laws and regulations and the China Banking Regulatory Commission.
　
Article 35 Trust companies shall conduct related-party transactions at fair market price, and report each transaction to the China Banking Regulatory Commission in advance, and disclose information in accordance with the relevant provisions.
　
Article 36 To operate trust business, trust companies shall obtain remunerations by means of service charge or commission as agreed in the trust document unless otherwise stated by the China Banking Regulatory Commission.
Ther emunerations received by trust companies shall be disclosed to the beneficiary and explain the specific charging standards to the beneficiary.
　
Article 37 Where a trust company disposes of trust property in violation of trust purposes; or violates management duty and handles trust affairs improperly resulting in the loss of trust property, the trust company shall not request for payment of remunerations before restoration of the original status of the trust property or before making compensation.
　
Article 38 The expenses incurred and the liabilities borne by trust companies in handling trust affairs shall be borne by trust property; but it shall be stated in the trust contract or specifically informed to the beneficiary. Where trust companies make advance payment by its inherent property, they shall have the pre-emptive right to compensation of the trust property. The liabilities incurred and the loss suffered as a result of the violation of management responsibilities of the trust companies or improper management of trust affairs shall be borne by the inherent property of the trust companies.
　
Article 39 Where a trust company disposes of trust property in violation of trust purposes, or a significant fault arises in management and use or disposal of trust property, the trustor or the beneficiary shall have the right to terminate the appointment of such trust companies as agreed in the trust document, or apply to the people's court to terminate the appointment of such trust companies.
　
Article 40 Where the duties of the trustee are terminated in accordance with the law, the new trustee shall be appointed according to the agreement of the trust document. If it is not prescribed in the trust document, the new trustee shall be appointed by the trustee. If the trustee cannot make an appointment, it shall be appointed by the beneficiary. Where the beneficiary is a person with no civil capability or with limited civil capability, the guardian shall make the appointment on their behalf according to law. Before the appointment of a new trustee, the China Banking Regulatory Commission may designate temporary trustee.
　
Article 41 Where trust companies operate trust business, the trust shall be terminated under any of the following circumstances;
1.the occurrence of the reasons for termination as agreed in the trust document;
2.the subsistence of the trust violates trust purposes;
3.the trust purposes have been realized or cannot be realized;
4.trust parties have consulted each other and agreed on the termination;
5.the expiry of the time limit of trust;
6.the trust is dissolved;
7.the trust is cancelled; or
8.all beneficiaries relinquish the beneficiary right.
　
Article 42 Where a trust is terminated, trust companies shall make a liquidation report for the handling of trust affairs as agreed in the trust document. If the beneficiary or the holder of the right of trust property holds no objection to the liquidation report, the duties of trust companies shall be removed from the items stated in the liquidation report, unless the trust companies commit improper activities.

Chapter V Supervision and Management
　
Article 43 Trust companies shall establish an organizational structure with shareholders' (general) meeting, board of directors, board of supervisors and senior management as the main entity, specify the division of duties, ensure the independent operation and effective checks and balances among them to form a scientific and efficient decision-making, motivation and binding mechanism.
　
Article 44 Trust companies shall establish corresponding work positions according to the principle of separation of duties, ensure prior safeguarding, control, post-supervision and rectification of risks of companies and form sound internal binding mechanism and supervision mechanism.
　
Article 45 Trust companies shall formulate the rules for trust business and other businesses of the companies in accordance with provisions, establish and improve the management systems of various businesses and the internal control system, and report to the China Banking Regulatory Commission for the record.
　
Article 46 Trust companies shall establish and improve financial and accounting systems in accordance with the provisions of the state, truthfully record and fully reflect their business activities and financial status. The company's annual financial and accounting reports shall be audited by intermediary institution with good qualification.
　
Article 47 The China Banking Regulatory Commission may conduct inspection of operation activities of trust companies periodically or non-periodically. If necessary, it may request trust companies to provide the relevant audit report issued by intermediary institution with good qualification.
Trust companies shall provide statements and information on the relevant business and finance in accordance with the requirements of the China Banking Regulatory Commission, and truthfully reflect the relevant business status.
　
Article 48 The China Banking Regulatory Commission exercises net capital management on trust companies. The specific measures shall be separately formulated by the China Banking Regulatory Commission.
　
Article 49 Trust companies shall allocate 5% of after-tax profits as trust compensation provisions every year. When the total accumulated amount of such trust compensation provisions reaches 20% of the company's registered capital, allocation may not be made.
Trust compensation provisions of trust companies shall be deposited into a domestic commercial bank with stable operation and relative strength, or used for purchase of the varieties of securities with low risks and high mobility such as government bonds.
　
Article 50 The China Banking Regulatory Commission shall implement employment qualification examination system for directors and senior management personnel of trust companies. No personnel shall accept appointment without employment qualification examination by the China Banking Regulatory Commission or who fail the examination.
Trust companies shall conduct office vacation audit of directors and senior management personnel that intend to vacate office, and report the audit result to the China Banking Regulatory Commission for the record. Where the legal representative of trust companies is changed, the existing legal representative shall not vacate office before the verification of the employment qualification of the new legal representative by the China Banking Regulatory Commission.
　
Article 51 The China Banking Regulatory Commission implements the trust business qualification management system on trust practitioners of trust companies. If the conditions are satisfied, the trust practitioner qualification certificate shall be issued. If the trust practitioner qualification certificate is not obtained, no trust business shall be handled.
　
Article 52 Where the directors and senior management personnel of trust companies and trust practitioners violate laws, administrative regulations or the provisions of the China Banking Regulatory Commission, the China Banking Regulatory Commission shall have the right to cancel the employment qualification or practising qualification.
　
Article 53 The China Banking Regulatory Commission may, in accordance with the need for performance of duties, hold regulatory discussions with the directors and senior management personnel of trust companies, and request the directors and senior management personnel of trust companies to make explanations on significant matters regarding business activities and risk management of trust companies.
　
Article 54 Where trust companies violate prudent operation rules, the China Banking Regulatory Commission shall order rectification within a time limit; if no rectification is made within the time limit, or its activities seriously endanger the stable operation of the trust companies and harm the lawful rights and interests of the beneficiary, the China Banking Regulatory Commission may distinguish the circumstances and adopt supervisory measures such as suspension of business and restriction on shareholders' rights in accordance with the Banking Supervision Law of the People's Republic of China and the provisions of other laws and regulations.
　
Article 55 Where trust companies have already had or may have creditworthiness crisis that seriously affect the lawful rights and interests of the beneficiary, the China Banking Regulatory Commission may take over the trust company or urge the reorganization of institutions.
　
Article 56 After approval for the establishment, change or termination of trust companies, the China Banking Regulatory Commission may order rectification or cancel the approval if it discovers that there is concealment or falsehood in the original application materials.
　
Article 57 Trust companies may join the China Trustee Association and exercise self-discipline.
Where the China Trustee Association conducts activities, it shall accept the guidance and supervision of the China Banking Regulatory Commission.

Chapter VI Penalties
　
Article 58 If a trust company is established on its own without the approval of the China Banking Regulatory Commission, it may be banned by the China Banking Regulatory Commission in accordance with the law. If a crime is constituted, the criminal liability shall be pursued; if a crime has not yet been constituted, the China Banking Regulatory Commission may confiscate the illegal income. If the illegal income is over RMB 500 thousand, a fine of more than one time and less than five times of the illegal income shall be imposed. If there is no illegal income or the illegal income is less than RMB 500 thousand, a fine of more than RMB 500 thousand and less than RMB 2 million shall be imposed.
　
Article 59 If a trust company establishes a branch on its own without the approval of the China Banking Regulatory Commission or conducts businesses prohibited by Article 19, Article 20, Article 21, Article 22, Article 33 or Article 34 hereof, the China Banking Regulatory Commission shall order rectification. If there is illegal income, such illegal income shall be confiscated. If the illegal income is over RMB 500 thousand, a fine of over one time and less than five times of the illegal income shall be imposed. If there is no illegal income or the illegal income is less than RMB 500 thousand, a fine of over RMB 500 thousand and less than RMB 2 million shall be imposed. If the circumstances are particularly serious, or no rectification is made within the time limit, the China Banking Regulatory Commission shall order suspension of business for rectification or revoke its financial permit. If a crime is constituted, the criminal liability shall be pursued.
　
Article 60 If a trust company violates other provisions hereof, the China Banking Regulatory Commission shall take the corresponding punishment measures in accordance with the Banking Supervision Law of the People's Republic of China and the provisions of other laws and regulations.
　
Article 61 If a trust company has illegal operation or maladministration, the China Banking Regulatory Commission shall cancel such company if the financial order is seriously in danger and public interests are harmed if it is not cancelled.
　
Article 62 Where directors and senior management personnel and other personnel of trust companies are directly responsible for the violation of regulations, the China Banking Regulatory Commission may distinguish the circumstances and take punishment measures such as penalty and cancellation of employment qualification or practising qualification in accordance with the Banking Supervision Law of the People's Republic of China and the provisions of other laws and regulations.
　
Article 63 If there is an objection to the punishment decision of the China Banking Regulatory Commission, an administrative review may be initiated or an administrative litigation may be instituted at people's court in accordance with the law.

Chapter VII Supplementary Provisions
　
Article 64 If a trust company does not perform administration duties in handling trust affairs, i.e. not assume the duty of investment administrator, its registered capital shall not be less than RMB 100 million or equivalent in freely convertible currency. Reference shall be made to these Measures for the supervision of such trust companies.
　
Article 65 The China Banking Regulatory Commission shall be responsible for interpreting these Measures.

Article 66 The Measures shall be effective as of March 1, 2007. The original Administrative Measures on Trust and Investment Companies (Order of the People's Bank of China [2002] No. 5) no longer apply.