Notice of the China Banking Regulatory Commission on Issuing the Measures for the Administration of Entrusted Loans of Commercial Banks

· Document Number：No. 2 [2018] of the China Banking Regulatory Commission

· Area of Law： Banking & Finance

· Level of Authority： Departmental Regulatory Documents

· Date issued：01-05-2018

· Effective Date：01-05-2018

· Status： Effective

· Issuing Authority： China Banking Regulatory Commission

Notice of the China Banking Regulatory Commission on Issuing the Measures for the Administration of Entrusted Loans of Commercial Banks
(No. 2 [2018] of the China Banking Regulatory Commission)
All local offices of the China Banking Regulatory Commission; all large-scale banks and joint-stock banks; Postal Savings Bank of China; and foreign-funded banks:
The Measures for the Administration of Entrusted Loans of Commercial Banks are hereby issued to you for compliance and implementation.
January 5, 2018
Measures for the Administration of Entrusted Loans of Commercial Banks
Chapter I General Provisions
Article 1 For the purposes of regulating commercial banks' entrusted loan business, enhancing the management of their entrusted loan business, and promoting the sound development of the entrusted loan business, these Measures are developed in accordance with the Banking Supervision Law of the People's Republic of China, the Law of the People's Republic of China on Commercial Banks, and other laws and regulations.
Article 2 Commercial banks legally formed in the territory of the People's Republic of China shall comply with these Measures in conducting their entrusted loan business.
Article 3 For the purposes of these Measures, “entrusted loan” means a loan granted on behalf of a client by a commercial bank (the “fiduciary”), which also assists in overseeing the use of and recovering the loan, with funds provided by the client according to the borrower, purpose, amount, currency, term, and interest rate, among others, as determined by the client, excluding entrusted loans under cash management and entrusted loans under a housing provident fund.
“Client” means a legal person, an unincorporated organization, an individual industrial and commercial household, or a natural person with full capacity for civil conduct that provides the funds of an entrusted loan.
“Entrusted loans under cash management” means the services of funds collection and allocation between independent legal persons inside an enterprise group provided by a commercial bank for the enterprise group client in the form of entrusted loans as authorized by the client in providing cash management services.
“Entrusted loans under a housing provident fund” means the loans for individual housing consumption and loans for construction projects of indemnificatory housing granted by a commercial bank on behalf of a local housing provident fund management center as authorized by it with the housing provident fund as the source of funds.
Article 4 The entrusted loan business is an agency service of a commercial bank. A commercial bank shall, in accordance with these Measures, enter into a contract with the parties to an entrusted loan to provide for the rights and obligations of all the parties, fulfill its corresponding duties, and collect commission fees, without assuming any credit risk.
Article 5 Commercial banks shall adhere to the principles of compliance with laws and regulations, equality, free will, matching between responsibilities and benefits, and prudential operation in conducting their entrusted loan business.
Chapter II Business Management
Article 6 A commercial bank shall, in accordance with these Measures, develop the management rules for its entrusted loan business, rationally determine the division of labor among departments and posts, specify the scope of and the qualification and access requirements for clients, as well as the business flow and the risk controls, among others, of its entrusted loan business, conduct assessment on a regular basis, and make improvement in a timely manner.
Article 7 To be accepted by a commercial bank, an application for an entrusted loan shall meet the following conditions:
(1) The client and the borrower have reached an agreement on the conditions for the entrusted loan.
(2) Where the client or the borrower is not a natural person, a resolution or document on its governing body's consent to the entrusted loan or a certificate with an equal legal force has been issued.
A commercial bank shall not accept any entrusted loan application from a client which is a financial assets management company or an institution engaging in the loan business.
Article 8 In conducting the entrusted loan business, a commercial bank shall require a client to assume the following duties as specified in the contract.
(1) The client shall independently determine the borrower of an entrusted loan, and examine the qualifications of the borrower, the loan project, the qualifications of the guarantor, and the collateral, among others.
(2) The client shall ensure that the source of funds entrusted is in compliance with laws and regulations and the funds are at its disposal, and provides the funds to the commercial bank in a timely manner according to the contract.
(3) The client shall oversee the borrower's use of loan funds as agreed in the contract, ensure that the purpose of the loan is in compliance with laws and regulations, and assume the credit risk associated with the borrower.
Article 9 In examining the source of funds of a client, a commercial bank shall require the client to provide a relevant document proving the compliance of its source of funds with laws and regulations or a relevant certificate with an equal legal force, conduct necessary examination of the client's financial statements and credit records, among others, and in particular, strengthen the examination and measurement of the following:
(1) Whether the funds entrusted by a client exceed its normal revenue sources and financial strength.
(2) Where a client has available credit in a bank, the commercial bank shall reasonably measure the client's own funds, and use the measurement results as an important basis for granting the entrusted loan.
Article 10 A commercial bank shall not accept the following funds from a client for granting an entrusted loan:
(1) Funds of others under management of the client as a fiduciary.
(2) Funds from a line of credit granted by a bank.
(3) Various special funds for special purposes (except as otherwise specified by the relevant departments of the State Council).
(4) Other debt funds (except as otherwise specified by the relevant departments of the State Council).
(5) Funds without proof on their sources.
Funds raised by an enterprise group in a bond issue and used inside the group shall not be subject to the provision of the preceding paragraph of this article.
Article 11 The loans granted by a commercial bank on behalf of a client shall have specific purposes, and the purposes of funds shall comply with laws, regulations, and the state's macro-control and industry policies. The funds shall not be used:
(1) for production, operation, or investment fields and purposes prohibited by the state;
(2) for investment in bonds, futures, financial derivatives, or asset management products, among others;
(3) as registered capital or for registered capital verification;
(4) for equity capital investment or for increase in registered capital or shares (except as otherwise specified by the regulatory authority); and
(5) other purposes in violation of the regulatory provisions.
Article 12 A commercial bank shall collect commission fees from clients under the principle of “whoever entrusts pays.”
Article 13 After a commercial bank reaches an agreement with a client and a borrower on an entrusted loan, the three parties shall enter into an entrusted loan contract. The contract shall specify the loan's purposes, amount, currency, term, interest rate, and repayment plan, among others, as well as the rights and obligations of the client, fiduciary, and borrower.
Article 14 Where an entrusted loan is secured, the client and guarantor shall reach an agreement on the form of security and the surety (or collateral), and enter into a guarantee contract for the entrusted loan.
Article 15 A commercial bank shall require a client to open an account specially used for entrusted loans. The client shall transfer the funds entrusted into the account before the entrusted loan is granted, and the commercial bank shall grant entrusted loans in a manner as agreed on in the contract. Commercial banks shall not mix the funds of different clients.
Article 16 A commercial bank shall, in an entrusted loan contract with a client and a borrower, specify the main content of and the specific measures for assistance in overseeing the use of the loan, and perform the corresponding duties as agreed in the contract.
Article 17 A commercial bank shall, as agreed in an entrusted loan contract, assist in recovering the principal of the entrusted loan and the interest thereon, and transfer the funds into the client's account in a timely manner. The client shall be notified in a timely manner if the principal and interest cannot be transferred into the account in a timely manner.
Article 18 Upon maturity of an entrusted loan, a commercial bank shall, as agreed in the entrusted loan contract or notified in writing by the client, cease performing duties and obligations as the fiduciary, and conduct the corresponding accounting treatment; and if the entrusted loan is not repaid upon maturity, the commercial bank shall, as agreed in the entrusted loan contract, assist the client in rights protection according to the law.
Chapter III Risk Management
Article 19 A commercial bank shall strictly segregate risks between its entrusted loan business and operations for its own account, and be strictly prohibited from:
(1) determining a borrower on behalf of a client;
(2) participating in a client's decision-making on a loan;
(3) advancing funds for granting an entrusted loan on behalf of a client;
(4) determining a guarantor on behalf of a borrower;
(5) advancing funds for repaying an entrusted loan on behalf of a borrower or directly or indirectly undertaking entrusted loans with credit or wealth management funds;
(6) providing any form of security for an entrusted loan;
(7) entering into any other contract or agreement to change the nature of the entrusted loan business; and
(8) otherwise assuming risks that should be assumed by others.
Article 20 A commercial bank shall conduct separate accounting for its entrusted loan business and operations for its own account, and record the entrusted loan business in strict accordance with the requirements of accounting rules to reflect both the entrusted loans and the funds entrusted, rather than by netting, and ensure the authentic, accurate, and complete accounting of the entrusted loan business.
Article 21 Where the borrower of an entrusted loan is a current client granted a line of credit by a commercial bank, the commercial bank shall comprehensively consider the risk impact on the credit business of the bank of the expanded credit risk exposure after the borrower obtains the entrusted loan, and take corresponding risk management and control measures.
Article 22 A commercial bank shall implement hierarchical authorization management of its entrusted loan business, and the branch offices of the commercial bank shall not conduct the entrusted loan business without or beyond authorization.
Article 23 A commercial bank shall develop uniform entrusted loan contracts. Where a non-uniform contract is required for business needs, it shall be subject to the examination and consent of the head office of the bank.
Article 24 A commercial bank shall establish and improve its entrusted loan management information system, register the sources of funds, investment directions, terms, interest rates, clients, borrowers, and other relevant information, and ensure that such business information is complete, continuous, accurate, and traceable.
A commercial bank shall register the relevant entrusted loan information in the credit reporting system in a timely and complete manner.
Article 25 A commercial bank shall, according to the regulatory requirements, establish the statistical rules for the entrusted loan business, and effectively conduct the categorized statistics, summarization and analysis, and data submission of the entrusted loan business.
Article 26 A commercial bank shall analyze the risks associated with its entrusted loan business on a regular basis, and organize business inspections.
Chapter IV Supervision and Administration
Article 27 The China Banking Regulatory Commission (“CBRC”) shall supervise and administer the entrusted loan business of commercial banks in accordance with these Measures.
Article 28 Where a commercial bank conducts the entrusted loan business in violation of these Measures, the CBRC or its field office shall order it to take corrective action during a specified period. If the bank fails to do so or its acts seriously compromise the stable operation of the commercial bank or damage the lawful rights and interests of clients, the CBRC or its field office may, in accordance with Article 37 of the Banking Supervision Law of the People's Republic of China, take corresponding regulatory measures; and if these Measures are seriously violated, may impose administrative punishment on it in accordance with Article 46 of the Banking Supervision Law of the People's Republic of China.
Article 29 After granting an entrusted loan, a commercial bank shall, in strict accordance with the requirements of the relevant regulatory statistical rules, accurately submit detailed information on the entrusted loan.
Article 30 Where a commercial bank fails to submit information on its entrusted loan business to the regulatory authority in a timely and accurate manner, in violation of Article 29 of these Measures, the CBRC or its field office shall order it to take corrective action during a specified period. If the bank fails to do so, the CBRC or its field office may impose administrative punishment on it in accordance with Article 47 of the Banking Supervision Law of the People's Republic of China.
Chapter V Supplemental Provisions
Article 31 The entrusted loan business conducted by other financial institutions formed with the approval of the CBRC according to the law and qualified for engaging in the loan business shall be governed by these Measures.
Article 32 These Measures shall be subject to interpretation by the CBRC.