· Document Number：No. 203 [2015] of the General Office of the China Banking Regulatory Commission

· Area of Law： Negotiable Instruments

· Level of Authority： Departmental Regulatory Documents

· Date issued：12-31-2015

· Effective Date：12-31-2015

· Issuing Authority： China Banking Regulatory Commission

· Status： Effective

Notice of the General Office of the China Banking Regulatory Commission on Risk Warning of the Draft Business
(No. 203 [2015] of the General Office of the China Banking Regulatory Commission)
All local offices of the China Banking Regulatory Commission (“CBRC”); all policy banks, large-scale banks, and joint-stock banks; Postal Savings Bank of China; foreign-funded banks; financial assets management companies; and other financial institutions administered by the CBRC:
According to the on-site inspection plan of 2015, all local offices of the CBRC have conducted on-site inspections of the draft business of some banking financial institutions within their jurisdictions in the first half of 2015. Some banking financial institutions are found in inspection to have different levels of imprudence in the handling of the draft business. For the purposes of supervising and directing the banking financial institutions to effectively strengthen the management of the draft business and effectively preventing risks, the relevant risk warnings are hereby provided as follows:
I. Risk Warning
1. Ineffective implementation of the franchise governance of the interbank draft business. Some banking financial institutions fail to completely recover interbank franchised draft business, and have problems such as failure to designate specialized departments to grant centralized approval, branches' handling interbank draft business, decentralized accounting, failure to implement list management of interbank draft counterparties, and handling reverse repurchase business of commercial acceptance drafts in violation of regulations at different degrees.
2. Reducing the capital occupation by transferring the scale of the draft rediscount business. Some banking financial institutions take advantage of “outright sale + reverse repurchase + expired buyout,” “fake buyout and fake outright sale,” affixing repurchase commitment and other trading modes, to conduct fake outright sale and true removal off the balance sheet, or assist other banks in holding on a commission basis at the end of the month, and adjust the credit scale; and some institutions take advantage of third-party institutions to convert the draft assets into the asset management plans, replace discount with investment, adjust the accounting statements and reduce capital accrual.
3. Using the acceptance discount business to falsely increase the scale of deposits and loans. Some banking financial institutions issue bank acceptance drafts on a rolling basis to absorb deposits with drafts and falsely increase the scale of assets and liabilities; or handle banker's acceptance drafts and falsely increase deposits with loans and discount funds as the margin. Some institutions artificially switch business types, increase the income of intermediary business, and falsely increase performance.
4. Dealing with transactions in violation of regulations and disrupting the market order in conjunction with the draft intermediaries. Some banking financial institutions cooperate with intermediaries, handle draft discount without real trade background in large volume off the counter or outside of the banks, and gain profits illegally.
5. Mutually transferring loans and discounts to cover up credit risks. Some banking financial institutions use discount funds to return debts and borrow loans, and adjust the credit quality indicators; and grant loans to repay the advance and disguise non-performing assets.
6. Innovating on “draft agency” to avoid regulatory requirements. Some banking financial institutions conceal the scale of credit assets through interbank agency rediscount and drawer agreement; and entrust intermediary institutions to handle the draft business, and even lease or lend accounts and seals.
7. Some rural financial institutions provide “channels” for other banks' concealment and reduction of the scale of credit, and have prominent problem of operation in violation of regulations. Under the direction of individual joint-stock banks and urban commercial banks, some rural credit cooperatives, rural commercial banks, and village banks conduct channel business and reduce draft size for other banks, conduct discount in violation of regulations, issue drawer agreements or commitments in large amount to handle rediscount, conduct accounting not in accordance with the provisions, even carry out off-the-book operations, and have significant potential risks.
II. Regulatory Requirements
1. Attaching great importance to the risk of the draft business and diligently implementing the regulatory requirements. Banking financial institutions shall incorporate the “low-risk” business into the scope of unified credit granting in a full-caliber manner, and diligently perform their duties of due diligence investigation, examination and approval. The risk management of the draft business shall be comprehensively strengthened, and the draft business without real trade background shall not be handled. For invoices, documents and other vouchers for which draft acceptance and discount have been handled, the handling bank shall indicate the name, date, amount and other relevant information of the acceptance (discount) bank on the front of the original copy to prevent false transactions and repeated use of invoices. All corporate banking financial institutions shall effectively implement the requirements for interbank franchise and governance, and carry out the interbank draft business in strict accordance with the business authority, counterparty access list and interbank credit line.
2. Strengthening compliance management and regulating draft operation. Banking financial institutions shall strengthen internal control construction, comprehensively establish compliance concepts, and strengthen the management and control of employees' conducts. Institutions and employees shall be strictly prohibited from participating in various types of draft intermediary and fund broker activities, and vouchers and seals, among others, shall be strictly prohibited from being brought to different places for handling the draft business. Banking financial institutions shall strictly regulate the management of the opening and use of accounts, especially those in different locations, shall not lease or lend accounts and shall prohibit the act of “reserve payment.” The negotiable instrument funds of the banks shall be strictly prevented form being fraudulently obtained and misappropriated, as well as engaging in private lending or illegal fund-raising, or even becoming the fund source of illegal private financial activities.
3. Improving performance assessment and preventing funds from idling. Banking financial institutions shall rationally determine the scale of business and the speed of development, and establish a sound performance assessment mechanism in accordance with the essence of the business to ensure that credit funds effectively serve the real economy. The draft business shall be prevented from being used as a tool to adjust the operation indicators and performance revenue, to result in idling of bank funds.
4. Strengthening supervision and investigating and handling violations of regulations according to the law. All local offices of the CBRC shall further strengthen supervision and inspection of the draft business, resolutely implement the requirements of “impartial and incorruptible, irrefutable evidence, irreversible finalized cases, and showing liable persons, involved funds, and correction,” and severely investigate and handle various violations of laws and regulations. For poor management, repeated violations, off-balance-sheet operation and other serious violations of laws and regulations, besides the directly responsible persons that shall be severely held accountable, superior management personnel shall also be held accountable. A violator that is suspected of any crime shall be transferred to the judicial organ in a timely manner.
General Office of the China Banking Regulatory Commission
December 31, 2015