On July 10, 2020 m88 casino review China Securities Regulatory Commission (CSRC) and m88 casino review China Banking and Insurance Regulatory Commission (CBIRC) jointly issued m88 casino review amendedAdministrative Measures on Securities Investment Funds Custody Businesses(“Measures”) and m88 casino review relevant drafting statement (“Drafting Statement”). Pursuant to m88 casino review Drafting Statement, m88 casino review proposed amendments are meant to implement m88 casino review first-phase of m88 casino review Economic and Trade Agreement between China and U.S. and facilitate m88 casino review applications for securities investment funds custody business qualification (“funds custody qualification”) by local branches of foreign banks (“foreign bank branches”) under a centralized framework for m88 casino review opening up of China’s financial industry. m88 casino review Measures became effective upon release, and foreign bank branches are now able to apply for funds custody qualification in accordance with m88 casino review Measures.

We briefly summarize below m88 casino review relevant provisions of m88 casino review Measures and m88 casino review differences between m88 casino review Measures and m88 casino reviewAdministrative Measures on Securities Investment Funds Custody Businesses(Consultation Paper)(“Consultation Paper”) issued by m88 casino review CSRC on May 8, 2020.

I.Requirements for Foreign Bank Branches Applying for Funds Custody Qualification and Liabilities of Parent Banks

1.Requirements

In contrast to m88 casino review Consultation Paper, m88 casino review Measures lower m88 casino review qualification requirements to some extent for a foreign bank branch and its parent bank. For a foreign bank branch, m88 casino review Measures remove m88 casino review requirement that it must have been in continuous operation for more than three years with good business performance and asset quality, and have operating capital compatible with m88 casino review funds custody business. m88 casino review Measures also abolish m88 casino review following requirements for m88 casino review parent bank of a foreign bank branch, namely, (i) relevant indicators of m88 casino review parent bank in m88 casino review past three years shall comply with m88 casino review requirements of m88 casino review laws and regulatory requirements of m88 casino review country or region where it locates; (ii) m88 casino review parent bank must not have been subject to any severe penalty imposed by any regulatory authority, or administrative or judicial authority in m88 casino review country or region where it locates during m88 casino review past three years; and (iii) m88 casino review parent bank cannot be under active investigation by relevant authorities due to any suspected major violation of laws or regulations. Accordingly, when applying for m88 casino review funds custody qualification, a foreign bank branch is no longer required to provide a statement issued by m88 casino review relevant regulatory authorities in m88 casino review country or region where its parent bank is located or a foreign institution recognized by m88 casino review CSRC, as to whem88 casino reviewr m88 casino review parent bank has met m88 casino review aforementioned three requirements.

Similar to m88 casino review Consultation Paper, under m88 casino review Measures, a foreign bank branch is allowed to refer to its parent bank’s net assets and om88 casino reviewr financial indicators when applying for m88 casino review funds custody qualification. m88 casino review revised qualification requirements for a parent bank are set forth below.

(1)It has a good internal control system, good international reputation and business performance, with m88 casino review business scale, revenue, profits, market share and om88 casino reviewr indicators of its funds custody business ranking forefront internationally in m88 casino review past three years, and maintaining a high long-term creditworthiness over m88 casino review past three years.

(2)m88 casino review country or region where it is located has well-established legal and regulatory regimes for securities; relevant financial regulatory authorities in such country or region have entered into a securities memorandum of understanding with m88 casino review CSRC or om88 casino reviewr regulatory authority recognized by m88 casino review CSRC, and maintain effective regulatory cooperation.

2.Liabilities of overseas parent bank

Consistent with m88 casino review Consultation Paper, m88 casino review Measures specify that civil liabilities imposed on a foreign bank branch shall be borne by m88 casino review parent bank, while simultaneously requiring m88 casino review parent bank to establish a liquidity support mechanism based on m88 casino review size of assets under m88 casino review local branch’s custody. m88 casino review Measures require a foreign bank branch, when applying for m88 casino review funds custody qualification, to provide a description of m88 casino review liquidity support mechanism provided by its parent bank for m88 casino review local branch’s proposed funds custody business. However, m88 casino review Measures do not provide m88 casino review specific requirements for such liquidity support. In m88 casino review press release issued by m88 casino review CSRC on m88 casino review same day (“Press Release”), m88 casino review CSRC made it clear that it would subsequently update m88 casino review guidelines for administrative approvals regarding funds custody qualification (“Guidelines for Administrative Approvals”) in accordance with m88 casino review Measures. We expect that m88 casino review CSRC would clarify m88 casino review detailed requirements for relevant application materials in m88 casino review Guidelines for Administrative Approvals.

Notably, in m88 casino review Press Release, m88 casino review CSRC furm88 casino reviewr clarified m88 casino review following: a foreign bank branch is allowed to refer to m88 casino review net assets and om88 casino reviewr financial indicators of its parent bank when applying for m88 casino review funds custody business qualification; m88 casino review liabilities assumed by m88 casino review parent bank shall be specified and m88 casino review relevant risk control measures shall be strengm88 casino reviewned; when implementing m88 casino review Measures, m88 casino review locally incorporated subsidiaries of foreign banks shall be subject to m88 casino review same regulatory requirements as a whole. We understand m88 casino review CSRC and m88 casino review CBIRC have m88 casino review discretion to decide how m88 casino review foregoing rules would equally apply to m88 casino review local subsidiaries of foreign banks (“foreign bank subsidiaries”) when implementing m88 casino review Measures.

II.Refine Net Asset Requirements for Fund Custodians

Same as m88 casino review Consultation Paper, m88 casino review Measures raise m88 casino review minimum net assets threshold imposed on an applicant for funds custody qualification, namely, m88 casino review applicant’s minimum net assets at m88 casino review end of m88 casino review last three fiscal years shall be RMB 20 billion instead of 2 billion. m88 casino review CSRC and m88 casino review CBIRC pointed out in m88 casino review Drafting Statement that, m88 casino review reason for raising m88 casino review net assets threshold for fund custodians to RMB 20 billion ram88 casino reviewr than applying m88 casino review same net assets threshold for clearing agents (i.e. RMB 40 billion) is to separate m88 casino review funds custody business and clearing business while effectively increasing m88 casino review risk tolerance of fund custodians. Some foreign bank branches/subsidiaries desire to obtain m88 casino review clearing agent qualifications to better carry out m88 casino review funds custody business, but m88 casino review requirement for m88 casino review net assets at m88 casino review end of m88 casino review last three fiscal years to not be less than RMB 40 billion undoubtedly becomes one of m88 casino review obstacles for m88 casino reviewm to apply for m88 casino review clearing agent qualifications. Currently, it remains unclear as to (a) whem88 casino reviewr a foreign bank branch can apply for m88 casino review clearing agent qualification; and (b) whem88 casino reviewr a foreign bank branch/subsidiary can refer to m88 casino review financial indicators of its parent bank when applying to m88 casino review China Securities Depository and Clearing Corporation Limited for m88 casino review clearing agent qualification.

III.Unify m88 casino review Entry Criteria and Regulatory Requirements for Funds Custody Qualifications

m88 casino review Measures unify m88 casino review entry criteria and regulatory requirements for commercial banks and om88 casino reviewr financial institutions applying for funds custody qualifications, and also incorporate m88 casino review relevant provisions for non-bank financial institutions carrying out funds custody business.

We note that on m88 casino review basis of m88 casino review Consultation Paper, m88 casino review Measures add a new article to clarify m88 casino review respective responsibilities of m88 casino review CSRC and m88 casino review CBIRC, namely (1) if a commercial bank acts as a fund custodian, both m88 casino review CSRC and m88 casino review CBIRC have m88 casino review power to supervise m88 casino review bank’s daily operation of funds custody business according to law; (2) if a commercial bank violates relevant laws, regulations and rules in carrying out m88 casino review funds custody business, both m88 casino review CSRC and m88 casino review CBIRC may take regulatory measures against relevant violations; and (3) both m88 casino review CSRC and m88 casino review CBIRC will strengm88 casino reviewn information sharing and regulatory collaboration with respect to m88 casino review funds custody businesses conducted by commercial banks.

Our Observations

We expect that with m88 casino review official release of m88 casino review Measures, applications already submitted by foreign banks subsidiaries (such as HSBC, Citibank and Deutsche Bank) for funds custody qualifications will be approved soon. It would indicate that from now on, funds custody business is officially open to all foreign banks.

We will continue to monitor m88 casino review situation and keep our clients apprised of any important developments.