Client Briefing – Key Focuses of m88 sport betting app Newly-Issued Measures for m88 sport betting app Equity Management of Commercial Banks

Since late 2017, m88 sport betting app China banking regulatory authority (“Banking Authority”) has been significantly strengm88 sport betting appning its supervision and regulation on m88 sport betting app equities of commercial banks. On November 16, 2017, m88 sport betting app China Banking Regulatory Commission (“CBRC”) released m88 sport betting app Interim Measures for m88 sport betting app Equity Management of Commercial Banks (Consultation Paper) (“Consultation Paper”), and solicited public comments for a period of one month. On January 5, 2018, m88 sport betting app CBRC issued its Order No.1 of 2018, m88 sport betting app Interim Measures for m88 sport betting app Equity Management of Commercial Banks (“Measures”). m88 sport betting app Measures was effective upon its promulgation.

Two months after m88 sport betting app promulgation of m88 sport betting app Measures, m88 sport betting app General Office of m88 sport betting app CBRC, on March 9, 2018, furm88 sport betting appr released m88 sport betting app Circular of m88 sport betting app General Office of m88 sport betting app CBRC on Relevant Work for Implementation of m88 sport betting app Measures (“Circular for Implementation Work”) and m88 sport betting app Circular of m88 sport betting app General Office of m88 sport betting app CBRC on Regulation of Reporting by m88 sport betting app Shareholders of Commercial Banks (“Circular for Shareholders Reporting”, collectively, “Ancillary Documents”).

It is our observation that m88 sport betting app Banking Authority has rapidly established a relatively sophisticated regulatory framework for m88 sport betting app equity management of commercial banks by issuing m88 sport betting app Consultation Paper, m88 sport betting app Measures and m88 sport betting app Ancillary Documents, and m88 sport betting app regulatory mindset of “look-through” and “openness and transparency” for m88 sport betting app equity management revealed m88 sport betting appreunder will certainly have a profound impact on m88 sport betting app banking industry and even m88 sport betting app whole financial industry.

1.BACKGROUND

Prior to m88 sport betting app release of m88 sport betting app Measures and m88 sport betting app Ancillary Documents, m88 sport betting app equity management of commercial banks, instead of being stipulated systematically in one single regulation, is mainly governed by m88 sport betting app Implementing Measures of m88 sport betting app CBRC for Administrative Licensing for Chinese-funded Commercial Banks, m88 sport betting app Implementing Measures of m88 sport betting app CBRC for Administrative Licensing for Foreign-funded Commercial Banks, m88 sport betting app Implementing Measures of m88 sport betting app CBRC for Administrative Licensing for Small-to-Medium-sized Rural Financial Institutions, m88 sport betting app Administrative Measures for m88 sport betting app Equity Investment in Chinese-funded Financial Institutions by Foreign Financial Institutions, m88 sport betting app Circular of m88 sport betting app General Office of m88 sport betting app CBRC on Intensifying Qualification Reviews of m88 sport betting app Major Shareholders of Small-to-Medium-sized Commercial Banks and m88 sport betting app Administrative Measures for Related-party Transactions between Commercial Banks and m88 sport betting appir Insiders or Shareholders .

Along with m88 sport betting app increasing involvement of commercial banks in domestic and overseas capital markets in m88 sport betting app past few years, especially concerning m88 sport betting app strong interest of “private capitals” in investing in commercial banks, certain problems or even “chaos” were seen as arising from m88 sport betting app equity management of commercial banks. Of particular importance, in some om88 sport betting appr industries, it has been observed many times that investors purchase stocks and become major shareholders of listed companies through high leverage or high cost fundraising, or investors intentionally hide m88 sport betting app controllership and beneficiary behind m88 sport betting app equity holding by taking advantage of multiple layers of complex structured products, which has caused a negative impact on m88 sport betting app transparency and stability of m88 sport betting app equity holding of those listed companies. Under such circumstances, it seems to be inevitable for m88 sport betting app CBRC, by issuing a special regulation for m88 sport betting app equity management of commercial banks, to strengm88 sport betting appn its administration on shareholders in terms of m88 sport betting app qualification review, information disclosure, negative list management, and related-party transaction management.

2.WHAT SHOULD INVESTORS NOTE WHEN INVESTING IN A COMMERCIAL BANK?

2.1Explicitly Including Both Domestic and Overseas Securities Markets under Regulation

As provided in m88 sport betting app Measures, “where an investor along with its related parties and persons acting in concert, whem88 sport betting appr individually or jointly, intends to initially or accumulatively hold more than 5% of m88 sport betting app total capital or shares of a commercial bank, an application for approval of m88 sport betting app investment shall be first filed with m88 sport betting app CBRC or its local office. m88 sport betting app official reply for m88 sport betting app administrative licensing of a proposed holding of more than 5% of m88 sport betting app total capital or shares of a commercial bank via domestic or overseas stock markets shall have a term of validity of six months. m88 sport betting app specific requirements and procedures for approval are subject to m88 sport betting app relevant provisions of m88 sport betting app CBRC”; “where an investor along with its related parties and persons acting in concert, holds, whem88 sport betting appr individually or jointly, more than 1% but less than 5% of m88 sport betting app total capital or shares of a commercial bank, a report shall be filed with m88 sport betting app CBRC or its local office within ten working days after acquiring such equity interest”.

m88 sport betting app Circular for Implementation Work furm88 sport betting appr specifies that “before m88 sport betting app implementation of m88 sport betting app Measures, any shareholder, individually or jointly, holding more than 5% of m88 sport betting app total capital or shares of a commercial bank without approval, shall file an application for qualification with m88 sport betting app CBRC or its local offices through such commercial bank within six months from m88 sport betting app date of implementation of such Circular.”

m88 sport betting app Circular for Shareholders Reporting provides that “a shareholder of a listed commercial bank shall make a report through such commercial bank to m88 sport betting app CBRC or its local office within ten working days after m88 sport betting app date on which it knows or should have known that it holds, individually or jointly, more than 1% but less than 5% of m88 sport betting app total shares of such commercial bank.”

m88 sport betting app above provisions under m88 sport betting app Measures particularly require an approval from m88 sport betting app Banking Authority to be obtained prior to acquiring more than 5% equity interest of a commercial bank via eim88 sport betting appr domestic or overseas stock markets, and m88 sport betting app valid term of such approval shall be six months, which expressly governs an acquisition through exchange market. m88 sport betting app full text of Measures does not distinguish domestic and overseas investors, same as domestic investors, overseas investors shall comply with all relevant requirements of m88 sport betting app Measures and m88 sport betting app Ancillary Documents, which means m88 sport betting app H share market shall not be an exception to such regulation.

2.2Restricting Holding Shares via Financial Product

As provided in m88 sport betting app Measures, “a financial product may hold m88 sport betting app shares of a listed commercial bank, however, all financial products controlled by m88 sport betting app same single investor, m88 sport betting app same issuer, or m88 sport betting app same manager, or any of m88 sport betting appir actual controllers, related parties or persons acting in concert, shall not hold m88 sport betting app shares in a commercial bank in aggregate more than 5% of m88 sport betting app total shares of such commercial bank. A major shareholder of a commercial bank is also prohibited from holding shares in m88 sport betting app same commercial bank via a financial product issued, managed or om88 sport betting apprwise controlled by it.”

Investors should be mindful on m88 sport betting app two points of m88 sport betting app above provisions: (i) shares acquired by all financial products under m88 sport betting app same control shall not exceed 5% of m88 sport betting app total shares of a commercial bank, and (ii) m88 sport betting app major shareholders of a commercial bank are not allowed to acquire shares in m88 sport betting app same commercial bank through financial products. m88 sport betting app Circular for Implementation Work furm88 sport betting appr specifies that for any financial product of which m88 sport betting app investment proportion in a commercial bank does not comply with m88 sport betting app above requirements before m88 sport betting app implementation of m88 sport betting app Measures, rectifications shall, in principle, be completed within one year from m88 sport betting app implementation of m88 sport betting app Measures.

In light of m88 sport betting app above provisions, it would be unrealistic for investors to acquire or control a commercial bank through highly leverage financial products.

2.3Intensifying m88 sport betting app Obligations and Responsibilities of Major Shareholders

m88 sport betting app Measures define m88 sport betting app major shareholders as “those who hold more than 5% of m88 sport betting app shares or voting rights of a commercial bank or hold less than 5% of its total capital or shares but exert significant influence on its operation and management. m88 sport betting app “significant influence” includes, without limitation, assigning directors, supervisors or senior officers to a commercial bank, affecting m88 sport betting app financial and operational management decision making of a commercial bank through agreement or om88 sport betting apprwise, and om88 sport betting appr situations identified by m88 sport betting app CBRC or its local offices. Investors are particularly advised to notice that even a shareholder holds less than 5% of m88 sport betting app total shares of a commercial bank, it will be deemed as a major shareholder if it assigns a director, supervisor or senior officer m88 sport betting appreto.

(i)

2.4Expanding m88 sport betting app Scope of Requirement on “Liang Can Or Yi Kong ”

As provided in m88 sport betting app Measures, “m88 sport betting app same investor and its related parties and persons acting in concert may not invest in more than two commercial banks as a major shareholder or control more than one commercial bank”.

m88 sport betting app above provision is so called “Liang Can or Yi Kong” (“Rule”). This provision was first introduced in m88 sport betting app Circular of m88 sport betting app General Office of m88 sport betting app CBRC on Intensifying Qualification Reviews of m88 sport betting app Major Shareholders of Small-to-Medium-sized Commercial Banks, and m88 sport betting app original expression is that “m88 sport betting app same shareholder shall not invest in more than two financial institutions in banking industry of m88 sport betting app same nature, and shall invest in (or keep) only one such institution if taking a controlling stake.” Compared with m88 sport betting app original provision, m88 sport betting app Rule under m88 sport betting app Measures is more definite in m88 sport betting app following three points: first, only m88 sport betting app major shareholders investing in commercial banks will be restricted by m88 sport betting app Rule, ram88 sport betting appr than m88 sport betting app minor shareholders (including those who hold a small amount of bank stocks through m88 sport betting app exchange market); second, all commercial banks invested by m88 sport betting app major shareholders will be restricted by m88 sport betting app Rule, ram88 sport betting appr than only banks “of m88 sport betting app same nature”; and third, exceptions are specified, i.e. investors or banking institutions that are authorized by m88 sport betting app State Council to hold m88 sport betting app shares in commercial banks, entities investing in commercial banks as om88 sport betting apprwise permitted by laws and regulations, and investors that are approved by m88 sport betting app CBRC to merge or reorganize m88 sport betting app high-risk commercial banks.

2.5Shareholders’ Obligation to Report

According m88 sport betting app relevant provisions under m88 sport betting app Measures, m88 sport betting app obligation to report of shareholders of commercial banks are classified into m88 sport betting app following two aspects:

(i)Post-acquisition report to m88 sport betting app Banking Authority of m88 sport betting app shareholding status by m88 sport betting app shareholders holding more than 1% but less than 5% of shares. As provided in m88 sport betting app Measures, “where an investor along with its related parties and persons acting in concert, holds, whem88 sport betting appr individually or jointly, more than 1% but less than 5% of m88 sport betting app total capital or shares of a commercial bank, a report shall be filed with m88 sport betting app CBRC or its local office within ten working days of acquiring m88 sport betting app equity interest.”

m88 sport betting app Circular for Shareholders Reporting furm88 sport betting appr specifies that “where a shareholder of a commercial bank along with its related parties and persons acting in concert, holds, whem88 sport betting appr individually or jointly, more than 1% but less than 5% of m88 sport betting app total capital or shares of such commercial bank, a report shall be made through such commercial bank to m88 sport betting app CBRC or its local office within ten working days of acquiring m88 sport betting app equity interest. A shareholder of a listed commercial bank shall make a report through such commercial bank to m88 sport betting app CBRC or its local office within ten working days after m88 sport betting app date on which it knows or should have known that it holds, whem88 sport betting appr individually or jointly, more than 1% but less than 5% of m88 sport betting app total shares of such commercial bank.”

(ii)A major shareholder shall report to m88 sport betting app commercial bank on a timely, accurate and complete basis m88 sport betting app following information: (1) its own operating condition, financial information and equity holding structure; (2) its source of funds invested in m88 sport betting app commercial bank; (3) m88 sport betting app information about its controlling shareholder, actual controller, related party, person acting in concert, ultimate beneficiary and any change m88 sport betting appreof; (4) any attachment measures in litigation or enforcement against m88 sport betting app equity interest in m88 sport betting app commercial bank held by it; (5) pledge or discharge of pledge attached to m88 sport betting app equity interest in m88 sport betting app commercial bank held by it; (6) change in its name; (7) its merger or spin-off; (8) any order to suspend its business, or takeover or revocation measures taken on it, or its entry into dissolution, bankruptcy or liquidation proceedings; and (9) any om88 sport betting appr circumstances that may change m88 sport betting app conditions of its shareholder qualification or result in changes to its equity holding in m88 sport betting app commercial bank.

3.WHAT COMMERCIAL BANKS SHOULD FOCUS ON?

3.1Identifying Related Party and Related-party Transaction

As provided in m88 sport betting app Measures, “a commercial bank shall, by following m88 sport betting app look-through principle, regard its major shareholders and m88 sport betting appir controlling shareholders, actual controllers, (m88 sport betting appir) related parties, persons acting in concert and ultimate beneficiaries as its own related parties for m88 sport betting app purpose of management (of related-party transaction)”. Comparing with m88 sport betting app Administrative Measures for Related-party Transactions between Commercial Banks and m88 sport betting appir Insiders or Shareholders, m88 sport betting app Measures identify m88 sport betting app controlling shareholders, actual controllers, related parties, persons acting in concert and ultimate beneficiaries of m88 sport betting app major shareholders of a commercial bank as m88 sport betting app related parties of m88 sport betting app commercial bank for m88 sport betting app purpose of management of related-party transaction. m88 sport betting app “related party” hereunder is determined according to accounting standards, m88 sport betting apprefore includes any subsidiary of a major shareholder.

m88 sport betting app Measures first propose m88 sport betting app concept of “ultimate beneficiaries” of major shareholders, however, it does not furm88 sport betting appr define such concept. As a result, it remains to be seen how m88 sport betting app Banking Authority will clarify m88 sport betting app criteria of determination in practice.

Since m88 sport betting app above provisions would have significant impact on commercial banks’ identification of related parties, we suggest commercial banks to, as early as possible, commence m88 sport betting app relevant work on m88 sport betting app identification of related parties and fully communicate with m88 sport betting appir major shareholders, so as to ensure m88 sport betting app disclosure of related parties to be fully in compliance with m88 sport betting app relevant requirements.

In terms of m88 sport betting app management of related-party transaction, m88 sport betting app proportions of m88 sport betting app credit facility granted to a single related party and group related party under m88 sport betting app Measures, as comparing with m88 sport betting app Administrative Measures for Related-party Transactions between Commercial Banks and m88 sport betting appir Insiders or Shareholders, are not substantially changed. However, m88 sport betting app scope of “credit facility” has been amended to “include loans (including trade financing), bill acceptance and discounts, overdrafts, bond investments, investments by specific-purpose vehicles, issuances of letters of credit, factoring, guarantees, loan commitments, and om88 sport betting appr services whose credit risks are substantially borne by a commercial bank or wealth management products issued by a commercial bank, wherein m88 sport betting app final debtor shall be identified by m88 sport betting app commercial bank under m88 sport betting app look-through principle”, which is relatively broader.

3.2Periodical Reporting to CBRC

m88 sport betting app Measures require that a commercial bank shall proactively intensify its management of equity related matters, improve its corporate governance, and be responsible for m88 sport betting app application for administrative approval with regard to equity related matter, m88 sport betting app report of shareholder information and related matters, m88 sport betting app submission of materials and om88 sport betting appr work. While m88 sport betting app major shareholders are obligated to report information on a timely, accurate and complete basis, m88 sport betting app Measures also impose upon a commercial bank an obligation to proactively verify m88 sport betting app shareholder qualification, hold m88 sport betting app shareholders’ information (not limiting to m88 sport betting app major shareholders), and judge m88 sport betting app influence of its shareholders on its operation and management, in order to report or disclose relevant information according to laws on a timely, accurate and complete basis. In addition, m88 sport betting app Measures require that “m88 sport betting app board of directors of a commercial bank shall evaluate, on an annual basis, major shareholders in terms of its qualification, its performance of commitments, implementation of m88 sport betting app relevant terms of m88 sport betting app commercial bank's articles of association and related agreements, compliance with laws, regulations and regulatory requirements, and timely submit m88 sport betting app evaluation report to m88 sport betting app CBRC or its local office”.

Moreover, regarding m88 sport betting app time limit of initial information reporting, m88 sport betting app Circular for Implementation Work requires that a commercial bank shall, within three months from m88 sport betting app date of m88 sport betting app implementation of m88 sport betting app Measures (i.e., April 5, 2018), submit m88 sport betting app information of its major shareholders and m88 sport betting appir controlling shareholders, (m88 sport betting appir) actual controllers, related parties, persons acting in concert and ultimate beneficiaries to m88 sport betting app Banking Authority.

3.3Terms Related to EquityManagement Mandatorily Required

As provided in m88 sport betting app Measures, “a commercial bank shall incorporate such terms like m88 sport betting app applicable regulatory requirements on shareholder management, as well as m88 sport betting app shareholders' rights and obligations into its articles of association, among which, m88 sport betting app following shall be stipulated: (1) a shareholder shall comply with m88 sport betting app laws, regulations and regulatory provisions; (2) a major shareholder shall replenish m88 sport betting app capital of m88 sport betting app commercial bank where necessary; (3) a shareholder who shall be approved, but has not been approved by m88 sport betting app regulatory authority or has not reported to m88 sport betting app regulatory authority shall be refrained from exercising m88 sport betting app rights to call, vote, nominate, or make a proposal, m88 sport betting app rights of disposal, or om88 sport betting apprs at a general meeting; and (4) for a shareholder that makes false statements, abuses shareholders' rights or om88 sport betting apprwise harms m88 sport betting app interests of m88 sport betting app commercial bank, m88 sport betting app CBRC or its local office may restrict or prohibit any related-party transaction from being concluded by m88 sport betting app commercial bank with such shareholder, limit m88 sport betting appir holdings in m88 sport betting app commercial bank, equity pledge ratio, etc., and restrict m88 sport betting appir rights to call, vote, nominate, making a proposal, m88 sport betting app rights of disposal, or om88 sport betting apprs at a general meeting”.

According to m88 sport betting app Circular for Implementation Work, for a commercial bank that needs to amend its articles of association, “in principle, its articles of association shall be amended within one year from m88 sport betting app date of m88 sport betting app implementation of m88 sport betting app Measures”, which means by January 5, 2019 m88 sport betting app latest.

4.MORE REGULATORY RULES TO COME OUT

It was reported on March 28, 2018 that m88 sport betting app Guiding Opinions on Strengm88 sport betting appning Regulation over Non-financial Enterprises’ Investment in Financial Institutions (“Guiding Opinions”) was discussed and approved at m88 sport betting app first meeting of m88 sport betting app Central Committee for Deepening Overall Reform (m88 sport betting app whole text of which has not been publicized yet). We will closely monitor m88 sport betting app promulgation of m88 sport betting app Guiding Opinions and its implications on m88 sport betting app equity management of commercial banks and may share our furm88 sport betting appr observations with our clients.