The following table summarises the assessment of the seven criteria used by the Assessment Team to
determine the eligibility of the CBRC’s draft Regulatory documents. The team concluded the regulatory
documents issued by the CBRC are eligible for the RCAP assessment.
Criterion Assessment
(1) The regulatory instruments are part of a well defined, clear and transparent legal hierarchy and regulatory framework;
Chinese authorities have explained that in China, the hierarchy of law-making distinguishes between laws and ordinances issued by the People’s Congress and State Council and those regulations and regulatory documents issued by the CBRC. The CBRC derives its rule-making power from Article 21 of the Banking Regulation and Supervision Law and is authorised to establish regulations and regulatory documents for the banking sector, including risk management, internal control, capital adequacy, asset quality, provisioning, risk concentration, interconnected transaction, liquidity etc.
The prudential regulatory requirements are provided in both regulations and regulatory documents. According to I.1 and I.2 of the Notice on Implementing the CBRC Rule-making Provisions, the term “regulations” refers to the documents that are made pursuant to laws, ordinances and decisions and orders of the State Council, in accordance with statutory procedures, within the power of CBRC and coded as Decrees of the CBRC. These regulations have general binding force for the banking sector, and are used to govern the regulated financial institutions and their business activities. Titles of the regulations can vary from “rules” to “measures” and the like based on the content.
The term “regulatory documents” refers to the CBRC documents with their legal status subordinated to regulations, and are issued to govern the regulated financial institutions and their business activities. The regulatory documents have general binding force for the banking sector, instead of being binding on individual regulated financial institutions. The regulatory documents generally carry a name in the format “Notice on XXX”, “Notice on Implementing XXX”, and “Notice of Guidelines on XXX”.
(2) They are public and freely available;
Once regulatory documents are issued, the CBRC notifies the banks and posts them on the CBRC website.30
(3) They are viewed as binding by banks as well as by the supervisors;
In CBRC Rule-making Provisions, Article 66 provides that the CBRC‘s regulations and interpretations or explanatory notes of regulations are equal in legal force to regulations. Also, according to Article 37 and 46 of the Banking Regulation and Supervision Law, any bank that fails to meet prudential regulations and regulatory documents issued by the CBRC shall be subject to remedial measures or enforcement actions.
In addition, the Assessment Team confirmed the bindingness of regulatory documents through its bilateral discussions with Chinese commercial banks and accounting firms.
(4) They would generally be legally upheld if challenged;
According to Article 62 of Judiciary Interpretation of the Administrative Litigation Law, the Court can refer to effective regulations as well as regulatory documents when making judgement in trial of administrative cases. As such, the regulations and regulatory documents are expected to be legally upheld if challenged in court.
(5) They are supported by precedent;
For example, the previous version of Capital Rules was first promulgated by the CBRC in 2004 as a “regulation”, and were supported by a number of “regulatory documents” thereafter, serving as interpretation or supplements, such as the Notice on Tier 2 Capital Instruments or
Notices on CAR Calculation. In 2006, an updated version of Capital Rules was re-issued to incorporate all additional requirements set forth in those notices.
Starting from 2007, the CBRC issued the Notice on Guiding Opinion for Implementing New Basel Accord, the Supplementary Notice on CAR Calculation under New Accounting Standards, and a series of notices on supervisory guidelines covering Pillar 1, 2 and 3 of Basel II, which in
30 For example, the Capital Rules (Decree of the CBRC, No.1, 2012), available at:
www.cbrc.gov.cn/chinese/home/docDOC_ReadView/79B4B184117B47A59CB9C47D0C199341.html.
See also the Notice on Transition Arrangements for the Implementation of the Capital Rules for Commercial Banks (Yin Jian Fa, No. 57, 2012, available at: www.cbrc.gov.cn/chinese/home/docDOC_ReadView/E7D4FBF66EE946BA86E647A5E9E58829.html.
2012 were incorporated into the current Capital Rules in accordance with Basel III.
In this evolving process, any bank that fails to meet the requirements in the notices shall incur corrective measures or enforcement actions, including but not limited to a supervisory letter requiring prompt correction to eliminate the loopholes.
(6) They are properly communicated and consequences of failure to comply are properly
understood and carry a similar practical effect as for the primary law or regulation;
According to Article 37 and 46 of the Banking Regulation and Supervision Law, any banking institution that fails to meet prudential regulations and regulatory documents shall be subject to remedial measures or enforcement actions.
(7) The instrument is expressed in clear language that complies with the Basel provision in substance and spirit (eg phrased in terms of requirements, not just interpretation, guidance, or best practice).
Wording like “require, must, should, shall” is used in the notices. The Assessment Team assessed the regulatory documents in both the letter and spirit for compliance with the Basel standards.