Those interested in registering a banking institution in the PRC or obtaining a banking license in China should keep in mind that under Chinese legislation, principal shareholders are defined as individuals owning a five per cent stake in a banking institution or playing a significant role in its management.
There’s also “controlling stakeholders” & “de facto controllers”. Controlling stakeholders are defined as:
- having a monetary commitment exceeding fifty percent;
- having a monetary commitment of less than fifty percent.
“De facto controllers” are able to exercise control over a banking institution’s actions by concluding agreements or making investments. “De facto controllers” do not necessarily have to be a banking institution’s stakeholders.
Registering a banking institution in the PRC has no impact on foreign investors’ share in the banking institution. Hence, setting up a banking institution with foreign capital in China only involves meeting specific requirements & obtaining certain permits.
Shareholders of such an institution must meet the below criteria:
- having a prior record of successful financial activities on international arena;
- being capable of effectively implementing AML policies.
Shareholders must also abide by the regulations of a jurisdiction where a banking institution has been incorporated.
Controlling stakeholders are forbidden to engage in activities that negatively impact other stakeholders, depositors or the banking institution itself. Those found guilty of breaching this rule may have to transfer a stake in a Chinese banking institution & even have their managing rights restricted.
Principal shareholders’ responsibilities include:
- abiding by banking regulations;
- complying with a banking institution’s charter;
- drawing up a statement of investment purpose prior to making an investment in a Chinese bank ;
- disclosing information on stakeholders & ultimate beneficiaries;
- effectively identifying & minimizing risks;
- replenishing a banking institution's capital & reporting it to regulators.
Principal shareholders are prohibited from:
- transferring a banking institution’s stakes or capital within s 5-year period;
- having control over more than one banking institution.
Changing Control Over a Banking Establishment
Purchasing a stake in Chinese commercial banks requires getting approval of properly authorized financial regulators. If investors or any entities affiliated with them intend to initially own a five per cent stake in a banking institution and/or subsequently build it up by five per cent or more, they must report it to banking regulators & get their approval.
Acquiring shares of commercial banks in the PRC by foreign entities entails no restrictions. Foreign investors’ purchasing a Chinese banking institution must comply with the PRC’s rules for banking institutions with foreign capital.
Establishing a foreign bank’s subsidiary in China requires meeting these criteria:
- conducting an effective AML policy;
- having a prior record of financial activities on international arena;
- stable profits & high creditworthiness
- having no previous history of breaking laws;
- complying with regulations at the registration site;
- complying with regulators’ requirements.
Purchasing Banks in the PRC
Acquiring control over commercial banking establishments in the PRC requires securing consent of properly authorized regulators or acquirers’ partners.
Conditions for Getting Regulators’ Consent
Purchasing banks in the PRC requires compliance with legislation related to listed companies & managing declared assets. The wait time for getting approval for purchasing a banking institution in China is less than for months.
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