Before obtaining a banking license in China and registering a banking institution there, it is crucial to consider the fact that according to Chinese legislation principal shareholders are defined as individuals who have a 5% stake in a bank or having a significant position in its management.
Moreover, there are two different categories of stakeholders: controlling stakeholders and de facto controllers. Controlling stakeholders are characterized as those who have 50% or less of monetary commitment.
When it comes to de facto controllers, they are not necessarily a banking institution’s stakeholders. Yet, they can conclude agreements or make investments, thus have control over a bank’s activities.
Foreign investors’ share is not affected in any way by registering a banking institution in the PRC. It means that establishing a banking institution only requires fulfillment of certain obligations and getting needed permits.
Shareholders of such institution are supposed to fulfill the following conditions:
- Implement AML effectively
- Have successful financial activities on the international level in the past
- Comply with the legislation requirements of the country where the institution was founded.
Obligations of stakeholders
It is forbidden for controlling stakeholders to affect other stakeholders, depositors or the banking institution in a negative way. The violation of this rule can mean for them a transfer of stakes in a Chinese banking institution or a restriction of their managing rights.
Responsibilities of principal shareholders are:
- Compliance with banking regulations and the institution’s charter
- Preparation of a statement of investment purpose before making an investment in a Chinese bank
- Information disclosure on stakeholders and ultimate beneficiaries
- Risks identification and minimalization
- Replenishment of capital and reporting to regulators of a banking institution.
Principal shareholders are not allowed to:
- Exercise control over more than one banking institution
- Transfer stakes or capital of a banking institution within a 5-year period.
Change of control
It is necessary to obtain approval of properly authorized financial regulators to make a purchase of a stake in Chinese commercial banks possible. For those who are planning to own a 5% stake in a banking institution and potentially rise it even more, an obligation to report this to banking regulators and to receive their approval is applied.
There are no restrictions related to the acquisition of the shares that belong to commercial banks in the PRC performed by foreign entities. However, it is vital to follow the PRC’s rules for foreign investors who are purchasing a Chinese banking institution.
Here are the criteria for a foreign bank’s subsidiary in China:
- Performing an effective AML policy
- Owning a past record of financial activity on the international level
- Demonstrating stable profits and high solvency
- Not having a previous record of law violation
- Fulfilling regulators’ requirements and rules presented at the registration site.
A crucial condition for acquiring control over commercial banking institutions in the PRC is the securing consent granted by properly authorized regulators or partners of the acquirer.
To obtain the regulators’ consent for purchasing banks, the purchaser must comply with legal regulation for listed companies and manage declared assets. The approval period for purchasing a banking establishment in China takes less than four months.
Contact COREDO to receive assistance while purchasing a banking institution in foreign countries, learning about the regulation of banking activities in China or elsewhere, obtaining a banking license abroad. Our legal advisors are prepared to conduct a consultation and answer all your questions.