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How does a foreign investor set up a financial institution in the PRC?

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How does a foreign investor set up a financial institution in the PRC?

6. Currency Brokerage Companies

A. Definitions

A currency brokerage company refers to a non-bank financial institution which is established in the PRC by electronic or other means, which is engaged specifically in financing and foreign exchange dealings and other brokerage services, for which it charges commission.

B. Applicable laws

The Measures for the Administration of Pilot Currency Brokerage Companies (货币经纪公司试点管理办法) (Order No. 1 [2005] of the CBRC), effective from September 2005 (“Currency Brokerage Companies Measures”), the Detailed Rules for the Implementation of Measures for the Pilot Administration of Currency Brokerage Companies (货币经纪公司试点管理办法实施细则), effective from September 2005, and the Notice of the People’s Bank of China on Currency Brokerage Companies’ Access to the Interbank Market (中国人民银行关于货币经纪公司进入银行间市场有关事项的通知) (No. 231[2006] of the People’s Bank of China), are the main legislative provisions governing the establishment and operation of currency brokerage companies.

C. Primary regulator

The CBRC is the main supervisory body for currency brokerage companies. Brokerage business activities conducted by currency brokerage companies such as inter-bank borrowing and lending, the purchase and sale of bonds and foreign exchange dealings in the inter-bank market are also subject to supervision and inspection by the People’s Bank of China and the State Administration of Foreign Exchange (“SAFE”). If they conduct business involving the administration of foreign exchange, they must comply with relevant requirements stipulated by SAFE, and will be subject to supervision and inspection by SAFE.

D. General requirements for a currency brokerage company

A Currency Brokerage Company must satisfy the following:

  1. it must meet the minimum capital requirement (see below);
  2. its articles of association must be in line with the Companies Law, other relevant laws and the Currency Brokerage Companies Measures;
  3. senior management of the currency brokerage company must be familiar with the currency brokerage business;
  4. it must have a sound organisational structure, management system and risk control system;
  5. its business premises and safety measures must meet the needs of its business operations; and
  6. other conditions as may be prescribed by the CBRC.

E. Conditions applicable to a foreign investor in a currency brokerage company

Foreign investors who wish to establish a wholly foreign-funded currency brokerage company, or a joint-venture currency brokerage company with a PRC party in the PRC, must meet the following conditions:

  1. it must be a currency brokerage company lawfully established in the country or region where it is located;
  2. it must have been engaged in the currency brokerage business for 20 years or more, and have a sound internal controls system;
  3. it must have a good credit rating and have no record of serious violation of applicable laws or regulations;
  4. it must have been profitable for the three years immediately preceding the application and must have had after-tax net proceeds of at least US$ 5 million in each of those years;
  5. it must be part of a global network and have the communication network necessary for the conduct of currency brokerage services;
  6. it must have had a Representative Office in the PRC for at least 2 years;
  7. its home country or region must have a sound financial supervision and management system, and the applicant must be under the effective supervision of the relevant competent authority of the country or region where it is located. The relevant competent authority of such country or region must also have entered into a memorandum for cooperation in relation to supervision with the CBRC; and
  8. other conditions as may be prescribed by the CBRC.

F. Scope of business

A currency brokerage company and its branches may, depending on the business scope approved by the CBRC, engage in all or some of the following brokerage businesses:

  1. transactions in foreign exchange markets in the PRC and abroad;
  2. transactions in currency markets in the PRC and abroad;
  3. transactions in bond markets in the PRC and abroad;
  4. transactions in derivatives in the PRC and abroad; or
  5. other businesses as may be approved by the CBRC.

G. Capital Requirement

The minimum capital requirement for a currency brokerage company is RMB 20 million or an equivalent amount in a freely convertible currency.

H. Establishment Requirements

Preparatory Establishment Stage

An application should be filed by the majority shareholder with the CBRC together with the following documents:

  1. an application for the establishment of a solely invested or joint venture currency brokerage company signed by the legal representative of the investor, which includes the name, place of registration, registered capital, capital proportion of the investor, business scope, etc.;
  2. a feasibility study report;
  3. the articles of association of the proposed currency brokerage company;
  4. the business licence (in duplicate) issued by the competent authority of the country or region where the investor is located, or a photocopy of the company’s registration document;
  5. an opinion in respect of the application issued by the competent authority or industrial association of the investor’s home country or region;
  6. basic information about the investor(s);
  7. the investor’s financial statements for the three preceding years which are either audited by a qualified accounting firm or accredited by the relevant competent governmental department;
  8. an agreement, commitment or contract signed by both capital contribution parties;
  9. a declaration issued by the legal representative of the capital contributor as to the genuineness of the application materials; and an application letter which includes the name, locality, registered capital, shareholders, share right structure, business scope, etc. of the proposed currency brokerage company; and
  10. other materials as may be required by the CBRC.

The above documents must be in Chinese, except for those specified in paragraphs (4) to (7)) which must be accompanied by a Chinese translation of the relevant document.

Business Commencement Stage

An application for commencement of business must be filed with the CBRC with the following documents:

  1. a report regarding completion of the preparatory establishment work and an application for commencement of business;
  2. a capital verification certificate issued by a statutory capital verification institution in China, and the pre-approval registration document issued by the AIC regarding the name of the proposed institution;
  3. the articles of association of the currency brokerage company;
  4. a list of the names of the proposed senior managers of the currency brokerage company, their detailed curricula vitae and certificates of qualification;
  5. the names of the shareholders and the amount of their respective capital contributions;
  6. the bylaws of the businesses to be carried out and the internal risk control system;
  7. a report on safety tests conducted on the company’s business premises, equipment and systems;
  8. a declaration issued by the legal representative of each capital contributor as to the genuineness of the application materials; and
  9. other documents as may be required by the CBRC.

I. Time Frame for Approval

Time frame for Preparatory Stage

The banking regulatory bureau will review an application for preparatory establishment within 5 working days of receipt of an application. If the documentation submitted is incomplete, the banking regulatory bureau will notify the applicant of the additional information required. If the application documents are complete, the banking regulatory bureau will accept the application and notify the applicant in writing within 5 working days. The banking regulatory bureau will then complete its preliminary examination of the application, and submit it together with the other application documents to the CBRC within 20 working days. The CBRC will issue a written decision as to whether or not it approves the preparatory establishment within 4 months after it receives the complete set of preparatory establishment application documents.

The applicant must complete the preparatory establishment of a currency brokerage company and branch within 6 months after receipt of the CBRC’s approval. It must pay the required amount of capital into a designated Chinese bank account within 30 working days of receipt of CBRC approval, and the deposit must be verified by a qualified accounting firm which must issue a capital verification report. During the capital verification period, money can only be paid into this bank account and cannot be paid out.

Time Frame for Opening Business Stage

The CBRC decides whether or not to approve an application for commencement of business within 2 months of formally accepting the application. If it approves the establishment of a currency brokerage company, it will issue a financial business permit to the applicant. If it rejects the application, it will notify the applicant giving reasons for not granting approval.

The applicant must then complete the appropriate registration formalities with the AIC which will depend on the scope of business allowed by the financial business permit. Business operations must not commence until the company has obtained an Enterprise Legal Person Business Licence.

Skills

Posted on

2014-11-06