Order of the People's Bank of China [2007] No. 3

Chapter I. General Provisions

Article 1. These Measures are formulated in accordance with the Law of the People's Republic of China on the People's Bank of China, the Law of the People's Republic of China on Commercial Banks and other laws and administrative regulations in order to further develop the money market, regulate the transactions of interbank lending, guard against the risks of interbank lending and protect the lawful rights and interests of interbank lending parties.

Article 2. These Measures shall apply to Renminbi interbank lending transactions among financial institutions established in the territory of the People's Republic of China in accordance with the law.

Article 3. For the purposes of these Measures, the term "interbank lending" shall refer to unsecured financing conducted through the national standardized interbank lending network among financial institutions that enter into the National Interbank Lending Market (hereinafter referred to as "Interbank Lending Market") with the approval of the People's Bank of China. The national standardized interbank lending network includes:

(1) The electronic trading system of the National Interbank Funding Center;

(2) The lending filing system of branches of the People's Bank of China;

(3) Other trading systems that are recognized by the People's Bank of China.

Article 4. The People's Bank of China shall exercise supervision and administration of the Interbank Lending Market in accordance with the law. Financial institutions that enter into the Interbank Lending Market must be approved by the People's Bank of China and shall be supervised and inspected by the People's Bank of China for engaging in interbank lending transactions.

Article 5. Interbank lending transactions shall be conducted under the principles of impartiality and willingness, good faith and self-discipline, and self risk taking.

Chapter II Administration of Market Entry

Article 6. The following financial institutions may apply to the People's Bank of China for entry into the Interbank Lending Market:

(1) Policy banks;

(2) Chinese-funded commercial banks;

(3) Solely foreign-owned banks and Sino-foreign joint venture banks;

(4) Urban credit cooperatives;

(5) County credit unions of rural credit cooperatives;

(6) Finance companies of enterprise groups;

(7) Trust companies;

(8) Financial asset management companies;

(9) Financial leasing companies;

(10) Auto financing companies;

(11) Securities companies;

(12) Insurance companies;

(13) Insurance asset management companies;

(14) First-level branches authorized by Chinese-funded commercial banks (excluding urban commercial banks, rural commercial banks and rural cooperative banks);

(15) Foreign bank branches; and

(16) Other institutions confirmed by the People's Bank of China.

Article 7. A financial institution that applies for entry into the Interbank Lending Market shall fulfill the following conditions:

(1) It is established within the territory of the People's Republic of China in accordance with the law;

(2) It has sound institutions and organizations, risk management system and internal control system for interbank lending transactions;

(3) It has the personnel that are specialized in interbank lending transactions;

(4) Its major regulatory index meets the requirements of the People's Bank of China and the relevant regulatory departments;

(5) It has not violated any laws or regulations and is not subject to the punishment of the People's Bank of China and the relevant regulatory departments in the last two years;

(6) There is no insolvency in the last two years; and

(7) Other conditions prescribed by the People's Bank of China.

Article 8. Where the following financial institutions apply for entry into the Interbank Lending Market, in addition to fulfilling the conditions prescribed in Article 7 hereof, they shall also meet the following requirements:

(1) Wholly foreign-funded banks, Sino-foreign joint venture banks and foreign bank branches shall obtain Renminbi business qualification with the approval of the banking regulatory institution under the State Council;

(2) Finance companies of enterprise groups, trust companies, financial asset management companies, financial leasing companies, auto financing companies and insurance asset management companies shall be profitable for the recent two consecutive years to apply for entry into the Interbank Lending Market;

(3) Securities companies shall be profitable for the recent two consecutive years, and the net assets during the same period shall not be lower than RMB 200 million to apply for entry into the Interbank Lending Market; and

(4) Insurance companies shall have solvency adequacy ratio of over 120% for the recent four consecutive quarters before the application for entry into the Interbank Lending Market.

Article 9. Where a financial institution applies for entry into the Interbank Lending Market, it shall submit application materials to the People's Bank of China or its branches in accordance with the procedures prescribed by the People's Bank of China.

Article 10. The time limit for examination and verification of the applications of financial institutions for entry into the Interbank Lending Market by the People's Bank of China and its branches shall refer to Articles 28 and 29 of the Implementing Measures on the Administrative Licensing of the People's Bank of China.

Article 11. Where a financial institution that has entered into the Interbank Lending Market decides to withdraw from the Interbank Lending Market, it shall report to the People's Bank of China or its branches at least 30 days in advance and explain the reasons for withdrawal from the Interbank Lending Market and submit the settlement and disposal plan of debts and claims.

Where a financial institution withdraws from the Interbank Lending Market, it must adopt effective measures to ensure the smooth settlement of debts and claims, and formulate effective risk disposition plan for any possible issues.

Article 12. Where the People's Bank of China or its branches approves the entry into the Interbank Lending Market of financial institutions or receives the report of withdrawal of financial institutions from the Interbank Lending Market, it shall make an announcement to the Interbank Lending Market by appropriate means. Prior to the formal announcement of the People's Bank of China or its branches, no institution may announce the relevant information to the market without authorization.

Article 13. The People's Bank of China or its branches shall no longer accept the application for entry into the Interbank Lending Market of the financial institution that has withdrawn from the Interbank Lending Market for two years of the date of announcement.

Chapter III. Transaction and Settlement

Article 14. Interbank lending transactions must be conducted in the national standardized interbank lending network.

Policy banks, finance companies of enterprise groups, trust companies, financial asset management companies, financial leasing companies, auto financing companies, securities companies, insurance companies, and insurance asset management companies shall conduct interbank lending transactions through the electronic trading system of the National Interbank Funding Center in the capacity of legal persons.

Financial institutions that conduct interbank lending transactions through the lending filing system of the branches of the People's Bank of China shall perform the relevant procedures in accordance with the requirements of the local branches of the People's Bank of China.

Article 15. Interbank lending transactions are conducted through bilateral model and are settled deal by deal through negotiations with self autonomy.

Article 16. Interbank lending rates shall be negotiated by the parties to the transaction.

Article 17. Where a financial institution conducts interbank lending transactions, it shall conclude transaction contracts for each deal. The contents of transaction contracts shall be specific and contain detailed agreements of the rights and obligations of the interbank lending parties. Such contracts shall include the following:

(1) The name and domicile of the interbank lending parties and the name of the legal representatives;

(2) The date of the interbank lending transaction;

(3) The amount of the interbank lending transaction;

(4) The term of the interbank lending transaction;

(5) The interbank lending rate, calculation rules of such rate and the interest payment rules;

(6) Liability for breach of contract; and

(7) Other matters that are required to be set out by the People's Bank of China.

Article 18. Transaction contracts may be in the form of deal tickets generated by the electronic trading system of the National Interbank Funding Center; or in written forms such as contracts, correspondence and digital data messages.

Article 19. When the fund settlement for interbank lending involves different banks, it shall be handled through the large amount real-time payment system of the People's Bank of China directly or through appointing the account opening bank. Where the fund settlement for interbank lending can be settled in one bank, it shall be done by transfer. No settlement for interbank lending may be done by means of cash.

Chapter IV. Risk Control

Article 20. Financial institutions shall incorporate the risk management of interbank lending into the main framework of risk management, and establish a sound interbank lending risk management system, set up a designated interbank lending risk management department and formulate the internal operating rules and control measures for risk management of interbank lending in accordance with the characteristics of the interbank lending business.

Article 21. Financial institutions shall lawfully keep and retain all records of interbank lending transactions and the documents, accounts, original vouchers, statements and audio recordings of such transaction records.

Article 22. The borrowed funds from interbank lending of commercial banks shall meet the relevant provisions of the Law of the People's Republic of China on Commercial Banks.

Article 23. The term of interbank lending may be negotiated by the transaction parties under the pre-requisite that the following requirements are fulfilled:

(1) The maximum term for funds borrowing of policy banks, Chinese-funded commercial banks, first-level branches authorized by Chinese-funded commercial banks, solely foreign-owned banks, Sino-foreign joint venture banks, foreign bank branches, urban credit cooperatives and county credit unions of rural credit cooperatives shall be one year;

(2) The maximum term for funds borrowing of financial asset management companies, financial leasing companies, auto financing companies and insurance companies shall be three months;

(3) The maximum term for funds borrowing of finance companies of enterprise groups, trust companies, securities companies and insurance asset management companies shall be seven days;

(4) The maximum term for funds lending may not exceed the maximum term for funds borrowing of the counterparty prescribed by the People's Bank of China.

The People's Bank of China may adjust the maximum term for funds lending of financial institutions pursuant to the needs of market development and administration.

Article 24. Interbank lending may not be extended after maturity.

Article 25. The quota administration system applies to interbank lending of financial institutions and the lending amount is verified by the People's Bank of China and its branches in accordance with the following principles:

(1) The maximum borrowing quota and the maximum lending quota of policy banks may not exceed 8% of the remaining balance of financial bonds to be repaid at the end of the previous year;

(2) The maximum borrowing quota and the maximum lending quota of Chinese-funded commercial banks, urban credit cooperatives and county credit unions of rural credit cooperatives may not exceed 8% of the remaining balance of various types of deposits;

(3) The maximum borrowing quota and the maximum lending quota of solely foreign-owned banks and Sino-foreign joint venture banks may not exceed two times of the actual paid-up capital;

(4) The maximum borrowing quota and the maximum lending quota of foreign bank branches may not exceed two times of the Renminbi working capital;

(5) The maximum borrowing quota and the maximum lending quota of finance companies of enterprise groups, financial asset management companies, financial leasing companies, auto financing companies and insurance companies may not exceed 100% of the actual paid-up capital;

(6) The maximum borrowing quota and the maximum lending quota of trust companies and insurance asset management companies may not exceed 20% of the net assets;

(7) The maximum borrowing quota and the maximum lending quota of securities companies may not exceed 80% of the net capital;

(8) The maximum borrowing quota and the maximum lending quota of first-level branches authorized by Chinese-funded commercial banks (excluding urban commercial banks, rural commercial banks and rural cooperative banks) shall be determined subject to the authorization of the headquarters and centrally examined in the capacity of the headquarters legal person.

The People's Bank of China may adjust the limit of interbank lending funds pursuant to the needs of market development and administration.

Article 26. Where a financial institution applies for adjusting the limit of interbank lending, it shall make reference to the procedures for applying for entry into the Interbank Lending Market and submit application materials to the People's Bank of China or its branches.

Article 27. The People's Bank of China may temporarily adjust the limit of lending funds in accordance with the applications of financial institutions.

The branches of the People's Bank of China may temporarily adjust the limit of lending funds for financial institutions under their jurisdiction within the scope authorized by the headquarters.

Chapter V. Administration of Information Disclosure

Article 28. Financial institutions that enter into the Interbank Lending Market shall assume the obligation of information disclosure of the Interbank Lending Market. The director or legal representative of financial institutions shall ensure the truthfulness, accuracy, completeness and timeliness of the information disclosed.

Article 29. The People's Bank of China shall be responsible for formulating information disclosure guidelines for various financial institutions from the Interbank Lending Market and supervise the implementation of such disclosure guidelines.

Article 30. The National Interbank Funding Center is the intermediary service institution of the Interbank Lending Market and provides services to financial institutions for transactions and information disclosure of the Interbank Lending Market.

The National Interbank Funding Center shall formulate the operating rules on the transactions and information disclosure of the Interbank Lending Market in accordance with these Measures and implement the same after getting the approval of the People's Bank of China.

Article 31. The National Interbank Funding Center shall timely announce market information and statistical data such as the rate, trading value, and significant abnormal transactions to the market.

Article 32. The National Interbank Funding Center shall be responsible for the daily monitoring and market statistics of the Interbank Lending Market, regularly report the statistical data of the Interbank Lending Market to the People's Bank of China, provide statistical information of filing system to the provincial-level branches of the People's Bank of China and timely report and inform the People's Bank of China of the abnormal circumstances of the Interbank Lending Market and notify the same to the relevant provincial-level branches of the People's Bank of China.

Article 33. Where a financial institution fails to make information disclosure to the Interbank Lending Market in accordance with the provisions of the People's Bank of China, or there is falsehood, misleading statement or major omission of the information disclosed, the People's Bank of China shall have the power to adopt restrictive measures such as supplement information disclosure within a time limit, reduce the interbank lending quota, reduce the maximum term of interbank lending, restrict the scope of transactions of interbank lending, and suspend or terminate the transaction network of the National Interbank Funding Center.

Chapter VI. Regulation and Administration

Article 34. The People's Bank of China shall conduct off-site inspection and on-site inspection of interbank lending transactions in accordance with the law and guide and regulate the industry disciplinary organization of the Interbank Lending Market.

Article 35. The provincial-level branches of the People's Bank of China shall be responsible for the drafting of the implementing measures for the filing administration of interbank lending under its jurisdiction, and regulate interbank lending transactions conducted by financial institutions within the jurisdiction through the interbank lending record filing system.

Article 36. The People's Bank of China or its provincial-level branches may adopt the following measures to conduct on-site inspection of interbank lending in accordance with the requirements of fulfilling the duty of regulating the Interbank Lending Market:

(1) Enter into financial institutions for examination;

(2) Enquire the working personnel of financial institutions and request explanations of the examination matters;

(3) Inspect and reproduce the documents and materials relevant to financial institutions and examination matters and seal the documents and materials that may be transferred, destroyed, concealed or falsified; or

(4) Examine the system of financial institutions for administration of business data by computers.

Article 37. Where a central sub-branch of the People's Bank of China at a prefecture or city level discovers abnormal transactions of interbank lending and deems it necessary to conduct an on-site inspection of interbank lending, it shall move forward after the approval of the provincial-level branch of the People's Bank of China with jurisdiction.

Article 38. The People's Bank of China, its central sub-branches at prefectures or cities level or its branches at a higher level shall comply with the provisions of the People's Bank of China on supervision and inspection procedures when an on-site inspection of interbank lending is conducted.

Article 39. The People's Bank of China, its sub-branches at prefectures or cities level or its branches at a higher level, pursuant to the need for performing the regulatory duty of the Interbank Lending Market, speak to the directors and senior management personnel of financial institutions and request them to give explanations of the significant matters for implementing the provisions on administration of Interbank Lending Markets by financial institutions.

Article 40. Where the People's Bank of China, its central sub-branches at prefectures or cities level or its branches at a higher level conduct on-site inspection of interbank lending, they may report the examination status to the relevant regulatory department when necessary.

Chapter VII. Legal Liability

Article 41. When a financial institution commits any of the following acts, the People's Bank of China, its central sub-branches at prefectures or cities level or its branches at a higher level shall impose penalty:

(1) It does not have the interbank lending business qualification but engages in such business;

(2) It conducts interbank lending with an institution that does not have the interbank lending business qualification;

(3) It engages in the interbank lending business outside the network of the national standardized interbank lending market;

(4) The uses of the borrowed funds violate the provisions of the relevant laws;

(5) The interbank lending exceeds the maximum term of lending funds prescribed by the People's Bank of China;

(6) The balance of the interbank lending funds exceeds the limit verified by the People's Bank of China;

(7) There is no information disclosure to the Interbank Lending Market in accordance with the provisions of the People's Bank of China; or

(8) It violates other acts prescribed by the Interbank Lending Market.

Article 42. Where a commercial bank is under any of the circumstances of Article 41 hereof, the People's Bank of China, its central sub-branches at prefectures or cities level or its branches at a higher level shall impose punishment in accordance with Article 76 of the Law of the People's Republic of China on Commercial Banks.

Article 43. Where a policy bank, credit cooperative, finance company of an enterprise group, trust company, financial leasing company is under any of the circumstances of Article 41 hereof, the People's Bank of China, its central sub-branches at prefectures or cities level or its branches at a higher level shall impose punishment in accordance with Article 17 of the Measures for the Punishment of Illegal Financial Acts.

Article 44. Where a securities company, insurance company, insurance asset management company, financial asset management company and auto financing company is under any of the circumstances of Article 41 hereof, the People's Bank of China, its central sub-branches at prefectures or cities level or its branches at a higher level shall impose punishment in accordance with Article 46 of the Law of the People's Republic of China on the People's Bank of China.

Article 45. The director, senior management personnel and other personnel who are directly responsible for the acts under Article 41 hereof shall be subject to the punishment in accordance with Article 46 of the Law of the People's Republic of China on the People's Bank of China.

Article 46. Where the National Interbank Funding Center commits any of the following acts, the People's Bank of China shall impose punishment in accordance with Article 46 of the Law of the People's Republic of China on the People's Bank of China:

(1) It fails to timely announce market information in accordance with provisions, announces false information or divulge non-public information;

(2) There is a serous security issue of the trading system and/or the information system that brings about significant impact to the market;

(3) It brings about serous losses to market participants or causes significant impact to the market due to non-performance of duties;

(4) It provides convenience to financial institutions for illegal interbank lending transactions ;

(5) It fails to submit statistical data in accordance with provisions or fails to timely report the abnormal circumstances of the Interbank Lending Market; or

(6) It commits other acts in violation of the provisions of the Interbank Lending Market.

The senior management personnel and other personnel that are directly responsible for the acts mentioned in  the preceding paragraph shall be punished according to the Article 46 of the Law of the People's Republic of China on the People's Bank of China.

Article 47. Where the documents issued by professional institutions and personnel such as certified public accountants, lawyers and credit rating institutions to provide professional services to financial institutions on information disclosure of the Interbank Lending Market contain falsehood, misleading statement or major omission, such institutions or personnel shall not continue to provide professional service to the Interbank Lending Market and may assume the corresponding legal liability Where the relevant provisions of laws are violated.

Article 48. Where the People's Bank of China, its central sub-branches at prefectures or cities level or its branches at a higher level has imposed punishment on the financial institution that has violated these Measures, it shall report to the relevant regulatory department. Where any sub-branch of the People's Bank of China at a county or city level discovers that a financial institution violates these Measures, it shall report to the branch at one level upwards and impose punishment in accordance with these Measures.

Article 49. Where the People's Bank of China, its central sub-branches at prefectures or cities level or its branches at a higher level imposes administrative sanctions on the financial institution that has violated these Measures, it shall comply with the relevant provisions as specified by the Provisions of Administrative Punishment Procedures of the People's Bank of China.

Article 50. The People's Bank of China or its branches shall accept regulation in accordance with the law and assume the relevant legal liability when they conduct regulation and administration of the Interbank Lending Market.

Chapter VIII. Supplementary Provisions

Article 51. For the purposes of these Measures, the term " provincial-level branches of the People's Bank of China" shall include the branches, operations offices, central sub-branches in provincial capitals and central sub-branches in deputy provincial cities of the People's Bank of China.

Article 52. The foreign exchange interbank lending conducted by financial institutions shall be separately formulated by the People's Bank of China.

Article 53. The People's Bank of China shall be responsible for the interpretation of these Measures and the Shanghai headquarters of the People's Bank of China shall organize its implementation.

Article 54. These Measures shall come into effect as of August 6, 2007. The Trial Measures for the Administration of Interbank Lending promulgated by the People's Bank of China on March 8, 1990 shall be repealed simultaneously. Where other relevant provisions on interbank lending are inconsistent with these Measures, these Measures shall prevail.

     

July 3, 2007