Financial Rules for Financial Enterprises
Order of the Ministry of Finance [2006] No. 42
December 7, 2006
These Financial Rules for Financial Enterprises were deliberated and adopted at the executive meeting of this Ministry. They are hereby promulgated and shall be implemented as of January 1, 2007.
Minister of Finance: Jin Renqing
Chapter I General Rules
Article 1 In order to strengthen the financial management of financial enterprises, regulate the financial acts of financial enterprises, promote the establishment and improvement of the legal person governance structure, prevent the financial risks of financial enterprises, protect the lawful rights and interests of financial enterprises and of the parties concerned, and to maintain both social and economic order, the following Rules are formulated according to the relevant laws, administrative regulations, and relevant provisions of the State Council.
Article 2 The state-owned and state-controlled financial enterprises, financial control companies, guaranty companies, urban commercial banks, rural commercial banks, rural cooperative banks, credit cooperatives (hereinafter referred to as financial enterprises) established within the territory of China according to law shall be subject to the following Rules.
Other financial enterprises shall implement these Rules by analogy.
Article 3 Based upon these Rules and the needs of its development, a sound internal financing management system shall be established by a financial enterprise, a functional department for financing management shall be set up, professional personnel for financing management shall be equipped with methods such as planning, forecasting, making budgets, controlling, supervising, evaluating, and accessing. Analyzing shall be synthetically used to raise funds, operate assets, control costs, distribute proceeds, allocate resources, reflect the status of business operation, prevent and eliminate financial risks, ensure the continuous business operation and maximize the value.
Article 4 The financial management work of financial enterprises shall be guided, administered and supervised by their respective level of finance departments of the People's governments (hereinafter referred to as the finance departments).
The institution dispatched by the finance departments of a provincial People's government or above shall guide, administer and supervise the financial management work of the financial enterprises in accordance with the prescribed functions.
Within 30 days of completion of industrial and commercial registration, photocopies of its establishment approval certificate, business license, capital verification certification, and articles of association must be filed with the finance department at the same level by a financial enterprise. In the event that a financial enterprise splits up, incorporates, establishes a branch, or modifies any key industrial and commercial registration item, the photocopies of the relevant modification documents must be filed with the finance department at the same level by a financial enterprise within 30 days of the modification of the industrial and commercial registration.
Article 5 A financial enterprise must pay taxes according to the law. In the event that the financial treatment of a financial enterprise is inconsistent with any provision of any law or administrative regulation on taxation, it must be adjusted to accordance with law when paying taxes.
Chapter II Functions and Powers
Article 6 The following functions of financial management shall be performed by the finance department:
1. Supervision of the financial enterprises' implementation of these Rules and other provisions on financial management, and guidance of financial enterprises to establish a sound internal financial management system.
2. To guide and urge financial enterprises to establish a sound financial risk control system, monitor the financial risks and business operation status of financial enterprises and supervise the financial acts of financial enterprises.
3. To enhance the administration of the financial information of financial enterprises and implement a financial evaluation of financial enterprises.
4. To supervise financial enterprises' acceptance of the social audit and asset assessment.
5. To formulate and implement the finance and financial policies on promotion of the reform and development of financial enterprises, and to organize professional training of the financial managerial personnel of financial enterprises.
6. To perform other financial management functions as provisioned in the relevant laws and administrative regulations.
Article 7 Financial enterprises' investors (hereinafter refers to as investors) usually perform the following financial management duties via the (general) meeting of shareholders, board of directors or any other form of governance body:
1. To execute and urge the business operator to implement the provisions of the state on the financial management of financial enterprises.
2. To determine the internal financial management system and clarify the financial management powers of the business operator.
3. To determine the set-up of functional departments for financial management.
4. To determine the financial plans, financial budgets, fund-raising, investment, disposal of important assets, and accordance to law, guaranteeing beyond the scope of the main guaranty business, donation, reorganization, remuneration to the business operators, profit distribution and other important financial affairs.
5. To implement financial supervision over and financial evaluation of the business operator and decide whether to hire or dismiss the financial person-in-charge.
6. To determine to hire or dismiss the social intermediary agency which engages in businesses of social audit and asset assessment.
7. To perform other financial management duties under the articles of association.
The investors may vest all or some of their financial management powers to the business operator by way of system criterion or articles of association.
The chief financial officer may be appointed or recommended by the financial enterprise to any controlling enterprise according to the provisions.
Article 8 All business operators of financial enterprises (hereinafter referred to as the business operator) performs the following financial management duties according to the provisions:
1. To execute the relevant provisions of the state on the financial management of financial enterprises.
2. To work out internal financial management bylaws and submit them to the finance department at the same level under the approval of the investors, and organize the concrete implementation thereof.
3. To organize the financial forecasts, work out drafts of financial plans and financial budgets, and implement financial control, analyses and evaluations.
4. To organize the execution of financial management plans on fund raising, investment, the disposal of important assets, guaranty, donation, reorganization, and profit distribution.
5. To organize the examination and approval of financial affairs.
6. To organize the payment of taxes and administrative fees.
7. To carry out the relevant provisions of the state on the remunerations to employees and labor protection, pay social insurance premiums, housing accumulation funds, and etc., and to guarantee the lawful rights of the employees.
8. To collect financial information and organize the preparation and submission of financial statements.
9. To bring forward proposals on hiring or dismissing the financial person-in-charge.
10. To cooperate in the audit, evaluation and inspection as carried out by the related institutions.
11. To perform other financial management powers in light of the articles of association as well as the requirements of the (general) meeting of shareholders.
Chapter III Financial Risks
Article 9 In accordance with these Rules as well as the requirements of its internal financial management bylaws, a sound financial risk control system concerning the identification, measurement, monitoring and control of financial risks shall be set up by a financial enterprise. Furthermore, the power, procedures, emergency plans and specific measures for the management of financial risks, liabilities of the parties concerned to any financial risk shall be designated, and the financial risks shall be prevented and eliminated.
Article 10 All financial enterprises must set up a standard and effective capital replenishment mechanism, properly adapt its business scale to its capital scale, as well as meet the capital adequacy ratio and solvency requirements as prescribed in the related laws and regulations.
Its capital adequacy ratio may not be less than 8% if a financial enterprise engages in businesses of a commercial bank and its core capital adequacy ratio may not be less than 4%. Its solvency adequacy ratio may not be less than the prescribed figure if a financial enterprise engages in the insurance business. Its net capital liability ratio shall comply with the corresponding requirement as prescribed if a financial enterprise engages in the securities business.
Article 11 With the aim of guaranteeing the interests of the parties concerned, ensuring the solvency and carrying out continuous business operations and presiding by the relevant laws and regulations, the asset/liability ratio shall be controlled and an amount of funds adequate to repay the debts shall be prepared by the financial enterprise.
In regard to financial enterprises engaging in the banking business, a deposit reserve and an adequate amount of funds adequate shall be prepared. In regard to financial enterprises engaging in the insurance business, a capital reserve shall be prepared at 20% of the registered capital and deposited in a designated bank, which is not to be used except for repaying debts when liquidating. In regard to financial enterprises engaging in the securities business, the asset/liability ratio must meet the corresponding requirement as prescribed.
Article 12 The estimation of various types of assets should be carried out on a regular basis or at least by the end of each year, and the dynamic evaluation shall be gradually realized.
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