Guidelines for Commercial Banks on Market Risk Management
Guidelines for Commercial Banks on Market Risk Management
[Lexis China Comments]
According to the Decision of the National Financial Regulatory Administration on Repealing of Certain Regulations (Order of the National Financial Regulatory Administration [2025] No. 5), this document has been repealed.
Guidelines for Commercial Banks on Market Risk Management
Order of the China Banking Regulatory Commission [2004] No. 10
December 29, 2004
Adopted at the 30th Presidential Meeting of the China Banking Regulatory Commission on December 16, 2004, the Guidelines for Commercial Banks on Market Risk Management are hereby issued and shall come into effect as of March 1, 2005.
President: Liu Mingkang
Guidelines for Commercial Banks on Market Risk Management
Chapter I General Provisions
Article 1 These Guidelines are formulated in accordance with the Law of the People's Republic of China on Banking Regulation, the Law of the People's Republic of China on Commercial Banks and other relevant laws and administrative regulations for the purpose of strengthening the market risk management practices of commercial banks.
Article 2 In these Guidelines, "commercial bank" means any commercial bank duly incorporated in the territory of the People's Republic of China, including any Chinese-funded commercial bank, wholly foreign-funded bank or Chinese-foreign joint venture bank.
Article 3 In these Guidelines, "market risk" means the risk of any loss in the on-balance sheet or off-balance sheet business of a bank caused by any unfavorable change in any market price (interest rates, exchange rates, stock prices and commodity prices). Market risk may exist in both the trading book and non-trading book business of a bank.
Market risk includes interest rate risk, exchange rate risk (including gold), stock price risk and commodity price risk, respectively meaning any risk caused by any unfavorable change in interest rates, exchange rates, stock prices or commodity prices. According to its different sources, interest rate risk may be classified into repricing risk, yield curve risk, basis risk and optionality risk.
"Commodities" as referred to in the preceding paragraph means certain physical products that can be traded in the secondary market, such as agricultural products, mineral products (including petroleum) and precious metals (not including gold).
Article 4 Market risk management refers to the entire process of the identification, measurement, monitoring and control of market risk. The purpose of market risk management is to realize the maximization of the risk-adjusted rate of return by controlling the level of market risk borne by a commercial bank within reasonably acceptable bounds.
A commercial bank shall adequately identify, accurately measure, continuously monitor and properly control market risk in all trading book and non-trading book business and ensure safe and stable business operations at a reasonable level of market risk. The level of market risk to which a commercial bank is exposed shall be commensurate with its ability to manage market risk and the capital strength of the bank.
To ensure an effective market risk management system, a commercial bank shall combine the identification, measurement, monitoring and control of market risk with the strategic planning, business decision-making, financial budgeting and other relevant functions and management activities of the bank as a whole.
Article 5 The China Banking Regulatory Commission (CBRC) shall supervise and exercise control over the market risk levels and market risk management systems of commercial banks. The CBRC shall urge commercial banks to effectively identify, measure, monitor and control market risk in their various business sectors.
Chapter II Market Risk Management
Article 6 A commercial bank shall, in accordance with these Guidelines, set up a comprehensive and reliable market risk management system that corresponds to the nature, scale and level of complexity of its business. A market risk management system shall include the following components:
1. effective supervision and control by the board of directors and senior management;
2. comprehensive market risk management policies and procedures;
3. comprehensive market risk identification, measurement, monitoring and control procedures;
4. sound internal controls and independent external audit mechanisms; and
5. an appropriate market risk capital allocation mechanism.
Article 7 In managing market risk, a commercial bank shall take proper account of the relationships between market risk and other risk categories, such as credit risk, liquidity risk, operational risk, legal risk and reputational risk, and coordinate its market risk management policies and procedures with those for the management of other risk categories.
Section 1 Supervision and Control by the Board of Directors and Senior Management
Article 8 The board of directors and senior management of a commercial bank shall exercise effective supervision over and control of the market risk management system of the bank.
The board of directors of a commercial bank shall be ultimately responsible for the monitoring of market risk management and shall ensure the effective identification, measurement, monitoring and control of market risk in the various business areas of the bank. The board of directors shall be responsible for the examination and approval of market risk management strategies, policies and procedures, shall determine the level of market risk that the bank can tolerate, shall urge senior management to adopt measures necessary for the identification, measurement, monitoring and control of market risk, shall regularly obtain reports on the nature and level of market risk, and shall supervise, control and evaluate the completeness and effectiveness of the market risk management system and the performance of senior management in their market risk management duties. The board of directors may authorize a special committee under the board to perform some of the above functions. Any committee so authorized shall submit relevant reports to the board of directors on a regular basis.
The senior management of a commercial bank shall be responsible for the formulation, regular review and supervision of the implementation of market risk management policies, procedures and specific operating rules, determine the bank's market risk levels and of the management thereof in a timely manner, and ensure that the bank has adequate human and material resources and an appropriate organizational structure, management information system and the technical expertise required for the identification, measurement, monitoring and control of market risk in the various business areas of the bank.
The board of directors and senior management of a commercial bank shall have an adequate understanding of the market risk-related activities of the bank, the various market risks involved in such activities and the relevant risk identification, measurement and control methods.
The supervisory board of a commercial bank shall supervise the performance of the board of directors and senior management in their market risk management duties.
Article 9 A commercial bank shall designate a special department to take charge of market risk management. The market risk management department shall have specific functions and duties, shall be independent of business-related operational departments involved in the areas subject to risk, shall submit independent market risk reports to the board of directors and senior management and shall have the human and material resources required to perform its market risk management related functions and duties. Personnel employed in the market risk management department must have the requisite professional knowledge and skills and have an adequate understanding of the bank's market risk-related business activities, the various market risks inherent in such business areas and the relevant risk identification, measurement and control methods and techniques.
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According to the Decision of the National Financial Regulatory Administration on Repealing of Certain Regulations (Order of the National Financial Regulatory Administration [2025] No. 5), this document has been repealed.
Guidelines for Commercial Banks on Market Risk Management
Order of the China Banking Regulatory Commission [2004] No. 10
December 29, 2004
Adopted at the 30th Presidential Meeting of the China Banking Regulatory Commission on December 16, 2004, the Guidelines for Commercial Banks on Market Risk Management are hereby issued and shall come into effect as of March 1, 2005.
President: Liu Mingkang
Guidelines for Commercial Banks on Market Risk Management
Chapter I General Provisions
Article 1 These Guidelines are formulated in accordance with the Law of the People's Republic of China on Banking Regulation, the Law of the People's Republic of China on Commercial Banks and other relevant laws and administrative regulations for the purpose of strengthening the market risk management practices of commercial banks.
Article 2 In these Guidelines, "commercial bank" means any commercial bank duly incorporated in the territory of the People's Republic of China, including any Chinese-funded commercial bank, wholly foreign-funded bank or Chinese-foreign joint venture bank.
Article 3 In these Guidelines, "market risk" means the risk of any loss in the on-balance sheet or off-balance sheet business of a bank caused by any unfavorable change in any market price (interest rates, exchange rates, stock prices and commodity prices). Market risk may exist in both the trading book and non-trading book business of a bank.
Market risk includes interest rate risk, exchange rate risk (including gold), stock price risk and commodity price risk, respectively meaning any risk caused by any unfavorable change in interest rates, exchange rates, stock prices or commodity prices. According to its different sources, interest rate risk may be classified into repricing risk, yield curve risk, basis risk and optionality risk.
"Commodities" as referred to in the preceding paragraph means certain physical products that can be traded in the secondary market, such as agricultural products, mineral products (including petroleum) and precious metals (not including gold).
Article 4 Market risk management refers to the entire process of the identification, measurement, monitoring and control of market risk. The purpose of market risk management is to realize the maximization of the risk-adjusted rate of return by controlling the level of market risk borne by a commercial bank within reasonably acceptable bounds.
A commercial bank shall adequately identify, accurately measure, continuously monitor and properly control market risk in all trading book and non-trading book business and ensure safe and stable business operations at a reasonable level of market risk. The level of market risk to which a commercial bank is exposed shall be commensurate with its ability to manage market risk and the capital strength of the bank.
To ensure an effective market risk management system, a commercial bank shall combine the identification, measurement, monitoring and control of market risk with the strategic planning, business decision-making, financial budgeting and other relevant functions and management activities of the bank as a whole.
Article 5 The China Banking Regulatory Commission (CBRC) shall supervise and exercise control over the market risk levels and market risk management systems of commercial banks. The CBRC shall urge commercial banks to effectively identify, measure, monitor and control market risk in their various business sectors.
Chapter II Market Risk Management
Article 6 A commercial bank shall, in accordance with these Guidelines, set up a comprehensive and reliable market risk management system that corresponds to the nature, scale and level of complexity of its business. A market risk management system shall include the following components:
1. effective supervision and control by the board of directors and senior management;
2. comprehensive market risk management policies and procedures;
3. comprehensive market risk identification, measurement, monitoring and control procedures;
4. sound internal controls and independent external audit mechanisms; and
5. an appropriate market risk capital allocation mechanism.
Article 7 In managing market risk, a commercial bank shall take proper account of the relationships between market risk and other risk categories, such as credit risk, liquidity risk, operational risk, legal risk and reputational risk, and coordinate its market risk management policies and procedures with those for the management of other risk categories.
Section 1 Supervision and Control by the Board of Directors and Senior Management
Article 8 The board of directors and senior management of a commercial bank shall exercise effective supervision over and control of the market risk management system of the bank.
The board of directors of a commercial bank shall be ultimately responsible for the monitoring of market risk management and shall ensure the effective identification, measurement, monitoring and control of market risk in the various business areas of the bank. The board of directors shall be responsible for the examination and approval of market risk management strategies, policies and procedures, shall determine the level of market risk that the bank can tolerate, shall urge senior management to adopt measures necessary for the identification, measurement, monitoring and control of market risk, shall regularly obtain reports on the nature and level of market risk, and shall supervise, control and evaluate the completeness and effectiveness of the market risk management system and the performance of senior management in their market risk management duties. The board of directors may authorize a special committee under the board to perform some of the above functions. Any committee so authorized shall submit relevant reports to the board of directors on a regular basis.
The senior management of a commercial bank shall be responsible for the formulation, regular review and supervision of the implementation of market risk management policies, procedures and specific operating rules, determine the bank's market risk levels and of the management thereof in a timely manner, and ensure that the bank has adequate human and material resources and an appropriate organizational structure, management information system and the technical expertise required for the identification, measurement, monitoring and control of market risk in the various business areas of the bank.
The board of directors and senior management of a commercial bank shall have an adequate understanding of the market risk-related activities of the bank, the various market risks involved in such activities and the relevant risk identification, measurement and control methods.
The supervisory board of a commercial bank shall supervise the performance of the board of directors and senior management in their market risk management duties.
Article 9 A commercial bank shall designate a special department to take charge of market risk management. The market risk management department shall have specific functions and duties, shall be independent of business-related operational departments involved in the areas subject to risk, shall submit independent market risk reports to the board of directors and senior management and shall have the human and material resources required to perform its market risk management related functions and duties. Personnel employed in the market risk management department must have the requisite professional knowledge and skills and have an adequate understanding of the bank's market risk-related business activities, the various market risks inherent in such business areas and the relevant risk identification, measurement and control methods and techniques.
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