Announcement of the People's Bank of China on Promulgating the Guideline on Internal Control of Commercial Banks
Announcement of the People's Bank of China on Promulgating the Guideline on Internal Control of Commercial Banks
Announcement of the People's Bank of China on Promulgating the Guideline on Internal Control of Commercial Banks
Announcement of the People's Bank of China [2002] No.19
September 7, 2002
With a view to promoting the establishment and improvement of internal control system in commercial banks, preventing from financial risks and safeguarding the safe and sound operation of bank system, the Guideline for Internal Control of Commercial Banks is formulated by the People's Bank of China and hereby promulgated.
Attachment: Guideline for Internal Control of Commercial Banks
Chapter I General Provisions
Article 1 With a view to promoting the establishment and improvement of internal control system in commercial banks, preventing from financial risks and safeguarding the safe and sound operation of the bank system, this Guideline is formulated in accordance with relevant laws and regulations including the Law of the People's Republic of China on People's Bank of China, the Law of the People's Republic of China on Commercial Banks, etc., as well as the due requirements for prudential banking supervision.
Article 2 Internal control refers to the dynamic process and mechanism through which the commercial banks conduct risk prevention, exercise risk control during events of cases and implement post-risk supervision and rectification risks through establishing and implementing a series of systems, procedures and methods in order to realize their business goals.
Article 3 Goals of internal control in commercial banks shall include:
1. to ensure the implementation of national laws and regulations as well as the internal rules and regulations of commercial banks;
2. to ensure the full implementation and complete realization of the development strategy and business goals of commercial banks;
3. to ensure the effectiveness of the risk management system; and
4. to ensure the timeliness, authenticity and integrity of transaction records, financial information as well as other management information.
Article 4 The internal control of commercial banks shall be based on the principles of comprehensiveness, prudence, effectiveness and independence. It shall include the following aspects:
1. Internal control shall be present in every procedure of business and every link of operation in commercial banks; it shall cover all departments and positions of commercial banks. Under the internal control system, the entire staff of commercial banks shall be involved and any decision or operation shall be traceable;
2. Internal control shall be oriented to risk prevention and prudent operation. The operation management of commercial banks, especially the establishment of new institutions or launch of new business shall be based on the principle of "priority to internal control";
3. Internal control shall be given a high degree of authority and no one shall be entitled to impunity against the internal control. Any problem concerning the internal control shall be reported and corrected in a timely manner; and
4. The department responsible for supervising and evaluating internal control shall be independent of the department for establishing and carrying out internal control, and shall have access to reporting directly to the board of directors, supervisory board and the top management.
Article 5 Internal control shall be commensurate with the operation scale, business scope and the characteristics of risk of commercial banks. The targets of internal control shall be achieved at reasonable cost.
Chapter II Basic Requirements on Internal Control
Article 6 Internal control shall include the following elements:
1. the internal control environment;
2. the identification and assessment of risks;
3. the measures for internal control;
4. the exchange and feedback of information; and
5. the supervision, appraisal and rectification.
Article 7 A commercial bank shall set up well-functioning corporate governance system and a corporate structure with reasonable division of functions, sound clarification of responsibilities and clear relationship of reporting so as to provide the conditions necessary for effective internal control.
Article 8 The board of directors, supervisory board and top management of a commercial bank shall be fully aware of their responsibility in internal control.
The board of directors shall be responsible for examining and approving the general business strategy and major policies of the commercial bank, determining the acceptable risk level for the commercial bank, approving the policy, system and procedures of various operations, appointing the top management and supervising over the effectiveness of the internal control. The board of directors shall have discussions with the top management periodically on the effectiveness of internal control, examine the report on internal control provided by the management, auditing organs and supervisory departments, and oversee the corrective and remedial measures carried out by the management.
The top management shall be responsible for carrying out the strategies, policies, rules and procedures approved by the board of directors, establishing organizational structure with well-defined authorization and responsibility and clear reporting relationship, setting up the procedures for identifying, computing and managing risks, setting up and implementing complete and effective internal control, and taking measures to rectify the problems in the internal control.
The supervisory board shall, in addition to conducting financial supervision, be responsible for supervising over the compliance situation of the commercial bank with relevant laws and regulations and the performance of duties of the board of directors and managing personnel, as well as requiring the board of directors and managing personnel to rectify any acts that may damage the interest of the bank.
Article 9 Commercial banks shall establish a scientific and effective incentive and restraint mechanism, cultivate good enterprise spirit and internal control culture, and create an environment in which the entire staff can fully understand and perform their duties.
Article 10 A commercial bank shall establish a special department for risk management, formulate and carry out the system, procedure and method of identifying, computing, monitoring and managing risks so as to ensure the achievement of risk management and business goals.
Article 11 A commercial bank shall establish a risk management system that covers all the branches of their business and all their departments, develop and utilize the method and model of assessing risks through quantification, and persistently monitor various kinds of risks including credit risks, market risks, liquidity risk and operation risk.
Article 12 A commercial bank shall formulate comprehensive, systematic and written policies, systems and procedures for all kinds of business thereof, maintain unified business standards and operation requirements throughout the bank and shall avoid the impact of the change in management on the consistence and stability of the said policies and all.
Article 13 Prior to setting up new establishments or launching new business, commercial banks shall formulate relevant policies, rules and procedures, compute and assess the potential risks, and work out measures for preventing from the said risks.
Article 14 A commercial bank shall formulate an evaluation system for internal control to retrospect and review on a regular basis the construction and implementation of the system for internal control, amend and improve the evaluation system in accordance with national laws and regulations, the organizational structure, the operation condition of the bank as well as the variation of the market.
Article 15 A commercial bank shall specify the functions for different departments, positions and establishments on different levels, and formulate a mechanism featuring separation of position and responsibility and both horizontal and vertical supervision and restraint.
Any change concerning assets, liabilities, finance, personnel or any other important matters shall not be decided by one person alone.
Article 16 A commercial bank shall assign different positions with corresponding duty and authority according to their nature, and shall provide formal and written job explanations and define clear reporting relation for each position.
Periodical or a-periodical personnel rotation and compulsory vacation system shall be adopted for key positions.
Article 17 A commercial bank shall establish a corresponding authorization system in light of the business management level and risk management capacity the local business environment as well as the demands of operation development of each embranchment and operation department, and carry out unified corporate management and authorization.
Authorization shall be proper and clear, and in written form.
Article 18 A commercial bank shall specify the authority limit of their branches in business operation through modern means including monitoring with computer programs etc. to achieve effective management and control over their branches.
Lower level branches shall implement strictly the decisions made by higher level branches, and carry out the work within their respective duties and power scope.
Article 19 A commercial bank shall establish an effective review and monitoring system in order to verify various account books and financial statements regularly, conduct stock-taking of tangible assets including cash, securities etc., review or make afterwards supervision over business operations over the counter, carry out a system of double-signing over important operations, and supervise and control over the implementation of authorization and crediting.
Article 20 A commercial bank shall conduct accounting and recording of transactions in accordance with relevant regulations, establish and keep complete archives for accounting, statistics and business operations, and ensure the authenticity and integrity of the original record, contracts and agreements as well as various documents of statements.
Article 21 A commercial bank shall establish an effective emergency system and take timely and effective measures in case of emergencies such as electricity shutdown, fire, robbery, etc. happening in important departments, business outlets etc. so as to ensure the safety and integrity of all the data and information.
Article 22 A commercial bank shall set up an independent department or positions of legal affairs to manage such legal affairs as authorization and crediting uniformly, to formulate and examine legal documents, to conduct legal verification for the new business operation to be started, to ensure the legitimacy and validity of each operation, and to safeguard the legitimate rights and interest of the bank.
Article 23 A commercial bank shall popularize the use of electronic technology and information technology in their operation and management and shall promote the integration of electronic data processing systems for all business operations to achieve centralized processing of the business operation data.
Article 24 A commercial bank shall popularize the use of the information technology in their business management, establish databases and data management systems covering all levels of establishments and all fields of operations, provide accurate database for business management timely, and report the monitoring statements and documents to the People's Bank of China and disclose information to the public in a timely, authentic and accurate manner.
Article 25 A commercial bank shall establish an effective information exchange and feedback mechanism to ensure the board of directors, the supervisory board and the top management are acquainted with the business operation condition and risk status thereof in a timely manner, ensure every piece of information to be delivered to relevant personnel and the relevant information on all departments and personnel can be feedback smoothly.
Article 26 The business department of a commercial bank shall check with regularity the state of all business operations and unexpected situations in order to detect and rectify the problems existing in the internal control in a timely manner.
Article 27 The internal auditing department of a commercial bank shall have the authority to obtain all the information on operation and management, monitor and evaluate each department, position and business operation comprehensively.
Article 28 The internal auditing department of a commercial bank shall be sufficiently independent and shall conduct vertical management over the entire system of the bank.
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