Representative Offices of Foreign Financial Institutions in China

Act as liaison office

The People's Bank of China (PBOC) has reiterated that representative offices set up by foreign financial institutions in China are only allowed to engage in non-operating activities such as providing business advice and liaison service and conducting market research in the new Rules on the Administration of Representative Offices of Foreign Financial Institutions in the People's Republic of China (Rules). The Rules prohibit a representative office and its employees from entering into any contract with any entity or individual which would generate income to the representative office or to the foreign financial institution it represents, or engage in any form of operating activity.

Application of Rules

The Rules apply to representative offices set up in China by:

(a) financial institutions of foreign countries; and

(b) financial institutions funded by foreign capital in the PRC (including banks, finance companies, money brokers, credit card companies with their headquarters outside China and joint venture banks, finance companies, money brokers, credit card companies formed by foreign financial institutions and Chinese companies in China).

The Rules

The Rules provide guidelines on requirements and application procedures of establishment of representative offices by foreign financial institutions in China and supervision and regulation on, and termination of, such representative offices.

Requirements of establishment

The requirements of setting up a representative office in China by a foreign financial institution (applicant) are:

1. there is a sound financial regulatory system in the country or region in which the applicant is located;

2. the applicant is a financial institution established with the approval of the financial regulatory authority of the country or region in which the applicant is located, or a member of a financial trade association;

3. the operation of the applicant is sound without any record of major violations of laws or regulations; and

4. other requirements specified by PBOC.

For a foreign-funded financial institution registered in China to establish a representative office, the applicant only needs to comply with the requirements specified in paragraphs (3) and (4) above.

Application procedures

The procedures for setting up a representative office in China are:

1. the applicant obtains an application form from the local branch office of PBOC in the area where the proposed representative office is to be located;

2. the applicant fills in the application form and submits it to the local PBOC with other documents specified in the Rules;

3. the local PBOC conducts a preliminary review of the documents submitted by the applicant and submits them to the head office of PBOC;

4. the head office of PBOC considers the application and will issue an approval if it allows the application;

5. the approved representative office shall register with the State Administration of Industry and Commerce within a prescribed period of time.

Disclosure Requirements

A representative office is required to submit to the local PBOC:

1. an annual report in a form prescribed by PBOC on its work in the previous year by the end of February in each year; and

2. the annual report of the foreign financial institution it represents within six months after the end of such financial institution's financial year.

Further, the representative office needs to report to the local PBOC of major events of the financial institution that it represents which include:

1. any change of its articles of association, registered capital or registered address;

2. re-organization, change of ownership or major persons in charge;

3. sustaining of serious losses in its operation;

4. occurrence of any significant case;

5. imposition of any major regulatory measure upon the foreign financial institution by the regulatory authority of the country or region where the institution is located; or

6. other events that would have significant impact on the operation of the foreign financial institution.

The Rules have come into force on 18 July 2002.

For more information on the new rules, please contact Luke Filei at luke.filei@cms-cmck.com or +86 21 628 96363.