NFRA’s unified compliance management regulations issued

Who is regulated?

The Compliance Measures directly apply to designated financial institutions regulated by the NFRA such as commercial banks and insurance companies (regardless of whether they are domestic or foreign owned), but only apply to such other designated entities (such as branches of foreign banks or foreign reinsurance companies) by reference. This regime does not apply to securities companies or fund management companies which are separately regulated by the China Securities Regulatory Commission.

The existing regimes governing the compliance of commercial banks and insurance companies were issued by the predecessors of the NFRA in 2006 and 2016. These Compliance Measures have unified the compliance management requirements respectively applicable to commercial banks, insurance companies and other designated financial institutions regulated by the NFRA.

New requirements on chief compliance officer (CCO)

The most heavily discussed topic in the Compliance Measures are the provisions regarding the CCO. Unlike the existing regime which have imposed different obligations and requirements on CCOs of different financial institutions, the Compliance Measures now provide one set of rules and requirements.

According to the Compliance Measures, the CCO shall be a senior management person. Applicable financial institutions may select to separately appoint a new senior management person to assume the CCO position, or appoint an existing senior management person to concurrently serve the CCO position (subject to certain restrictions though). Although many financial institutions have already set up a similar role, these Compliance Measures have now imposed some higher qualification requirements on a qualified CCO, e.g. certain number of years of experience in financial work and legal and compliance work etc. This will request the institution to revisit whether its current compliance responsible person is still qualified now.

Considering that those people currently assuming the CCO position may not strictly satisfy the new qualification requirements, the Compliance Measures have provided several alternative solutions:

• where the president or general manager of the financial institution concurrently serves in the CCO position, he/she is not subject to the qualification requirements of the CCO hence is not required to be separately approved by the NFRA; and

• personnel who were appointed by financial institutions as chief compliance officers, compliance directors, compliance responsible persons and the general counsel, among which the general counsel should also be a senior management person, before the Compliance Measures take effect may still perform all their responsibilities of a CCO. The aforesaid persons do not need to satisfy the new qualification requirements of CCO and will not be required to obtain a qualification approval from the NFRA until there is a change of the relevant personnel.

Other potential implications

The Compliance Measures have also imposed other requirements, which may affect the corporate governance structure of a financial institution. For example, if a financial institution plans to set up a compliance committee (which is not mandatory) under the board of directors in accordance with these Compliance Measures, its articles of association need to be amended to reflect such arrangement and update the rights and obligations of the CCO.

These Compliance Measures will impose heavier regulatory and compliance burdens on applicable financial institutions. Therefore, a one-year grace period has been offered to applicable financial institutions to ensure the compliance but financial institutions are still suggested to consider the potential implications and actions as early as possible and to avoid missing the deadline.