Bank Regulator Steps Up Efforts to Shut Revolving Door

(Beijing) — China’s top banking industry watchdog is taking steps to shut a “revolving door” used by some former employees to take lucrative jobs in the private sector, bank regulators told Caixin.

The anti-corruption unit of the China Banking Regulatory Commission (CBRC) has been drafting new rules that include a three-year waiting period before a former banking regulator can take a job in an institution under the control of the CBRC, several sources from the bank regulator told Caixin.

The draft rules are part of a broader effort by the CBRC to fight so-called regulatory capture, when government entities fail to fulfill their responsibility to act in the interests of the public, and prioritize the pursuit of commercial profits in the industries they were involved in. The CBRC has flagged persistently lax supervision, abuse of power, and collusion between regulators and the private sector as some of the major risks prevalent in China’s banking industry.

Under Chinese law, when civil servants resign or retire from a managerial post, they should not take a job within the following three years in a company or other profit-making organization directly related to their previous public role.

In recent years, many regulators have joined a growing wave of executives taking highly lucrative jobs at financial institutions, an industry analyst said, and positions in banks, securities brokerages, insurers and fund management firms are especially popular. In practice, many banking regulators were “appointed” or “recommended” to a new job as an “internal transfer” as a way to exploit a loophole and skirt the required three-year waiting period.

“It’s extremely rare to see a division head in a regulatory authority that really quit his job,” said a former CBRC official, “and you can count the number that did on the fingers of one hand.”

A CBRC policy document issued earlier and seen by Caixin indicates increased scrutiny of executives at financial institutions who used to work for the regulator to establish whether they used relationships to streamline the supervisory process or were introduced to take jobs at the lenders.

A banker in southwest Sichuan province gave one example of regulatory capture. A division head of a local branch of the CBRC joined a bank in Chengdu as its deputy governor when he was about to retire, mainly to deal with checks conducted by local banking regulators. “If there is a problem, he will address any work-related issues, and avoid regulatory punishments and fines,” the banker said.

A fax sent to the CBRC seeking comment did not receive an immediate response.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)