Caixin
Aug 01, 2017 04:09 AM
POLITICS & LAW

Banking Watchdog Tightens Rules to Block Revolving Door

The China Banking Regulatory Commission has toughened rules barring officials from taking jobs in finance. Photo: Visual China
The China Banking Regulatory Commission has toughened rules barring officials from taking jobs in finance. Photo: Visual China

(Beijing) — China’s banking regulator is tightening rules barring regulatory officials and their relatives from taking banking jobs. The action is intended to reduce potential corruption risks.

The China Banking Regulatory Commission (CBRC) issued a set of pilot rules with tougher restrictions on industry officials, including blocking senior officials in banking regulatory positions above a certain level from taking jobs at financial institutions within three years after they leave their government posts.

The new rules also expand the ban on senior officials’ family members from working in financial institutions to apply to parents, siblings and parents’ siblings as well as spouses and children.

The regulations are designed to stop officials from taking advantage of their positions and affecting the independence of the CBRC following several scandals that rocked the Chinese financial market. In one prominent case, a senior CBRC official, his wife and their son are under investigation by China’s top graft buster.

Since late March, the CBRC has issued multiple policy documents with new and tighter regulations aimed at reducing systemic financial risks, deleveraging and enhancing governance of the financial sector. China’s banking system is the world’s biggest in terms of assets. But the industry is plagued by the risky expansion of shadow banking and concerns over weak corporate governance.

“The CBRC is taking a pioneering move in the financial regulatory system to restore discipline,” said an official at a CBRC local office.

Under to the new rules, officials should be removed from regulatory positions if their spouses, parents, children or their spouses, siblings or their spouses, or spouses’ parents work at a bank or related institution or hold equity stakes of at least 5% in institutions directly supervised by those officials.

Officials who have left regulatory positions for more than three years will still need to obtain approval from the regulatory bodies they worked for before taking industry positions under the new rules.

China’s Civil Servant Law, enacted in 2006, has similar clauses barring regulatory officials from taking industry positions within certain periods. But in practice, there are still loopholes making it possible to bypass the rules, several sources told Caixin.

Over the past several years of financial sector reshuffle, for example, regulatory bodies would sometimes transfer a senior regulator to a financial institution to help set up new department or clean up a troubled business unit, said a source close to regulators. But this practice has affected regulatory independence and would be exempt from the existing revolving-door restrictions, the source said.

Under the new rules, closer scrutiny will be paid to position transfers to plug that loophole, a CBRC official said.

The new rules also require that CBRC officials who have held a key position for five years be rotated to other positions.

“This is an important term as currently some senior officials at local CBRC offices have stayed in the same positions for over 10 years,” a local CBRC official said.

In May, Yang Jiacai, the assistant chairman of the CBRC, was placed under investigation for suspected corruption by the Central Commission for Discipline Inspection, the country’s top graft buster.

Several sources with knowledge of the investigation told Caixin that Yang’s wife, who has worked for a financial institution in Shanghai, is also under investigation for having a large amount of money in her bank account from unknown sources. Yang’s son, Yang Hao, who runs a Hubei-based startup offering carwash services through a mobile app, is also under investigation.

Contact reporter Han Wei (weihan@caixin.com)

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