Jan 06, 2018 08:50 PM

Regulator Reveals Harsher Punishments for Breaking Bank Shareholding Rules

China’s banking regulator has revealed new bank shareholding rules which include toughened-up punishments for violators, including life-time banking investment bans in extreme cases.

The China Banking Regulatory Commission (CBRC) published rules on the ownership of commercial banks on Friday, its latest effort to curb financial risks caused by regulation-dodging major shareholders.

A major shareholder is defined as an investor who holds a stake of more than 5% in a bank, or who holds less than a 5% stake but has a significant influence on business operations, according to the rules.

An example of “significant influence” is the right to appoint directors, supervisors or senior managers.

The regulator requires major shareholding entities to explain their reason for investing in a bank and to disclose their ownership structures and the identities of their actual controllers. The rules demonstrate the CBRC’s determination to crack down on speculators who try to illegally obtain control of banks through proxy shareholders or conduct illicit connected-party transactions.

Hengfeng Bank, a national commercial lender whose top executives sought to use proxy companies to obscure their control of the bank through complex shareholding structures, was fined 15.6 million yuan ($2.4 million) by the CBRC last December. This case was described by a CBRC official as a typical instance of a bank with flaws in its corporate governance, Caixin learned.

The regulator reiterated that any investor, along with its related parties, can hold more than a 5% stake or major voting power in no more than two commercial banks. An investor can own a controlling stake in only one bank.

The aim of the new rules is not to restrict investments in banks, but to prevent the misconduct of major shareholders from harming other shareholders’ interests, another CBRC official said.

Those who break bank shareholding rules, especially those who are warned but refuse to correct their wrongdoings, will face punishments ranging from public criticism or condemnation to being barred from investing in banks for a period of time or even life, according to the rules.

The regulator has adopted a case-by-case approach and set transition periods for investors who have already crossed the red line to clean up irregularities, and some banks’ shareholders have begun selling their stakes to other investors, sources who requested anonymity told Caixin.

Contact reporter Lin Jinbing (

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