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AML & Financial Services Regulatory

China: CBIRC to conduct follow-up checks on banking and insurance sector to ensure industry problems are being addressed

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In brief

On 24 June 2020, the China Banking and Insurance Regulatory Commission (CBIRC) issued a circular on Carrying out the Follow-up Checks for the Rectification of Market Problems in the Banking and Insurance Sectors (the “Circular“). The CBIRC proposes to launch follow-up checks to review the steps taken to correct industry problems identified in the past three years following some high-profile cases, particularly in the areas of corporate governance, risk management and repeated violations of several laws and regulations.

Our alert sets out a brief summary of key “follow-up” checks outlined in the Circular and provides some practical tips that we have developed from our own experience on how companies can ensure their compliance programs satisfy the guidelines. More information can be found in our guide on 5 Essential Elements Of Corporate Compliance.

CHINESE VERSION

Overview and impact of Circular

Over the past three years, the CBIRC has been pushing companies in the banking and insurance sectors to address various issues, including insufficient corporate governance, infringement on consumer rights, and industry-specific integrity risks. The CBIRC required banks and insurance companies to review major issues identified and potential risks existing in their daily operations, take corrective actions and hold the individuals concerned liable.

The CBIRC is now undertaking follow-up checks, paying particular attention to the following and asking if:

      • the relevant entities and persons have fulfilled their responsibilities to rectify identified problems
      • the economy has benefitted from the rectification
      • the rectification measures are thorough and effective
      • the violations have been greatly contained
      • the compliance mechanism is sound and functions effectively

The Circular also makes it clear that any financial irregularities or violations in the execution of the business (including corporate governance, business operations and equity management) will be handled seriously in accordance with the law.

On 4 July 2020, the CBIRC published a list of 38 shareholders who have allegedly engaged in improper activities, such as profiting from illegal transactions, fabricating materials, using unqualified sources of materials, and flouting regulatory rules. The CBIRC stated that it will regularly publish such lists in the future.

Recommended actions

These follow-up checks by the CBIRC are consistent with the global push by regulators in the banking and insurance sectors to ensure that companies implement robust compliance programs.  Companies need to take steps now to ensure that they have in place an effective compliance program that will hold up against the scrutiny of the CBIRC.

Such steps should include the following:

      • Reviewing the existing set of policies and procedures, particularly in relation to corporate governance, anti-corruption and money laundering. The program should adequately cover the risks to the business, which should include a robust procedure (e.g., effective whistleblowing program and internal reporting mechanism) for escalating issues to top or senior level management. We have seen ineffective whistleblowing programs in many jurisdictions in Asia where local language is a must or where reports are directed to country management or legal counsel, thus reducing the likelihood of local employees utilizing the system to report issues.
      • Addressing any gaps in the program. The current environment may give rise to additional anti-corruption or money laundering risks that need to be addressed. For example, are the organisation’s due diligence / background check procedures effective to deal with risks associated with engaging new or unfamiliar third parties (e.g., KYC procedures, managing interactions between agents and third parties)? Our experience in assessing these procedures is that many are scoped incorrectly or the red flags are not followed up with additional scrutiny.
      • Reviewing high-risk transactions and irregularities. There are certain areas that carry a higher degree of risk in the financial services industry. The Circular makes it clear that banking and insurance companies need to be aware of these areas and take steps to actively monitor them. Companies should make sure that their compliance program includes a process that delegates responsible personnel to review transactions and records in a manner that is commensurate to the risk.
      • Ensuring top-level management is actively involved in the program. Top-level management should be heavily involved in the construction and implementation of the compliance program. Management should take responsibility for ensuring that the program is appropriately resourced for the company’s needs, and it should be proactively involved in the program’s dissemination and practical implementation at an operational level on the ground.

If you would like clear, practical guidance on designing, establishing and implementing a robust compliance program, please refer to Baker McKenzie’s 5 Essential Elements Of Corporate Compliance.

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Author

Mini vandePol was appointed as the Chair of Baker McKenzie's Global Compliance & Investigations Group on 1 September 2014, after successfully completing five years as the Asia Pacific Regional Chair of the Dispute Resolution Practice Group. In this role, she leads a global team of more than 900 compliance and investigations practitioners in Asia Pacific, EMEA, Latin America and North America. Ms. vandePol's work engagements focus on anti-bribery and corruption investigations and risk management and mitigation in China, India and other parts of Asia in a variety of industries. Ms. vandePol and her team are responsible for the Global Overview of Anti-Bribery Laws (2nd Edition 2016) and is the editor of the very popular Global Attorney-Client Privilege Handbook (2nd edition 2014). She has written a number of articles in journals and other publications both in Australia, India and elsewhere in Asia Pacific on topics ranging from corporate compliance investigations and enforcement, fraud risk, international trade and sanctions compliance, and ethical business practices. She is also a highly sought after media spokesperson and has made several appearances in business media in Hong Kong, India, Australia and the US.

Author

Vivian Wu is a partner in Baker McKenzie's Beijing office, advising US and European corporations on regulatory, compliance and FCPA-related matters in China. Ms. Wu worked at our Washington D.C. office in 2014, graduated from Harvard Law School, and is admitted to practice in New York and China.

Author

Henry Chen has more than 17 years of experience in handling cross-border compliance and investigation matters. As a US- and PRC-trained lawyer, he has advised many multinational corporations on navigating and managing compliance risks in a variety of areas, including anti-bribery and corruption, anti-money laundering, anti-unfair competition, customs, data protection and cybersecurity, employee misconduct, ESG, financial crime, fraud, and whistleblower allegations.

Prior to joining the Firm, Henry acted as the Asia Pacific Director for Investigations at a Fortune 500 pharmaceutical company and led its regional compliance investigations. Besides Shanghai, he had also worked in Washington, DC, Hong Kong and Beijing as a compliance professional.

Author

Christine is a special counsel in the Hong Kong disputes practice, specialising in corporate crime and investigations. She has over 10 years' experience in all forms of contentious work, including cross-border investigations and litigation, as well as other corruption-related matters. She has acted for clients in disputes with regulators and other parties, both through litigation and different forms of dispute resolution, including arbitration, mediation and complex negotiations. She previously worked for another top international firm in its offices in both Hong Kong and Australia.

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