Notice of the Adjustments to the Offshore Investment Scope of Overseas Wealth Management Business of Commercial Banks on behalf of Their Clients
(promulgated on May 10, 2007)


Since the publication of “Notice of Overseas Wealth Management Business of Commercial Banks on behalf of Their Clients ” (No. 164 of 2006, hereinafter referred to as ‘the Notice’), the commercial banks have accumulated considerable experience in their overseas wealth management business on behalf of their clients. Under the strict requirements of separating the assets of the banks from those of their clients and that products should be sold according to the types of clients, the following amendments to the Notice are made so as to foster the healthy and stable development of the overseas wealth management business:

1. Section 6 (4) of the Notice provides “There shall be no direct investment in equities and the related structured products, commodities-based derivative products and the debt securities with credit ratings below BBB”. This would be amended to “There shall be no investment in commodities-based derivative products, hedge funds and debt securities with credit ratings below BBB as assigned by an international credit rating agency”.

2. In the issue of the overseas wealth management products that invest in foreign equities, the commercial banks shall satisfy the following requirements:
  1. The equities to be invested in should be listed on an overseas stock exchange.
  2. The total value of the investment in listed equities shall not exceed 50% of the total net asset value of each overseas wealth management product; the value of investment in an individual equity shall not exceed 5% of the total net asset value of each overseas wealth management product. The commercial banks shall regularly adjust the portfolio to ensure that the aforesaid limits are complied on an on-going basis.
  3. The minimum initial investment by a single client in such a wealth management product shall not be less than RMB300, 000 (or its equivalent in foreign exchange).
  4. The client shall have the relevant experience in investing in equities. The commercial banks shall establish proper client evaluation standards and processes to ascertain the relevant experience of the client in investing in equities, and the result of the evaluation shall be explained to the client and acknowledged and duly signed by the client.
  5. The overseas investment managers shall have been authorized or licensed by the overseas regulatory authorities which have signed with the CBRC an Memorandum of Understanding on Regulatory Cooperation with respect to Overseas Wealth Management Business of Mainland Commercial Banks on behalf of their clients (‘MOU’). The commercial banks shall conduct due diligence in the selection of investment managers, and ensure that they continue to maintain the relevant qualifications.
  6. The commercial banks shall only invest in overseas stock markets supervised by the regulatory authorities which have already signed with the CBRC an MOU.

3. In the issue of products in their overseas wealth management business on behalf of their clients that invest in funds, the commercial banks shall select public funds duly approved, registered or authorized by the regulatory authorities which have already signed with the CBRC an MOU.

4. In the issue of products under their overseas wealth management business on behalf of their clients that invest in structured products, the commercial banks shall select those structured products issued by authorized financial institutions with a credit rating of A or above as assigned by an international credit rating agency.

5. When conducting overseas wealth management business on behalf of their clients, the commercial banks shall follow the principles of prudence and asset diversification, fully taking into consideration factors such as market trends, their own resources, their risk management capabilities and the risk tolerance levels of the clients. In terms of asset allocation and investment strategies, the banks shall avoid concentration risks in terms of geographical lines, asset classes, as well as securities holdings, etc.

6. In their overseas wealth management business on behalf of their clients, the commercial banks shall establish their investment management systems, clearly define their processes, criteria and procedures for selecting investment managers and investment products, and specify the required experience, qualifications and professional skills that the relevant staff need to have.

7. In their overseas wealth management business on behalf of their clients, the commercial banks shall invest in strict compliance with the contractual obligations made to their clients in terms of the investment objective, scope, portfolio and restrictions.

8. In their overseas wealth management business on behalf of their clients, the commercial banks may use the main types of derivatives instrument such as forwards and swaps, which are commonly used in the financial markets, for hedging purposes, but are forbidden to use them for speculation purposes or to magnify transactions.

9. In their overseas wealth management business on behalf of their clients, the commercial banks shall follow the principle of “know your client”, and establish a mechanism to ascertain client suitability. This will be used to assess their risk tolerance and classify their risk profiles by basing on their financial status, investment objectives, investment experience, risk appetite, investment expectation and such information. The commercial banks shall offer products to the clients that commensurate with their risk profiles and avoid mis-selling and improper selling.

10. In their overseas wealth management business on behalf of their clients, the commercial banks shall stringently oversee their wealth management staff, put strong emphasis on training for the sales people, so that they clearly understand the products they sell and the risks behind, and that the sales people would disclose full information to the clients in compliance with the regulations and code of conduct during the sales process.

11. In their overseas wealth management business on behalf of their clients, the commercial banks shall completely segregate the client assets from their own or the relevant parties' assets and shall open separate custody accounts for each wealth management product in the name of the product. The commercial banks and all relevant parties are strictly prohibited from misappropriating client assets.

12. In their overseas wealth management business on behalf of their clients, the commercial banks are forbidden to transfer benefits or engage in any activities that give rise to conflicts of interest.

13. In their overseas wealth management business on behalf of their clients, the commercial banks, with the assistance of relevant parties, shall fully disclose the information in accordance with the requirements of the “Provisional Administrative Rules on Personal Wealth Management Business of Commercial Banks” and “Provisional Administrative Rules on Overseas Wealth Management Business of Commercial Banks on behalf of Their Clients ”. The commercial banks shall regularly provide information to the clients to facilitate them to make informed investment decisions, and shall promptly disclose any material events that would affect the interests of the clients and the investment returns.

14. In their overseas wealth management business on behalf of their clients, the commercial banks shall establish the appropriate client complaints handling system that will receive, investigate and handle all client complaints.

15. In their overseas wealth management business on behalf of their clients, the commercial banks shall establish an appropriate risk management system that continuously manages market risk, credit risk, operational risk, legal risk and reputational and other risks and to protect the interests of the clients.

16. The Notice, other than the amendments specified herein, continues to remain in effect.

The provincial offices of the CBRC shall distribute this notice to the city commercial banks, foreign banks and other related financial institutions within their respective jurisdictions.

Note: In the case of discrepancies between the Chinese text and this English translation, the Chinese text shall prevail.