Guidelines on Corporate Governance of Commercial Banks
GOV.cn Friday, August 5, 2011

Guidelines on Corporate Governance of Commercial Banks

(Consultative Document)

Chapter One General Provisions

Article 1 These Guidelines are formulated in accordance with the Corporate Law of the People’s Republic of China, the Law of People’s Republic of China on Banking Supervision, the Law of People’s Republic of China on Commercial Banks and other applicable laws and regulations, for the purpose of further improving the corporate governance of commercial banks, promoting sound operation and healthy development of commercial banks and safeguarding the legitimate rights of the depositors and other stakeholders.

Article 2 These Guidelines are applicable to the commercial banks that are approved by the banking supervisory authority to establish within the territory of People’s Republic of China, as well as to the financial asset management companies that are approved by the State Council to undertake shareholding reforms.

Article 3 The term “corporate governance of commercial banks” mentioned herein refers to the relationships among general meetings of shareholders, Board of Directors, Supervisory Board, senior management, shareholders and other stakeholders. This specifically includes such check-and-balance mechanisms as the organizational structure, division of responsibilities and duty requirements, as well as such operating mechanisms as the decision-making, implementation, monitoring and incentives and disciplines.

Article 4 To promote corporate governance, a commercial bank shall put in place rational incentives and disciplines mechanisms, and conduct decision-making, implementation and monitoring in a scientific, highly efficient manner, based on the principles of “independent operation of governance bodies, effective check-and-balance, mutual cooperation and coordinated functioning”.

Article 5 The governance bodies shall be composed of staff with strong professional background, expertise and skills, professional ethics and rich experience in the following areas:

(1) To ensure the sound operation of a commercial bank on a legal, compliant basis;

(2) To ensure the cultivation of prudential credit culture by a commercial bank;

(3) To ensure the fulfillment of social responsibilities by a commercial bank;

(4) To ensure the protection of legitimate rights of financial consumers’ by a commercial bank.

Article 6 The governance bodies and their members shall enjoy the rights and undertake obligations in accordance with laws and shall take joint efforts to safeguard the overall interest of the commercial bank. No governance bodies or their members shall not impair or override the interest of the commercial bank.

Article 7 The sound corporate governance of a commercial bank shall at least consist of the following:

(1) A complete organizational structure;

(2) Clear division of responsibilities;

(3) A scientific development strategy, values and codes of conduct as well as social responsibilities;

(4) Effective risk management and internal control;

(5) Rational incentives and disciplines mechanisms;

(6) Well-established information disclosure system.

Article 8 The basis document for corporate governance of a commercial bank is its Articles of Association, which shall stipulate the arrangements for the composition of general meeting of shareholders, Board of Directors, Supervisory Board and senior management, division of responsibilities as well as the rules for discussions; meanwhile shall clarify other items that are required to be stipulated in the Articles of Association by relevant laws and regulations.

A commercial bank shall have in place its Articles of Association and shall revise the Articles of Association in a timely manner based on the bank’s own development and in accordance with the requirements of relevant laws and regulations.

Chapter Two Governance Structure

Section One Shareholders and the General Meetings of Shareholders

Article 9 A shareholder shall fulfill its obligations of integrity to the commercial bank and must ensure that his or her qualifications submitted are true, valid and complete. A major shareholder shall also disclose to the Board of Directors information about affiliated parties in a complete, timely and accurate manner, meanwhile shall be committed to report to the Board timely when changes take place in the affiliated relationships.

The “major shareholder” mentioned in these Guidelines refers to the shareholder that holds (directly, indirectly or jointly) or controls over 5 percent of the shares or voting rights and has significant influence on the decision-making of the commercial bank.

Article 10 A shareholder, especially a major shareholder shall exercise the rights as an investor strictly according to applicable laws, regulations and Articles of Association of the commercial bank; and shall not seek illegitimate benefits, or interfere with the decision-making and management rights of the Board and senior management stipulated by Articles of Association, or go beyond the rights of the Board and senior management to interfere directly with the bank’s operation, or impair the interests of the bank and legitimate rights of other stakeholders’.

Article 11 A shareholder, especially a major shareholder shall support the rational capital planning formulated by the Board of Directors of the bank, so that the capital of the bank can meet supervisory requirements on an ongoing basis. Where the bank’s capital fails to meet supervisory requirements, a scheme should be put in place to increase capital adequacy ratio to meet such supervisory requirements within due time; if the requirements are not met within the timeframe, the dividends shall be decreased or even stopped, and the capital shall be boosted by means of increasing core capital. A major shareholder shall not obstruct the capital injection moves by other shareholders or the participation of new qualified shareholders.

Article 12 Major shareholders shall make long-term commitments in written form to providing capital and liquidity support as part of the capital planning and liquidity contingency plans of a commercial bank.

Article 13 A commercial bank shall not extend loans to its shareholders under conditions more favorable than those applicable to other borrowers for the same type of loans.

Article 14 A commercial bank shall not accept its own shares as the object of pledge.

Where a shareholder, especially a major shareholder needs to use his or her stake in a commercial bank as a security for him or herself or others to guarantee for other financial institutions, he or she shall give prior notice to the Board of Directors.

A commercial bank shall stipulate in its Articles of Association that where a shareholder, especially a major shareholder falls delinquent to the bank, his or her voting right shall be limited. Where the balance of a shareholder’s loans from a commercial bank exceeds the audited net value of his or her equity stake for the preceding year, the shareholder shall not use his or her stake in the bank as pledge.

Article 15 A commercial bank’s shareholders shall nominate the candidates for directors and supervisors strictly in accordance with applicable laws, regulations, rules as well as the procedures as specified in the bank’s Articles of Association.

A shareholder shall not nominate candidates for directors and supervisors at the same time to the general meeting of shareholders. If director (supervisor) candidate nominated by the same shareholder has sit on the Board of Directors (Supervisors), the said shareholder shall not nominate other director (supervisor) candidates until the end of this director’s (supervisor’s) term. If any exemption is needed due to the special equity structure, the shareholder shall file application to the banking supervisory authority and specify the reasons.

In principle, the number of directors nominated by the same shareholder and his/her affiliates shall not exceed one third of the total number of Board members.

Article 16 The general meeting of shareholders shall fulfill its rights and obligations in accordance with the Corporate Law of People’s Republic of China and the Articles of Association of the commercial bank.

Article 17 The general meeting of shareholders shall consist of annual general meeting and ad hoc general meeting.

The Board of Directors of a commercial bank shall convene the annual general meeting within 6 months after the close of the accounting year. If the meeting is postponed due to special circumstances, a report, together with an explanation of reasons, shall be provided to the banking supervisory authority.

The general meeting of shareholders shall adopt lawyer-witness rule and the lawyer-witness is required to provide legal opinion letters that cover the comments on the legitimacy of such issues as the procedures of the general meeting, the qualifications of participating shareholders as well as the resolutions adopted by the general meeting.

The Board of Directors shall arrange the agenda and topics for the general meeting of shareholders on a legal, impartial and rational basis, so as to ensure full discussions for every topic at the general meeting.

Article 18 The Board of Directors of a commercial bank shall formulate a set of rules and procedures for the general meeting, which will be executed after being reviewed and adopted by the general meeting.

Such rules and procedures shall cover notification, initiatives mechanisms, convening method, preparation of documents, forms of voting, meeting minutes and its signing as well as withdrawal of affiliated shareholders.

Section Two Board of Directors

Article 19 The Board of Directors is accountable to the general meeting of shareholders and is ultimately responsible for the operation and management of a commercial bank. In addition to the responsibilities stipulated in laws and regulations such as the Corporate Law and rules for commercial banks, the Board of Directors should also:

(1) develop the operation and development strategy for a commercial bank and monitor its implementation;

(2) set the risk tolerance level, risk management and internal control policies for a commercial bank;

(3) make capital planning and take the ultimate responsibility for the management of capital adequacy ratio;

(4) review and improve corporate governance of a commercial bank on a regular basis;

(5) take the responsibility for information disclosure and the ultimate responsibility for the reliability, accuracy, integrity and timeliness for the accounting and financial reports of a commercial bank;

(6) supervise and ensure the effective management of high-level executives;

(7) safeguard the interest of depositors and other stakeholders;

(8) pay attention to the conflict of interests between the commercial bank and its shareholders, especially the conflict of interests among major shareholders, and set up a mechanism to identify, review and address conflicts of interests.

Article 20 A commercial bank shall define the number of directors on the Board and the Board composition according to its size and business profile.

Article 21 The Board of Directors is composed of executive directors and non-executive directors (including equity directors and independent directors).

Executive directors are the directors that take the responsibilities of high-level operation and management other than their directorial responsibilities in commercial banks.

Non-executive directors are the directors that do not take the responsibilities of operation and management in a commercial bank.

Independent directors are the directors that do not take the responsibilities other than the directorial ones in commercial banks and do not have any relations with the commercial bank and its major shareholders that could affect independent and objective judgment.

Article 22 The Board of Directors shall, according to the actual situation of a commercial bank, set up specialized committees, such as the strategy committee, audit committee, risk management committee, connected transactions control committee, nomination committee, compensation committee and so on.

The strategy committee develops the operation and management objectives and long-term strategy of a commercial bank, and reviews the implementation of annual operation and investment plans.

The audit committee reviews the risk profiles and the compliance status, accounting policies, financial status and financial reporting procedures; it undertakes the annual auditing of a commercial bank and submits reports on the reliability, accuracy and integrity of the audited financial report to the Board of Directors for review.

The risk management committee supervises the executives on the control of credit risk, liquidity risk, market risk, operational risk, compliance risk and reputational risk. The committee reviews the risk policies, management and tolerance of commercial banks on a regular basis and provides suggestions on the improvement of risk management and internal control.

The connected transactions control committee controls risks arising from connected transactions by means of management, review and approval procedures.

The nomination committee develops the selection and appointment procedures and standards of directors and executives, assesses the qualifications of directors and executives, and provides suggestions to the Board of Directors.

The compensation committee reviews the compensation regime and polices of commercial banks, develops the compensation scheme for the directors and executives, provides suggestions to the Board and monitors the implementation.

Article 23 The specialized committees provide professional suggestions to the Board or decide on specialized matters under the authorization of the Board.

The specialized committees shall communicate with high-level executives and departments on the operation and risk profile of the bank and provide comments and suggestions.

Article 24 Members of the specialized committees shall have professional expertise and practical experiences that make them qualified for the job. Heads of these committees generally shall not hold concurrent posts.

The nomination committee, compensation committee, connected transactions control committee and audit committee shall be chaired by independent directors.

Members of the audit committee shall have professional expertise and practical experiences in areas of finance, auditing or accounting. The head of the risk management committee shall have experiences in identifying and managing various risks; they shall be able to understand and interpret the risk management models used by a commercial bank.

Article 25 The Board of Directors consists of a Chairman, and could also have a Vice-Chairman. The Chairman and Vice-Chairman shall gain more than half of the votes from all directors for appointment.

The posts of Chairman and President of a commercial bank shall be separated. The legal representative or the principal person of the controlling shareholder shall not take the post of Chairman as a part-time job. The Chairman and President of a commercial bank generally shall not take the post of the Chairman of the subsidiary firm as a part-time job. Under exceptional circumstances for exemption, a commercial bank shall make application for approval to the banking supervisory authority with explanations.

Article 26 The regular meeting of the Board shall be held at least four times a year. A commercial bank shall set procedures to convene ad hoc meetings.

Article 27 The Board of Directors shall develop rules of order, including notice issuance, document preparation, meeting convening, voting procedures, proposition mechanism, meeting minutes and endorsement, authorization rules and so on and report these rules to the general meeting of shareholders for approval.

The rules of order of the Board shall include proposition mechanism and procedures, and identify the rights and obligations of management main bodies. The proposers of all propositions shall be recorded in the meeting minutes.

Article 28 The rules of order and procedures of the specialized committees shall be developed by the Board of Directors. The specialized committees should make annual work plan and meet regularly.

Article 29 The Board meeting shall only be convened with more than half of the directors present. The decisions made by the Board shall have more than half of the votes to be approved.

The Board meeting could take the form of conference voting (including videoconference) and correspondence voting. One person has one vote.

The rules of commercial banks or the rules of order of the Board of Directors shall stipulate conditions and procedures for correspondence voting. The Board shall make justifications for voting through correspondence.

It shall be stipulated in the rules of commercial banks that important matters such as income distribution, significant investment, large amount of asset resolution plan, appointment or dismissal of high-level executives, capital replenish plan, major changes in equity and financial reconstruction shall not be voted through correspondence, instead, they shall get approval by more than two thirds of votes from the directors.

Article 30 The Board of Directors shall inform in advance, the Supervisory Board to observe the meeting of Directors.

While performing their duties, the Board of Directors shall fully take into account the opinions of external auditing agencies.

Article 31 The banking supervisory authority shall provide supervisory opinions and progress of remedial actions taken by a commercial bank at the meeting of the Board of Directors.

Section Three Supervisory Board

Article 32 The Supervisory Board is the supervisory body of a commercial bank and shall report to the general meeting of shareholders. In addition to the obligations entrusted by relevant laws like the Corporate Laws and Articles of Association of commercial banks, the Supervisory Board shall pay special attention to the followings:

(1) To ensure that the Board of Directors establish sound and safe philosophies, codes of conduct and development strategies suitable for the bank;

(2) To make regular assessment over the rationality, appropriateness and effectiveness of the development strategies approved by the Board of Directors and formulate assessment report;

(3) To oversee and review the operational decision-making, risk management and internal controls of the commercial banks and request corrections as necessary;

(4) To supervise the selection procedures of directors and independent directors;

(5) To make comprehensive performance assessment of the directors, supervisors and senior management;

(6) To oversee the compensation system and policy of the bank and the rationality and appropriateness of the compensation scheme of the senior management;

(7) To regularly communicate with banking supervisory authority regarding the conditions of the bank.

Article 33 The Supervisory Board of a commercial bank shall consist of supervisors that represent employees, external supervisors elected by the general meeting of shareholders, and shareholders.

The external supervisors shall not relate to the bank or major shareholders in a way that may affect their independent judgment.

Article 34 The Supervisory Board may establish nomination committee and supervisory committee as necessary.

The nomination committee is responsible for conducting preliminary review of the qualifications of supervisory candidates and submitting its recommendations to the Supervisory Board; overseeing the election of directors and independent directors; making comprehensive performance assessment of directors, supervisors and senior management, and reporting to the Supervisory Board; and overseeing the compensation system and policy of the whole bank and the rationality and appropriateness of the compensation scheme of the senior management.

The nomination committee shall be chaired by an external supervisor.

The monitoring committee is responsible for drafting the monitoring scheme for the bank’s financial activities and conducting reviews in due course; overseeing that the philosophies, codes of conduct and development strategies is suitable to the bank; and monitoring and reviewing the operational decision-making, risk management and internal controls of the bank.

Article 35 The Chairman of Supervisory Board (or Chief Supervisor) shall work full time, and shall possess professional knowledge and expertise in at least one of accounting, auditing, finance or law.

Article 36 The Supervisory Board shall formulate a complete set of meeting rules and procedures, which shall cover notification, preparation of documents, ways of convening the meeting, forms of voting, minutes drafting and its signing. The Supervisory Board shall hold at least four scheduled meetings per year. Additional ad-hoc meetings may be convened in accordance with appropriate provisions in the bank’s Articles of Association.

Article 37 While performing its duties, the Supervisory Board is authorized to require Board of Directors and senior management to provide necessary information, including those related to auditing. Where necessary, the Supervisory Board may appoint supervisors to observe the meeting of the senior management.

Article 38 The Supervisory Board may independently hire external professional organizations to assist its work.

Section Four Senior Management

Article 39 The senior management consists of president, vice president(s), chief financial officer(s), secretary of the Board of Directors and other senior management members qualified by regulatory authority.

Article 40 The senior management conducts operation and management activities in accordance with bank’s Articles of Association and under the authorization of the Board of Directors. They shall make sure that bank’s operation is in line with the development strategy, risk preference, policies and procedures approved by the Board of Directors.

The senior management shall report to the Board of Directors and be subject to the oversight of Supervisory Board. They shall not be interfered when performing legitimate operational and management activities within its own authority.

Article 41 The senior management shall establish mechanisms for reporting to the Board of Directors and its specific committees, and the Supervisory Board and its specific committees, in which it shall clarify the type, content, timeliness and approaches of information reporting so as to ensure prompt and accurate delivery of information to the directors and supervisors.

Article 42 The senior management shall establish and continuously improve meeting procedures and formulate a complete set of relevant stipulations.

Article 43 The president shall exercise relevant powers and duties in accordance with relevant laws, regulations, the bank’s Articles of Association and the authorization of the Board of Directors.

Chapter Three Directors, Supervisors and Senior Management

Section One Directors

Article 44 A commercial bank shall formulate proper and transparent procedures for the election of directors, the implementation of which shall be subject to the approval by the general meeting of shareholders.

Article 45 The general procedures for electing directors are listed as follows:

(1) The nomination committee of the outgoing Board of Directors may submit a list of candidates within the prescribed numbers not exceeding the total numbers as stipulated in the Articles of Association. Shareholders who individually or jointly hold more than 3% of the total voting shares have the right to recommend candidates for directors to the Board.

(2) The nomination committee shall conduct preliminary review of director candidates before submitting them for Board review. Following the Board review, the list of candidates shall be submitted to the general meeting of shareholders in the form of written proposals.

(3) Prior to the convening of the general meeting of shareholders, director candidates shall undertake in writing to accept the nomination, guarantee the accuracy and completeness of the disclosed information, and endeavors to fulfill the obligations after election.

(4) The Board of Directors shall disclose detailed information on director candidates to shareholders in accordance with relevant laws, regulations and the bank’s Articles of Association prior to the convening of the general meeting of shareholders to ensure that shareholders have sufficient knowledge about the candidates before they vote.

(5) The general meeting of shareholders shall vote for each candidate one by one.

(6) In cases where directors need to be changed on an ad-hoc basis, nomination committee of the Board of Directors or qualified shareholders shall make recommendations, while the general meeting of shareholders shall approve election or replacement.

Article 46 The following principles shall be followed when nominating and electing independent directors:

(1) The nomination committee or shareholders who on a standalone basis or an aggregated basis have more than one per cent voting share of the commercial bank can nominate independent directors. Shareholders who have nominated directors cannot nominate independent directors.

(2) Nominated independent directors are to be reviewed by the nomination committee, with emphasis on qualifications in independence, expertise, experience, competence and so on.

(3) The selection of independent directors shall be primarily market-based.

Article 47 The Board directors shall comply with requirements set by the banking supervisory authorities. The appointment of directors is subject to the examination of banking supervisory authorities.

The term of directors shall be stipulated in the Articles of Association of commercial banks, but the maximum serving period is no less than three years. Directors can be re-elected upon term expiration. Independent directors cannot serve more than six years in the same commercial bank on an aggregated basis.

Article 48 The directors shall have the right to understand commercial bank's business and financial status, and exercise oversight over the performance of duties of the other directors and senior management members.

Article 49 The Board directors of a commercial bank shall have the obligations of loyalty and due diligence. The directors shall perform duties in accordance with relevant laws, regulations, rules and requirements of commercial bank’s Articles of Association.

Article 50 Board directors shall not serve as directors in other financial institutions to avoid conflict of interests. Directors are expected to notify the serving commercial bank in advance if they work in other financial institutions and have to ensure no conflict of interests.

Independent directors shall not serve more than two commercial banks at the same time.

Article 51 Board directors are expected to commit sufficient time to performing duties. Board directors shall attend at least two thirds of the Board meetings annually in person.

Board directors who are unable to attend Board meetings can delegate by writing to other directors of the same category.

Board directors should express views independently and objectively with professionalism.

Article 52 Board directors shall report to the connected transactions control committee on the nature and extent of the connectedness if the Board directors directly or indirectly have or intend to have connectedness with a commercial bank on matters of contracts, transaction or arrangements. Board directors shall excuse themselves once relevant connected transaction matters are reviewed.

Article 53 Equity shareholders should actively exercise the duty of communication between shareholders and commercial banks, and pay attention to shareholders’ connected transactions with commercial banks and support commercial banks’ capital replenishment plan.

Article 54 Independent directors should express objective, impartial and independent opinions on issues discussed at the Board meeting, focusing on the following:

(1) The legitimacy and fairness of major connected transactions;

(2) Profit distribution plan;

(3) The appointment and dismissal of senior management;

(4) Matters which may result in significant losses of a commercial bank;

(5) Matters which may damage the interests of depositors, minor shareholders and other stakeholders;

(6) The appointment of external auditors, etc.

Article 55 Independent directors shall have at least 15 work days in a commercial bank per year, while persons-in-charge of the audit committee, connected transaction control committee and risk management committee shall have at least 25 work days per year.

Article 56 Board directors shall attend relevant trainings as required, to understand the rights and obligations of directors, to familiarize relevant laws and regulations, and to acquire relevant knowledge.

Article 57 A commercial bank shall set the minimum working time for its directors and establish files about their performance of duties, recording directors’ attendance, independent views and suggestions, which will be reference materials for Board director’s performance appraisal.

Section Two Supervisors

Article 58 Supervisors shall faithfully fulfill oversight responsibilities in accordance with laws, regulations and commercial bank’s Articles of Association.

Article 59 The nomination and election procedures of supervisors and external supervisors shall refer to those of Board directors and independent directors.

Shareholder supervisors and external supervisors shall be elected and dismissed by the shareholders' meeting; staff representative supervisors shall be elected and replaced by bank employees through democratic procedures.

Article 60 The term of supervisors is three years. Supervisors can be re-elected upon term expiration. The term of external supervisors who serve in a single commercial bank shall not exceed six years on an aggregated basis.

Article 61 Supervisors shall actively participate in supervision and inspection activities, and are entitled to conduct independent investigations, evidence collection, as well as raise questions and supervisory advice.

Article 62 Supervisors shall attend in person at least two thirds of Supervisory Board meetings. Supervisors who are unable to attend can delegate in writing to other supervisors of the same category. It is regarded as failing to perform duties if supervisors fail to attend meetings in person twice consecutively or if supervisors do not conduct any delegation.

Shareholder supervisors and external supervisors shall work at least 15 work days in a commercial bank per year.

Staff supervisors are entitled to join the decision-making process on relevant rules and regulations pertaining to staff’s interests, and shall actively monitor the implementation.

Article 63 Supervisors may observe Board meetings, and raise enquiries or suggestions on Board resolutions, but are not entitled to vote. Supervisors who observe the Board meetings shall report to the Supervisory Board.

Article 64 Supervisors’ remuneration shall be reviewed and approved by the general meeting of shareholders. Board of Directors shall not interfere with the remuneration standards.

Section Three Senior Management

Article 65 The senior management shall pass the qualification reviews conducted by the banking supervisory authority.

Article 66 The senior management shall follow the principles of integrity and credibility, and they shall exercise their defined powers and duties in a prudent and diligent manner. The senior management members may not seek to compete, for their own or other’s interest, for any business opportunities that belong to the bank, or accept any benefits that are related to the bank’s transactions.

The senior management may not take any part-time jobs in any other economic entities without equity investment in principle, except for the affiliated institutions to the bank that have been approved by the banking supervisory authority.

Article 67 In accordance with the requirements of the Board of Directors, the senior management shall report to the Board of Directors on a regular basis the bank’s operational results, important contracts, financial situation, risk profile and business prospect in a timely, accurate and all-round manner.

Article 68 The senior management shall be subject to oversight of the Supervisory Board, and shall, on a regular basis, provide the Supervisory Board with information concerning the bank’s operational results, important contracts, financial situation, risk profile and business prospect. The senior management may not impede or interfere in such activities as inspection or auditing performed by the Supervisory Board in line with its powers and duties.

Article 69 Where the Board of Director violates the rules of approval and dismissal, the senior management members have the right to request the Supervisory Board to initiate an opposition, and report the situation to the banking supervisory authority.

Chapter Four Development Strategies, Value Criteria and Social Responsibilities

Article 70 A commercial bank shall take into account the interests of shareholders, depositors and other stakeholders. Clarified development strategies and sound value criteria should be established and effectively implemented within the bank.

Article 71 The development strategies of a commercial bank shall focus on the mid- to long -term development plans, strategic goals, business philosophies, market positioning, capital management and risk management and so on.

A commercial bank shall attach importance to the affiliated strategies of human resources and the IT system development while keeping its priority on the formulation of overall development strategies.

Article 72 The Board of Directors shall formulate the development strategies of a commercial bank, and report to the general meeting of shareholders. While drawing up the development strategies, the Board of Directors shall be fully aware of the macro-economic developments, market environment as well as its risk tolerance capability and comparative advantages so as to define market positioning, provide differentiated financial services and constantly improve its core competence.

Article 73 While laying down a commercial bank’s capital management strategies, the Board of Directors shall fully take into account the factors such as risk profile and its development trends, risk management capability, risk tolerance capability, capital structure, capital quality and capital replenishment channels and so on, and urge the senior management to implement those strategies.

Article 74 A commercial bank shall formulate mid- to long –term IT system development plan, and set up an well-developed, safe and stable, flexible and efficient IT management system, so as to effectively underpin the bank’s business development and risk control function.

Article 75 A commercial bank shall establish a scientific mechanism to optimize the recruitment, development, evaluation, motivation and utilization of human resources, gradually realize the market-based allocation of human resources, and consequently promote the sustainable development of the bank.

Article 76 The Board of Directors shall evaluate and review the bank’s development strategies periodically, so as to ensure its strategies matching its business operation and the changing market environment.

The Board of Supervisors shall oversee the formulation, implementation and evaluation of the bank’s development strategies.

The senior management shall set scientific operational and management objectives and plans under the existing development strategies on an annual basis.

Article 77 A commercial bank shall set up sound value criteria, corporate culture and business philosophies that highlight social responsibilities so as to motivate employees to better fulfill their responsibilities.

Article 78 The Board of Directors shall approve the professional norm and corporate values to be abided by the members of the Board, senior management and all employees.

The senior management shall be responsible for formulating the codes of conduct of the management and business personnel, clarifying accountability, and establishing corresponding resolution mechanism.

Article 79 A commercial bank shall encourage employees to report any actions that violate relevant laws, rules, or professional ethics via legal channels, and fully protect the lawful rights and interests of employees.

Article 80 A commercial bank shall fulfill its social responsibilities in the areas of economy, environment, and social welfare. Additionally, the bank shall proactively incorporate national macro-economic adjustment polices into its strategy development and disclose its social responsibility reports to the public on a regular basis.

A commercial bank shall support national policies on industrial transformation and environmental protection, protect and save resources, and promote the sustainable development of the society.

Article 81 A commercial bank shall adhere to the principle of fair, safe and orderly competition, continuously improve financial services by promoting quality and professional business operation, protect consumers’ lawful rights and interests, and create values for the shareholders, employees, clients and the public.

Chapter Five Risk Management and Internal Controls

Section One Risk management

Article 82 The Board of Directors of a commercial bank shall assume the ultimate responsibility of the bank’s risk management.

Based on its risk profile as well its pace and scale of development, the Board of Directors shall establish comprehensive risk management strategies, polices and procedures, identify major risks, set appropriate risk exposure and risk appetite, and urge senior management to effectively identify, measure, monitor, control and timely mitigate various risks facing the bank.

Article 83 The Board of Directors and its risk management committee shall be briefed by the senior management on the bank’s risk profile on a regular basis. In addition, the Board of Directors and its risk management committee shall also conduct evaluation on the risk profile, risk management and risk tolerance capability of the bank, and formulate comprehensive risk management strategies.

Article 84 A commercial bank shall establish an independent risk management department, which shall be guaranteed with sufficient power, resources and direct channel of communication with the Board.

Support and assistance shall be provided to the risk management department in the areas of human resources, qualification reviews, compensation and other incentive policies, access to IT system, development of specialized IT system as well as access to internal information.

Article 85 Risk management department of a commercial bank shall fulfill at least the following duties:

(1) Monitor, analyze and report each and every business activity and risk on an on-going and unified basis.

(2) Monitor risks on an on-going basis, calculate risk-based capital requirement, and promptly report to the senior management and Board of Directors.

(3) Understand the impact and transmission of risk profile of banks’ shareholders especially major shareholders, and organizational structure on the risk profile of the commercial bank. Conduct stress tests on a regular basis and have in place an emergency plan.

(4) Assess risks posed to the commercial bank by business and product innovation, access to a new market and prominent environment changes in the market.

Article 86 A commercial bank may have in place a Chief Risk Officer independent from execution and operation.

The Chief Risk Officer is responsible for overall risk management of the commercial bank, and may report directly to the Board of Directors and the Special Committee.

The Chief Risk Officer shall have the ability to judge and influence the overall risk profile of the commercial bank, and have complete, reliable and independent information sources.

The Board of Directors is responsible for the appointment and dismissal of Chief Risk Officer and shall disclose the appointment and dismissal to the public in a timely manner.

Article 87 A commercial bank shall conduct on-going identification of and monitoring on risks on a consolidated and solo basis respectively. The complexity of risk management shall be in line with the changes in risk profile of the commercial bank and changes in the external risk environment.

A commercial bank shall conform to relevant rules and regulations to strengthen consolidated management. The Board of Directors and the senior management shall be responsible for the overall risk management of the commercial banks’ parent company and its subsidiaries, guiding the subsidiaries to improve risk management, and set up necessary firewalls within the organization.

Article 88 When a commercial bank is held by a corporate group or a commercial bank is a subsidiary of a parent company, the Board of Directors and the senior management shall promptly warn and require the corporate group or the parent company to take into full consideration the uniqueness of the commercial bank when designing overall development strategies and risk policies for the whole group or company.

Section Two Internal Control

Article 89 The Board of Directors of a commercial bank shall keep focusing on internal control of the commercial bank, develop a sound internal control mechanism, oversee the senior management when formulating rules, procedures and measures, and conduct whole process risk management.

Article 90 A commercial bank shall adopt and improve accountability of internal control, ensure the Board of Directors, the Supervisory Board and the senior management are fully aware of their own responsibility for the internal control.

The Board of Directors and the senior management have respective responsibility for the effectiveness of the internal control, and shall be held accountable to major losses resulting from invalid internal control.

The Supervisory Board is responsible for overseeing the Board of Directors and the senior management to improve internal control rules and systems, and fulfill the duty of oversight over internal control.

Article 91 A commercial bank shall adopt an effective horizontal information sharing mechanism among departments as well as a vertical information sharing mechanism among the Board of Directors, the senior management and the functional departments to ensure the Board of Directors, the Supervisory Board and the senior management may timely understand bank’s operation and risk profile, and meanwhile ensure the effective sharing of internal control policy and information within departments and among the staff.

Article 92 A commercial bank shall set up an independent department for internal control oversight and assessment. This department shall effectively oversee and evaluate the system building and implementation of the internal control, and may report directly to the Board of Directors, the Supervisory Board and the senior management.

Article 93 A commercial bank shall set up an independent vertical internal audit management system and corresponding internal audit reporting system and reporting lines.

Chief Audit Officer and internal audit department shall report the auditing work to the Board of Directors and the Supervisory Board, timely submit project auditing report and inform of the senior management.

The Board of Directors is responsible for the appointment and dismissal of Chief Audit Officer and person in charge of the internal audit department.

Article 94 A commercial bank shall adopt an external audit agency system.

Apart from financial audit, the external audit agency of the commercial bank also shall perform reviews of corporate governance, internal control, business operation and management, and submit a management letter to the commercial bank and the banking regulatory authority.

Article 95 The Board of Directors, the Supervisory Board and the senior management shall make full use of the working results of internal audit department, external audit agency and internal control department, and promptly take corresponding corrective measures.

Chapter Six Incentives and Disciplinary Mechanism

Section One Performance Evaluation of Directors and Supervisors

Article 96 A commercial bank shall establish and improve the performance evaluation system for directors and supervisors, clarify the performance standards, adopt and improve the performance and integrity records for directors and supervisors.

Article 97 The performance evaluation of a commercial bank on directors and supervisors consists of evaluations from many parties such as self-appraisal of directors and supervisors, evaluation from the senior management members, the Board of Directors, the Supervisory Board and external evaluation.

Article 98 The Supervisory Board is responsible for overall evaluation of the performance of directors and supervisors. Following the approval by the general meeting of shareholders, the Supervisory Board shall submit the final evaluation to the banking regulatory authority.

Article 99 The Board of Directors and the Supervisory Board shall respectively propose compensation and incentive plans for directors and supervisors based on their performance appraisal, and subject to the approval by the general meeting of shareholders.

Article 100 Except the self-appraisal during the performance evaluation, none of the directors and supervisors shall be involved in the appraisal of their performance or determination of their compensation.

Article 101 Where any of the directors or supervisors fails to abide by laws, regulations, rules and the bank’s Articles of Association and thereby incurs losses to the bank, the director or supervisor in question shall be held liable to make indemnity.

Article 102 Where any of the directors or supervisors fails to perform due duties, the Board of Directors and the Supervisory Board of the commercial bank shall propose relevant solutions and take corresponding measures in a timely manner.

Article 103 When evaluating the performance of the directors or supervisors, the commercial bank shall take into full consideration the views of the external audit agency.

Section Two Performance Evaluation for Senior Management

Article 104 A commercial bank shall establish scientific, rational incentives and disciplinary mechanisms for senior management in line with the bank’s social responsibilities, corporate culture, development strategy, risk management, overall efficiency and occupational responsibilities.

Article 105 A commercial bank shall establish fair and transparent performance evaluation criteria, procedures and corresponding compensation mechanism for senior management. The criteria for performance evaluation shall based on the principle of “protecting the interests of depositors and investors”, so as to ensure the consistency between short-term and long-term interests of the bank.

Article 106 Senior management shall not participate in the decision-making process of setting evaluation criteria and compensation scheme for his or her own performance.

Article 107 A commercial bank shall strictly limit the performance evaluation criteria and compensation of its senior management, in case any of the following happens:

(1) Major supervisory indicators, such as capital adequacy ratio, fail to meet regulatory requirements;

(2) Asset quality drops substantially;

(3) Other significant risks occur or profitability deteriorates.

Article 108 Where senior management breaches laws, regulations or bank’s Articles of Association and causes losses for the commercial bank as a result, the bank shall exercise accountability and require compensation from the accountable parties.

Section Three Compensation Mechanism

Article 109 A commercial bank shall establish reasonable compensation mechanism, to ensure that it fully captures the relationships between all kinds of risks and costs as well as the coordination between short-term and long-term incentives; meanwhile ensuring that the cultivation of talents is in line with risk control and is conducive to the implementation of bank’s strategic objectives and the enhancement of bank’s competitiveness.

Article 110 A commercial bank shall establish scientific performance evaluation system and apply such system on specific departments and posts; this system shall be used as a basis for determining compensation.

The performance evaluation indicators for a commercial bank shall include profitability, risk costs control and social responsibilities.

Article 111 The maturity of compensation payment of a commercial bank shall be in line with the duration of risks exposed to relevant business. A commercial bank shall introduce deferral, recourse and deduction of payment; in particular, the major senior staff shall be required a higher proportion of payment deferral.

Article 112 A commercial bank shall formulate its own mid and long-term incentives plans according to relevant national rules and regulations.

Article 113 Each year, the audit department of a commercial bank shall conduct auditing specifically for performance evaluation and compensation mechanism of the bank; and shall report the auditing results to the Board of Directors and Supervisory Board and submit to the banking supervisory authority as well.

An external audit agency shall incorporate the design and implementation of bank’s compensation mechanism into its auditing tasks.

Chapter Seven Information Disclosure

Article 114 A commercial bank shall build up its information disclosure management mechanism and shall disclose information according to relevant laws, regulations as well as accounting and regulatory rules.

Article 115 A commercial bank shall follow the principles of authenticity, accuracy, integrity and timeliness in its disclosure of information. Falsity, misguidance and material omission is prohibited. A commercial bank shall use simple, understandable languages when disclosing information.

Article 116 The Board of Directors of a commercial bank shall be responsible for the information disclosure of the bank. The disclosed documents shall include: regular reports, temporary reports and other required documents.

Article 117 Regular disclosed information of a commercial bank shall include: basic information, financial reports, risk management information, corporate governance information and annual important matters etc.

Article 118 The basic information of a commercial bank for disclosure shall include the following contents at least: name, registered capital, registered location, time of set-up, operating scope, member as of right, major shareholders and their share holding amounts, resumes of directors, supervisors and senior managers, serving and accusing hotlines, operating residences of branches, etc.

Article 119 The financial reports of a commercial bank shall be composed of the accounting statements, the statements notes and the descriptions of financial status. A commercial bank shall disclose the auditing reports produced by accounting firms.

Article 120 The risk management information of a commercial bank for disclosing shall include the following contents at least:

(1) Profiles of credit risk, liquidity risk, market risk, operational risk, reputational risk and country risk, etc.

(2) Control of risks, including: the abilities of Board of Directors and senior managers to monitor and control risks, policies and procedures of risk management, IT systems of measuring, monitoring and managing risks, internal control and comprehensive auditing, etc.

(3) Methods of risk assessment and measurement.

As for the adequacy of risk management information disclosure, a commercial bank shall discuss with external auditors.

Article 121 A commercial bank shall indicate the following information about the corporation governance:

(1) Shareholders’ meetings held in the year;

(2) Composition of the Board of Directors and the work they have done;

(3) The work of independent directors;

(4) Composition of the Board of Supervisors and the work they have done;

(5) The work of external supervisors;

(6) Composition of the senior managerial members and their basic information;

(7) The remuneration mechanism of the bank and the compensation of directors, supervisors and senior managers in the year;

(8) Establishment of departments and branches of the bank;

(9) The overall assessment to corporate governance of the bank;

(10) Other information required by the banking supervisory authorities.

Article 122 The annual important matters of the bank disclosed by a commercial bank shall include the following contents at least:

(1) Names of the top 10 shareholders and their changes in position during the period of report;

(2) Increase or decrease of registered capital, consolidation or separation;

(3) Other important information.

Article 123 The information disclosure required in Article 117 shall be included in the annual report of a commercial bank.

Article 124 If any of the following issues occurs, a commercial bank shall, with the exception of an exemption from banking supervisory authorities, compile temporary information disclosure reports within 10 working days of occurrence and publish through open channel:

(1) Change of controlling shareholders or de-facto controllers;

(2) Replacement of Chairman of the Board or President;

(3) Number of change exceeds 1/3 of members in Board of Directors;

(4) Change of name, registered capital or place of registration;

(5) Significant change in operational scope;

(6) Consolidation or separation;

(7) Significant investment and asset disposal;

(8) Significant litigation or arbitration items;

(9) Major penalties for a commercial bank or its branches by administrative authorities;

(10) Appointment, replacement or earlier dismissal of accounting firms;

(11) Other items set by the banking supervisory authority.

Article 125 A commercial bank shall disclose its information through annual report and website, so as to ensure that its shareholders and stakeholders can get the information in a timely and convenient manner.

Article 126 The directors and senior management of a commercial bank shall provide verification in written form for the regular report, while the Supervisory Board shall review the report and comment on whether the compiling and reviewing procedures for the report are compliant with applicable laws, regulations and regulatory requirements, and whether the content of the report can truly, fully and accurately capture the actual situation of the commercial bank.

If directors, supervisors or senior management are skeptical about or even oppose the regular report regarding its genuineity, accuracy and integrity, they shall state reasons and opinions and disclose them.

Article 127 The Supervisory Board of a commercial bank shall supervise the fulfillment of information disclosure by directors and senior management. The Supervisory Board shall focus on the information disclosure of the bank and where non-compliance is discovered, the Supervisory Board shall investigate and provide recommendations for handling the problems and shall report to the banking supervisory authority in a timely manner.

Chapter Eight Supervision and Regulation

Article 128 The banking supervisory authority shall incorporate a commercial bank’s corporate governance into the overall supervisory system for legal entities, and shall provide recommendations to urge the bank to enhance its corporate governance, based on the comprehensive assessment of bank’s corporate governance as mentioned in these Guidelines.

Article 129 The banking supervisory authority shall exercise ongoing supervision on a commercial bank’s corporate governance by off-site surveillance and on-site examination, specifically including risk reminder, on-site inspection, supervisory notice, appointment and meetings, dialogues with internal and external auditors, review of qualifications and talks before appointment as well as cooperation with the government departments and other regulatory authorities.

Article 130 The banking supervisory authority has the right to send its staff to attend important meetings of a commercial bank’s, such as the general meetings of shareholders, meetings of Board of Directors and Supervisory Board and annual meeting for operation and management. A commercial bank shall inform the banking supervisory authority at least three working days prior to these meetings.

A commercial bank shall submit the minutes and resolutions of these meetings (including general meetings of shareholders, meetings of Board of Directors and Supervisory Board) to the banking supervisory authority in a timely manner.

Article 131 The banking supervisory authority shall fully communicate with the Board of Directors, Supervisory Board and senior management of a commercial bank about the outcome of assessment on the bank’s corporate governance, and shall disclose the outcome of assessment at the meetings of Board of Directors and Supervisory Board whenever necessary.

Article 132 Where a commercial bank fails to meet the supervisory requirements on corporate governance, the banking supervisory authority has the right to require rectification plans formulated by the commercial bank and shall take supervisory measures whenever necessary.

Chapter Nine Supplementary Provisions

Article 133 A wholly owned bank shall stipulate in its Articles of Association the rights and responsibilities of the Supervisory Board in reference to the relevant provisions in these Guidelines. The provisions regarding the nomination of directors, independent directors and supervisors by the same shareholder are not applicable to the shareholders of wholly owned banks.

Article 134 A limited liability commercial bank shall stipulate in its Articles of Association the rights and responsibilities of meetings of shareholders and supervisors in reference to the relevant provisions in these Guidelines.

Article 135 The provision with the term “above” is also included in the referred part.

Article 136 Other financial institutions regulated by China Banking Regulatory Commission shall enforce actions in reference to these Guidelines and shall be compliant with the essence and spirit of these Guidelines.

Article 137 These Guidelines shall be subject to the interpretations by China Banking Regulatory Commission.

Article 138 These Guidelines become effective as of the date of promulgation. Meanwhile, guidelines promulgated before these Guidelines including Corporate Governance of Stated-owned Commercial Banks and Relevant Supervisory Guidelines, Guidelines on Corporate Governance of Joint Stock Commercial Banks, Guidelines on the Independent Directors and External Supervisors of Joint Stock Commercial Banks, Guidelines on Due Diligence of Board of Directors in Joint Stock Commercial Banks, Guidelines on Corporate Governance of of Foreign-funded Banks and Guidance on Further Improving Corporate Governance of Small and Medium-Sized Commercial Banks are abolished.

 

Editor: Pliny Han
Source: China Banking Regulatory Commission