Trial measures issued to regulate major shareholders

China issued trial measures for regulation of major shareholders of banking and insurance institutions on Thursday to prevent them from intervening in the business of these institutions through rule violations.

In recent years, a small number of major shareholders of banking and insurance institutions abused shareholder rights, intervened in the business of these institutions improperly, broke rules to seek control of the institutions, transferred benefits and assets through related-party transactions and severely damaged the legitimate rights and interests of minority shareholders and financial service consumers, an official of the China Banking and Insurance Regulatory Commission said.

As a result, the country's top banking and insurance regulator launched trial measures to further strengthen regulation of major shareholders' behaviors, forcing them to exercise rights properly and fulfill their obligations in accordance with the law so China's banking and insurance institutions will maintain steady operation, the official said.

According to the measures, major shareholders of banking and insurance institutions, including those holding at least a 15 percent stake in a large State-controlled commercial bank, a national joint-stock commercial bank, a foreign bank, a privately-owned bank, an insurer, an asset management company, a financial leasing company, a consumer finance company or an auto finance company, those holding at least a 10 percent stake in a city or rural commercial bank, those holding the largest equity stake in a banking or insurance institution with an ownership of no less than 5 percent, those who nominated more than two directors of the board, and those who are considered by the board of directors of a banking or insurance institution as having a controlling impact on the institution.

For a major shareholder who pledged more than 50 percent of equities it held in a banking or insurance institution for financing, the shareholder and the directors they nominated are not allowed to exercise voting rights at the shareholders' meetings and meetings of the board of directors, according to the measures.

The CBIRC emphasized major shareholders should use their own capital to buy shares of banking and insurance institutions. It stressed ownership authenticity and transparency, and further regulated behaviors like cross-ownership and equity pledge.

The regulator clarified behavioral norms for major shareholders to participate in corporate governance of banking and financial institutions, forbidding improper intervention in business and clarified the patterns of improper related-party transactions.

Moreover, it further clarified the duties and responsibilities of major shareholders in several areas, such as implementing regulations, helping with risk disposal, reporting of business information and replenishing capital.

The regulator encouraged banking and insurance institutions to make lists of major shareholder rights and obligations, as well as negative behaviors, apart from requiring them to assess the performance of major shareholders annually. Institutions should also seek compensation for losses caused by the abuse of shareholder rights by major shareholders in accordance with the law, it said.