The China Banking and Insurance Regulatory Commission (CBIRC) recently issued the Administrative Measures for Related Party Transactions of Banking and Insurance Institutions, which clarifies that banking and insurance institutions shall not convey benefits or supervise arbitrage to shareholders and their related parties through related party transactions.
The promulgation of the "Measures" is not an empty wind, but a realistic footnote. For a long time, some banking and insurance institutions have excessively conveyed benefits to shareholders and related parties regardless of the number and scale of related party transactions. In turn, related parties take advantage of their special status to the detriment of the interests of banking and insurance institutions. There are also some controlling shareholders of financial institutions who habitually use the trick of lowering or raising the transaction price, concealing the relationship between the association and stealing the collective interests into their own pockets or conveying them to the related parties, which has become a major cancer in the financial market. For example, Baoshang Bank's hollowing out by major shareholders is a lesson for the past, which not only infringes on the interests of other shareholders and depositors, but also overdrafts its own credibility, which is really not right. Therefore, it is very necessary to restrain the related party transactions of banking and insurance institutions. Banking and insurance institutions are closely linked to various sectors of the national economy, and if this behavior is not corrected and restrained, it is bound to increase the instability of the financial system.
Excessive related party transactions cannot bring benefits to the financial market, on the contrary, they will bury the risks of financial transactions. On the one hand, the reason is that with the cross-cutting and infiltration of the business of banking and insurance institutions, some related parties take advantage of regulatory blind spots to take chances, use improper means to chase capital and illegally profit. On the other hand, the supervision of related party transactions of banking institutions is based on the "Administrative Measures for Related Party Transactions between Commercial Banks and Insiders and Shareholders" formulated in 2004, which has made it difficult to fully cover the new situations that have emerged in financial activities, resulting in some institutions taking advantage of institutional loopholes and walking on the fringes of different industries to implement illegal related party transactions.
The focus of this supervision is to accurately identify and identify related parties, and the "Measures" propose to adopt a combination of direct identification and substance over formal identification, and the pertinence of this measure is very effective. For example, the direct identification method of key related parties, from the main shareholders to the controlling shareholders and actual controllers, down to the legal persons under their control, focusing on preventing the transmission of benefit risks to shareholders, this practice can not only reasonably define the scope of related parties, but also penetrate and identify related parties at all levels. In this process, following the main line of related parties, we can find the "informant" behind the puppet, and then plug the loopholes of capital borrowing and the invisible holding of major shareholders.
Preventing shareholders and their related parties from improper transactions requires long-term efforts. On the one hand, for institutions, it is necessary to consolidate their own main responsibilities, comply with laws and regulations and relevant regulatory provisions, focus on improving the corporate governance structure and improving internal risk management, and strictly restrict disguised trading behavior. On the other hand, for the regulatory level, more should be used to penetrate the supervision with the power of the technology platform, dynamically track and supervise the flow of funds, and once the violations of the institution and the "director and supervisor" are found, the industry notification is immediately taken, and the diligent performance of the duties is urged through the accountability mechanism. (Author: Wang Baohui)
Source: Economic Daily