At the end of 2019, the former China Banking and Insurance Regulatory Commission (CBIRC) promulgated the Guiding Opinions of the China Banking and Insurance Regulatory Commission on the Avoidance of Employees of Banking and Insurance Institutions (hereinafter referred to as the "Opinions"), which clearly requires that family members shall not engage in personnel, finance, supervision, internal control, internal audit, risk management, credit approval, investment decision-making, investment transactions, etc.
However, the prospectus of Jiangsu Kunshan Rural Commercial Bank Co., Ltd. (hereinafter referred to as "Kunshan Rural Commercial Bank") shows that the family members of President Gao Qidong and Chief Information Officer Jin Ming all work in the operation management department.
According to the general setup of the banking industry, the operation management department happens to be responsible for accounting and settlement, liquidation management, cash management, counter business management and operational risk management, which belongs to the scope of finance, internal control, internal audit and risk management.
Coincidentally, Chen Hsong Copper Group Co., Ltd. (hereinafter referred to as "Chen Hsong Copper"), the largest shareholder of Kunshan Rural Commercial Bank, has already withdrawn the funds invested over the years through loans before this round of listing applications. Whether the above two things are related is unknown.
It is doubtful whether the recusal of office has been fulfilled
In fact, the recusal of relatives has long existed in the banking system.
The "Interim Measures for the Management of Members of the People's Bank of China" even require that the relatives to be avoided by members holding leading positions in branches at all levels include their spouses and direct blood relations; collateral blood relatives within two generations and their spouse relationships (such as siblings, uncles and sisters-in-law), and close in-law relationships (referring to parents, siblings, children's spouses, and children's spouses' parents). Personnel with the above family relationships must not work in the same unit, nor may they hold positions in subordinate or subordinate organizations that have a direct subordinate, leadership, supervision, or restraint relationship.
Although the requirements for commercial banks are not so strict, according to the Opinions, key personnel of a bank and their relatives are not allowed to hold positions in the same unit that are directly subordinate to members of the same management or have a direct management relationship between superiors and subordinates;
"Same unit" refers to the headquarters of the institution where the key personnel of the banking and insurance institution belong. Institutions and business divisions directly under all levels with independent personnel management authority are regarded as the same unit. In addition, key personnel and relatives must not work at the same time in other positions that affect the effectiveness of the internal control mechanism, such as having direct business constraints or interests between the two parties.
The Opinions also have a clear scope for the scope of key personnel, which are members of management at all levels and heads of internal departments who have decision-making power or important influence on the operation and management and risk control of banking and insurance institutions.
The prospectus discloses the positions of the family members of the executives of Kunshan Rural Commercial Bank:
So, did Kunshan Rural Commercial Bank violate the provisions of the "Opinions" on the recusal of relatives?
The prospectus and Kunshan Rural Commercial Bank did not have a specific introduction to the operation and management department where the relatives of the two executives worked. However, through a report in the "Consumption Daily" published by Kunshan Rural Commercial Bank, most of them can understand the specific responsibilities of the operation management department in Kunshan Rural Commercial Bank.
The report pointed out that formulating operational specifications, refining supervision standards, and clarifying supervision risks are the important responsibilities and contents of the operation and management department of Kunshan Rural Commercial Bank.
Risk management is precisely the scope of work for family members to avoid as specified in the Opinions.
The largest shareholder siphoned off 2/3 of the investment?
Corresponding to the fact that the relatives who have not been shunned from their positions, the largest shareholder, Chen Hsong Copper, has withdrawn funds through loans. Chen Hsong Copper is one of the founding shareholders of Kunshan Rural Commercial Bank, as early as the establishment of the bank, the predecessor of Chen Hsong Copper - Kunshan Chen Hsong Wire and Cable Co., Ltd. invested 20 million yuan as the start-up capital of Kunshan Rural Commercial Bank, and then invested 35.4028 million yuan in 2012 by way of allotment.
Subsequently, in 2017, it increased its capital and shares, with a total subscription amount of 253 million yuan. However, according to the prospectus, Chen Hsong Copper's loan balance in Kunshan Rural Commercial Bank has been maintained at 21,000 yuan all year round.
As of June 30, 2022, the deposit balance was only 19,800 yuan.
This means that Chen Hsong Copper has invested 2/3 of the share capital invested in Kunshan Rural Commercial Bank and transferred it through loans. Although after years of profit dividends and share capital increase of Kunshan Rural Commercial Bank, the net share capital held by Chen Hsong Copper has increased significantly, making this related party transaction in compliance with the relevant regulations of the Hong Kong Financial Authority.
However, through the balance of the loan, it can also be seen that the largest shareholder actually supports Kunshan Rural Commercial Bank. In addition, Chen Hsong Copper has also pledged its 2.16% stake in Kunshan Rural Commercial Bank, and the total equity owned by the company is 8.02%.
At present, it is not known whether the largest shareholder's withdrawal of capital investment is related to the fact that the executives of Kunshan Rural Commercial Bank did not avoid their relatives. However, one thing is for sure, Kunshan Rural Commercial Bank may need to be further regulated in some matters.
Soochow Securities Co., Ltd. (hereinafter referred to as "Soochow Securities"), one of the shareholders of the latter is Zhangjiagang State-owned Capital Investment Group Co., Ltd. (hereinafter referred to as "Zhangjiagang Guotou"), which owns 3.01% of the equity of Soochow Securities. Zhangjiagang SDIC also holds the equity of Jiangsu Credit Re-guarantee Group Co., Ltd., which holds 2.47% of the equity of Kunshan Rural Commercial Bank, which is indirectly related. However, the above relationship was not disclosed in the prospectus.
At the same time, Kunshan Rural Commercial Bank also purchased the 63-month fixed opening bonds (010719) of Soochow Ruiying managed by Soochow Fund, a subsidiary of Soochow Securities, totaling 504 million yuan. Since Zhang Wansu, an independent director of Soochow Fund, also worked at Kunshan Rural Commercial Bank, it should have been disclosed as a related party transaction, but it was not mentioned in the prospectus.
Soochow Securities, as the joint lead underwriter, also publicly issued a statement that it had verified the prospectus to confirm that the content of the prospectus was accurate, true and complete, and that there were no false records, misleading statements or major omissions, and assumed corresponding legal responsibilities.
However, the above-mentioned related relationships and related party transactions have not been recorded in the prospectus, which will inevitably lead to speculation and distrust from the outside world, which may affect the listing prospects of Kunshan Rural Commercial Bank to a certain extent.
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