China issues draft rules to regulate behaviour of major shareholders of banks, insurers

Chinese regulators on Thursday published draft rules to regulate behaviour of major shareholders of banks and insurers, in a bid to improve corporate governance and protect the interest of other stakeholders.

The rules, published by the China Banking and Insurance Regulatory Commission (CBIRC), will restrict major shareholders' activities related to investment, transactions and corporate governance.

China has already taken a series of measures to rein in the power of dominant shareholders in financial institutions, following the collapse of the once-acquisitive insurance giant Anbang Group, and the failure of Baoshang Bank, which was taken over by the government due to insolvency.

Both high-profile scandals involved major shareholders exploiting their dominant positions to misuse funds for reckless investment and transactions, threatening stability of China's financial system.

The draft rules, which formalise piecemeal measures rolled out over past years, define major shareholders as those with the largest stake, or control, in a bank or insurer.

Shareholders with a 15% stake or more in a financial institution are also deemed major, while the threshold for city and rural banks is lower, at 10%.

Restricting their investing behaviour, the rules require that such shareholders must make "prudent" investment in financial institutions, with their own, legally-obtained capital.

Major shareholders must be transparent regarding their ownership structure, and are barred from "cross-shareholding" with banks or insurers, the rules said.

Regarding corporate governance, major shareholders must not misuse their rights to improperly interfere with independent operations of the banks or insurers they invest in, according to the rules.

The rules also restrict murky transactions by major shareholders to prevent them from "obtaining improper benefits", such as improperly taking out loans from banks.

The draft rules are published for public consultation until July 17.