Requirements on Qualification of a Foreign Financial Institution intending to Establish a Trust in China

China has opened the door for a foreign financial institution intending to enter into Chinese trust market, provided that a foreign financial institution meets the requirement by PRC laws on qualification of a foreign financial institution.  In details, a foreign financial institution should, as a foreign investor in a trust, must satisfy the following conditions:

(1) the total assets within one year should be more than 1 billion USD;

(2) long-term credit rating is good or above within two years, as assessed by an international credit rating agency which is recognized by China Banking Regulatory Commission;

(3) the financial situations is sound and should be profitable within two consecutive financial years;

(4) in the event that the foreign financial institution is a commercial bank, then the capital adequacy ratio should be more than 8%, and, if the foreign financial institution is a non-bank financial institution, they should satisfy the requirements regarding prudential supervision by the local authority in a place where the foreign financial institution is duly established and operated;

(5)   the internal control system is sound and effective;

(6)  the financial institution should commit that they will not transfer their equity in the to-be-formed trust company within three years(unless otherwise required by China Banking Regulatory Commission) and that they will not use their equity in the to-be-formed trust company to provide pledge or set up another trust. The above-said commitment should be indicated in the articles of association of the trust;

(7)  the place where the foreign financial institutions was duly registered should have sound system of supervision and management on financial institution;

(8)  the financial situation of the country in which the foreign financial institution is located should be sound;

(9) other conditions regarding prudential supervision as required by China Banking Regulatory Commission.

By Adam Li

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