CBIRC Issues Action Plan to Enhance Governance at Banks, Insurers

The action plan outlines a series of targeted measures and an implementation timetable to improve corporate governance at banks and insurers.

The CBIRC (China Banking and Insurance Regulatory Commission) has issued a three year action plan requiring banks and insurers to improve their corporate governance standards.

The measures are aimed at preventing and deflating financial risks and deepening financial reforms, the CBIRC said. The regulator is primarily seeking to better regulate shareholder behaviour, improve the transparency of shareholding structures, and promote accountability.

“All directors including equity directors must treat all shareholders fairly, improve the nomination and selection mechanism of directors, and promote the establishment and strict implementation of high standards of professional ethics,” the CBIRC says.

Under a new mechanism, banks and insurers will be required to regularly disclose publicly the names of shareholders involved in illegal actions.

AsianInvestor highlights that the action plan also outlines steps to curb ‘tunnelling’, an illegal business practice where a majority shareholder directs company assets to themselves for personal gain. In recent years, special-purpose vehicles have been used to conduct tunnelling, a malpractice the CBIRC has been trying to eradicate.

According to the CBIRC, the action plan draws on international norms – including the BCBS (Basel Committee on Banking Supervision) corporate governance principles for banks – to address current gaps and deficiencies in China’s banking and insurance industry.

The action plan, available here, outlines a series of targeted improvement measures and sets out an implementation timetable for corporate governance reforms.

This year, the CBIRC will conduct its first comprehensive evaluation of the corporate governance at banks and insurers, and strengthen penalties to promote accountability. The cor­po­rate gov­er­nance as­sess­ments will be integrated with risk dis­posal work at small and medium-sized banks and in­sur­ance com­pa­nies cur­rently un­der­go­ing re­struc­tur­ing, the regulator said.

In 2021, the CBIRC will use its assessment results to drive banks and insurers to draft and implement ‘rectification plans’, with a focus on improving mechanisms for shareholder protection, remuneration, internal auditing and information disclosure. The CBIRC will also focus on improving the operating mechanism of the board of directors, the board of supervisors and the senior management, it said.

Progress at banks and insurers will be assessed in 2022. Concurrently, the CBIRC will look to enhance its corporate governance evaluation system, while also strengthening domestic and international information exchange and cooperation.

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