Securitisation 2025

CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm

Conditions for Asset-Backed Securities, which stipulate detailed disclosure requirements in the application documents. In March 2024, the SZSE issued three guidelines on the duration supervi - sion of asset-backed securities, while the SSE simultaneously issued Application Guideline No 5 on the Ongoing Disclosure of Asset-backed Securities, which provide particular guidance on the duration disclosure of ABS products listed on Chinese stock exchanges. 4.2 General Disclosure Laws or Regulations As the Securities Law amended in 2019 clearly extends to ABS, some stipulations under Chap - ter 5 of the Securities Law “Information Disclo - sure” also apply to securitisation. Article 85 of the Securities Law lays foundation for misrepre - sentation liabilities of issuers and related parties thereof, underwriters, and intermediaries. 4.3 Credit Risk Retention Laws and Regulations on Credit Risk Retention For credit asset securitisation, the Announce - ment of PBOC and CBRC [2013] No 21 requires an originator to retain no less than 5% of the total issuance amount of the securitisation, and in the meantime no less than 5% of the lowest class of securities. The originator may choose either horizontal retention or vertical retention, as long as it meets the minimum requirements. As far as exchange market securitisation is con - cerned, the SSE and SZSE have respectively issued a series of Guidelines on the Application of the Recognition Rules for the Listing Condi - tions for Asset-Backed Securities, which clearly stipulate the requirements on risk retention. However, the applicable rules may vary based on the types of underlying assets. The risk reten - tion ratio is normally 5% by the originator or its

affiliates where the underlying assets are credi - tor’s claims or future operation income. But if the originator is in good credit condition and the ABSP has credit enhancement mechanisms such as guaranty or shortfall supplements, the risk retention requirements can be exempted. With respect to CIBM business asset securitisa - tion, in the Rules on CIBM Business Asset Secu - ritisation published in 2023, NAFMII has added risk retention requirements for originators. The proportions of risk retention are basically con - sistent with those of credit asset securitisation, but exemptions are given to securitisations where the originator or debtor is in good credit condition and the SPV has credit enhancement mechanisms such as guaranty, shortfall supple - The risk retention rules for credit asset securitisa - tion are formulated by the PBOC and the NAFR, and the NAFR authorises the China Credit Assets Registry & Exchange Centre to perform part of its supervisory responsibilities on securitisa - tion. The risk retention rules for CIBM business asset securitisation are formulated by NAFMII and authorised by the PBOC. The risk retention rules for exchange market securitisations are formulated by the SSE and SZSE, authorised by the CSRC. The supervisory authorities will review the risk retention arrangements in the documentation, non-compliant applications will not be able to obtain the pre-issuance approval/ registration or confirmation of listing. Penalties for Non-Compliance Currently, there are no explicit rules relating to penalties for violations of the risk retention requirements, but the relevant regulatory author - ities can take regulatory measures such as issu - ments, or debt accessions. Regulation and Enforcement

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