CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm
The rules vary depending on the rated prod - uct and market concerned. RAs that meet the relevant requirements to provide credit rating services in the CIBM shall apply to NAFMII for registration of the type of bond rating services to be carried out. In addition, the Chinese regula - tors have started to permit foreign RAs to pro - vide rating services via their local branches or subsidiaries. Regulators and Penalties for Non-Compliance Regulators of RAs include the credit rating industry regulating authority and the credit rating business administration authorities, such as the PBOC, which is responsible for the supervision of credit rating business across the country and has the authority to formulate the market entry principles and fundamental rules; and the CSRC, which regulates the credit rating business in its corresponding jurisdiction. RAs are also subject to the disciplines of SROs in the correspond - ing markets. If RAs are found to be violating any law, regulation or rule, then the regulators may impose administrative sanctions such as fines, suspension of business, revocation of business approval, or impose regulatory measures such as issuing a directive to correct, a warning let - ter, a directive to make public explanation, or a directive to make regular reports. 4.6 Treatment of Securitisation in Financial Entities Applicable Capital and Liquidity Rules On 1 November 2023, NAFR published the renewed Measures for Administration of Capital of Commercial Banks, which came into force on 1 January 2024. As long as a financial institution incurs securitisation risk exposure because of its business of asset securitisation, the institution shall set aside corresponding capital reserves according to the risk-weighted asset calculation rules.
In terms of liquidity risk regulatory indicators, engaging in securitisation or investing in ABS will affect a commercial bank’s liquidity cover - age ratio or high-quality liquid asset adequacy ratio, net stable funding ratio and liquidity gap ratio. Different from Basel III, the Measures for Administration of Liquidity Risk of Commercial Banks do not include RMBS as high-quality liq - uid assets (HQLA). According to the Administrative Measures for Risk Control Indicators of Securities Compa - nies (2020 Revision) and the Provisions on the Calculation Standard for Risk Control Indicators of Securities Companies (2020), securities com - panies shall calculate the risk control indicators – such as net capital, risk coverage ratio, capital leverage ratio, liquidity coverage ratio, and net stable funding ratio – in line with the principle of prudence. Securities companies shall set aside capital reserves for ABS held according to the measurement standard provided by the CSRC. One important regulatory indicator for insurance companies is the solvency ratio. According to the Administrative Provisions on the Solvency of Insurance Companies (2021 Revised), the com - prehensive solvency ratio of an insurance com - pany (ie, the ratio of the actual capital to the min - imum capital) shall not be lower than 100%. The actual capital of an insurance company refers to the difference between the recognised assets and the recognised liabilities. In calculating rec - ognised assets, different recognised values will be assigned to the securitisation in which an insurance company has invested, depending on the external ratings of the products. Regulation of Capital for Securitisation In respect of traditional securitisation transac - tions, the originator may deduct the securitised assets from the calculation of RWA only if:
48
CHAMBERS.COM
Powered by FlippingBook