CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm
to specify the requirements for due diligence on the securitisation of financial leases, PPP projects and accounts receivable. The due dili - gence requirements on related parties in CIBM Business Asset Securitisation are provided in the Guidelines for Due Diligence on the Asset- Backed Notes by Non-Financial Enterprises (Trial Implementation 2021) and Guidelines for Due Diligence on Debt Financing Instruments by Non-Financial Enterprises (2023), both released by NAFMII. Regulatory Authorities Authorities such as the NAFR, PBOC and CSRC, may impose a number of administrative penal - ties or regulatory measures on the trustee or plan manager for failure to fulfil the duties of honesty and diligence, including orders to rectify, warning letters and orders to make a public statement. Administrative penalties include fines, suspen - sion of business for rectification or revocation of business licence. Self-regulatory organisations such as AMAC, SSE and SZSE (for exchange market securiti - sations), and NAFMII (for securitisations on the CIBM) also have the power to impose discipli - nary measures on malpractice committed by the trustee or plan manager. 4.9 Banks Securitising Financial Assets Commercial banks, acting as originators, are subject to the same regulatory measures on credit asset securitisations as other financial institutions supervised by the NAFR; however, commercial banks investing in credit asset secu - ritisation are subject to certain specific rules, including the following: • a commercial bank as the originator shall not invest in securitisation products originated
by itself, except for the part retained by itself according to the credit risk retention rule; • the wealth management products offered by a commercial bank shall not directly or indi - rectly invest in the subordinated class of ABS issued by itself; • the wealth management products offered by a commercial bank to non-institutional inves - tors shall not invest in any subordinated class of ABS, or any non-performing asset securiti - sation products; • a single commercial bank’s holding in the ABS from a single issuance as a proportion of the total volume of the issuance, in principle, shall not exceed 40%; and • a commercial bank’s wealth management product shall also abide by certain concentra - tion limits when investing in ABS. Additionally, according to the Measures for the Administration of the Large Exposures of Com - mercial Banks published by the CBIRC in 2018, in principle, a commercial bank’s investment in securitisation shall be treated on a “look- through” basis, according to which a bank shall identify the ultimate obligors of the underlying assets of the securitisation as the bank’s coun - terparty and shall calculate the risk exposure of the ultimate obligors accordingly. Meanwhile, the same measures provide several safe har - bours. For example, for underlying assets whose risk exposure is less than 0.15% of the tier 1 net capital of a commercial bank, if the commer - cial bank can prove that there is no deliberate division of underlying assets, then the invest - ment can be exempted from the look-through approach, in which case the securitisation prod - uct itself shall be identified as a counterparty and non-interbank single client. The Measures have, to some extent, strengthened commercial banks’ preference for securities backed by retail underlying assets.
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