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Administrative Rules
on Trust and Investment Companies
Order No.5 of the People's Bank of China
May 9, 2002
Chapter I General Provisions
Article 1 These rules are formulated according
to the "Trust Law of
the People's Republic of China", the " Law on the People's Bank of
China of the People's Republic of China" and relevant rules of the
State Council, so as to strengthen supervision and administration of
Trust and Investment Companies (TICs), standardize their operations
and promote healthy development of the trust and investment
industry.
Article 2 Trust and Investment Companies (TICs)
hereof refer to
financial institutions that are mainly engaged in trust business and
established in accordance with " Company Law of the People's
Republic of China" and these rules.
Article 3 "Trust" in these rules refers to
following activities: The
client entrusts his or her property to the trustee based on his or
her trust in the trustee and the property is managed and disposed of
by the trustee on his or her own name in a way that is in line with
the client's will and aimed at benefiting the beneficiary or
achieving other particular goals.
"Client" refers to individuals, legal persons or other legal
organizations that have full capacity to perform civil action;
"Beneficiary" refers to individuals, legal persons or other legal
organizations that enjoy the benefits of entrusted property. The
Client and the Beneficiary could be the same person, or otherwise.
The trustee could be the beneficiary but not the only beneficiary of
the same entrustment.
Article 4 "Trust business" in the regulation
refers to the operation
that a TIC accept the entrustment and deal with the entrustment
affairs as the trustee for the purpose of operating and earning
remuneration.
Article 5 "Entrusted property" in these rules refers to property
accepted by a TIC through entrustment commitments. Any property
obtained from the management, utilization, disposal or other
operations of the entrusted property by a TIC shall also be regarded
as entrusted property. Any property whose transaction is prohibited
by laws and regulations shall not be used as entrusted property. Any
property whose transaction is restricted by laws and administrative
regulations can be used as entrusted property after being approved
by relevant authorities.
The entrusted properties are neither a TIC''s own assets nor its
liabilities to the beneficiary. When a TIC ceases operation, the
entrusted property shall not be included in assets to be liquidated.
Article 6 The entrustment will not terminate with the dissolution,
bankruptcy or closure of a TIC, nor with its quitting from the
entrustment, unless it is stipulated otherwise by laws or
entrustment contract.
Article 7 The operations of a TIC shall be organized in accordance
with laws, regulations and entrustment contract, and shall not harm
the interests of the state and the general public or the legitimate
interest of other persons.
Article 8 When managing and disposing of the entrusted property, a
TIC shall be faithful to their duties and fulfill the obligation of
being honest, credible, prudent and efficient.
Article 9 A TIC shall not be allowed to take deposits, issue bonds
or borrow from abroad.
Article 10 The People''s Bank of China is to supervise TICs and
their operations according to laws, administrative regulations and
these rules.
Chapter II Establishment, Alteration and Termination of TICs
Article 11 TICs shall be established in the form of limited
liability companies or share-holding companies.
Article 12 A TIC shall get the approval of the People''s Bank of
China for its establishment and the "license for trust and
investment institution" as well. No entities or individuals can
engage in trust business without approval of the People''s Bank of
China, nor can any commercial institution use "Trust & Investment"
in its name unless particularly permitted by laws and regulations.
Article 13 The establishment and operation of a TIC shall meet the
following criteria:
1) Articles of association that conform to the "Company law of the
People''s Republic of China" and regulations of the People''s Bank
of China.
2) Eligible shareholders according to regulations of the People''s
Bank of China.
3) Registered capital no less than the minimum requirements
stipulated by these rules.
4) Eligible senior managerial personnel and qualified trust business
staff according to regulations of the People''s Bank of China.
5) Complete organizational structure, comprehensive rules of trust
operation and sound risk-control systems.
6) Business premise, security system and other business-related
facilities as required.
7) Other criteria set by the People''s Bank of China.
The People''s Bank of China can review the application for the
establishment of a TIC according to the need of economic development
and the market situation of trust business.
Article 14 The registered capital of a TIC shall be no less than RMB
300 million yuan.
A TIC engaged in foreign exchange business shall have foreign
currency of no less than USD 15 million in its registered capital.
The People''s Bank of China can modify the minimum requirement of
registered capital for the establishment of a TIC according to the
development needs of TIC sector.
Article 15 A TIC shall obtain approval from the People''s Bank of
China in following matters:
1) Change of name.
2) Change of registered capital.
3) Change of location.
4) Change of organizational structure.
5) Adjustment of business scope.
6) Change of senior management.
7) Change of major shareholders or shareholding structure.
Shareholders of a listed TIC with their holdings of tradable shares
less than 10% of total shares are not included.
8) Modification of the Articles of Association.
9) Merger or split-up.
10) Other changes stipulated by the People''s Bank of China.
Article 16 A TIC that applies for dissolution due to the merger,
split-up or other reasons stipulated in its Articles of Association
can dissolute after being approved by the People''s Bank of China,
and then be liquidated by a liquidation task force set up in
accordance with relevant laws.
Article 17 When a TIC cannot pay its maturing debt due to illegal
operations or poor management, and the public interests would be
damaged or the financial system would be endangered unless it is
closed, the People''s Bank of China shall close it according to the
" Regulations on Closure of Financial Institutions".
Article 18 A TIC that can''t pay its maturing debt may apply for
bankruptcy to the People''s Court with the approval of the People''s
Bank of China.
Article 19 The approval procedure of TICs'' establishment,
alteration and termination shall follow the relevant regulations of
the People''s Bank of China.
Chapter III Business Scope
Article 20 A TIC can apply to engage in part or all of the following
businesses both in local and foreign currencies:
1) Entrusted funds management. The Client entrusts funds, which are
his or her legitimate property, to the TIC to be managed, used and
disposed of on agreed terms and objectives.
2) Entrusted management of movables, real estate and other
properties. The Client entrusts his or her property or property
rights, including moveable property, real estate, land, copyright
and intellectual property rights, to the TIC to be managed, used or
disposed of on agreed terms and objectives.
3) Entrusted management of investment funds permitted by relevant
laws and administrative regulations. A TIC can engage in investment
fund business as a sponsor of an investment fund or a fund
management company.
4) Restructuring and acquisition of enterprises'' assets;
intermediary businesses such as project financing, corporate
financial management, financial consulting, etc.
5) Entrusted underwriting of treasury bonds, financial institutions
bonds and corporate bonds with approval of relevant departments of
the State Council.
6) Management, utilization and disposal of entrusted properties.
7) Entrusted custody.
8) Credit certification and investigation; business consulting.
9) Providing guarantee for others backed by its own assets.
10) Other businesses approved by the People''s Bank of China.
Article 21 A TIC can accept entrustments with following public
objectives according to relevant provisions of the" Trust Law of the
People''s Republic of China":
1) Poverty aid.
2) Disaster relief.
3) Assistance to the disabled.
4) Development of education, science, sports, culture and art.
5) Development of medical care and public sanitation.
6) Development of environmental protection, preservation of
ecological environment.
7) Development of other social courses that are in the interest of
the society.
Article 22 A TIC can manage or use the entrusted property by means
of leasing, selling, lending, investing or interbank lending
according to the terms of entrustment contract.
Article 23 A TIC can design its businesses products according to
objectives of the entrustment, types of entrusted property or
different ways of management of entrusted property.
Article 24 A TIC''s own capital in the account of owner''s equity,
which is permitted to be used according to relevant rules, can be
deposited in banks or used in interbank lending, lease financing and
investment. However, its outstanding balance of equity investment
and fixed assets for its own use shall not exceed 80% of its net
assets.
Article 25 After being approved by the People''s Bank of China, a
TIC can engage in interbank borrowing and lending.
Article 26 The business scope of a TIC shall be defined by its
Articles of Association and approved by the People''s Bank of China.
Chapter IV Rules of Business Operation
Article 27 An entrustment shall be created in a written form,
including entrustment contracts, wills or other written documents
required by relevant laws and administrative regulations.
Article 28 When an entrustment is created in the form of an
entrustment contract, the entrustment contract shall contain the
following contents:
1) Objectives of the entrustment.
2) Name and addresses of the client and the trustee.
3) The beneficiary or the coverage of beneficiaries.
4) Scope, type and condition of the entrusted property.
5) Rights and obligations of involved parties of the entrustment.
6) Revealing and undertaking of risks arising from the management of
entrusted property.
7) Management of the entrusted property and the trustee''s
authorized business scope.
8) Calculation of benefits of the entrustment and the way in which
the benefits to be transferred to the beneficiary.
9) Calculation and payment of TIC''s remuneration.
10) Tax payments on the entrusted property and accounting of other
costs.
11) Maturity and termination of the entrustment.
12) Ownership of the entrusted property when the entrustment
terminates.
13) Reporting of entrustment affairs.
14) The responsibilities for defaults of the involved parties and
resolution of disputes.
15) Selection and appointment of new trustee.
16) Other items that both the client and the trustee deem necessary
to be included.
Article 29 A TIC shall follow the principle of maximizing
beneficiary''s benefit when dealing with entrustment affairs, and
manage the entrusted property prudently.
Article 30 A TIC shall not take deposits in the name of entrusted
funds management or other businesses.
Article 31 A TIC shall refrain from following behaviors when doing
trust business:
1) Seek illegitimate gains by taking advantage of its trustee
status.
2) Misuse entrusted property for non-entrusted purposes.
3) Promise no losses of entrusted property or guarantee minimum
returns.
4) Use entrusted property to provide guarantees.
5) Invest the entrusted funds in securities issued by itself or
related persons.
6) Lend the entrusted fund to itself or other related persons.
7) Trade entrusted properties between different trust accounts.
8) Trade between its own assets and the entrusted property.
9) Other behaviors prohibited by laws, administrative regulations
and the People''s Bank of China.
Transactions based on the terms of entrustment contract and
conducted at a fair market price by a TIC are exempted from items
(4)-(8) in the above article.
Article 32 The related persons mentioned above refer to:
1) Shareholders of the TIC holding shares of more than 10% of the
total.
2) Enterprises invested and controlled by the TIC.
3) Directors, supervisors, managers and trust business staff of the
TIC and their relatives.
4) Companies, enterprises and other commercial entities with the
persons mentioned above holding more than 5% of total shares or
holding senior management positions.
Article 33 A TIC shall conduct the entrusted business by itself
unless stipulated otherwise by entrustment contract or justified by
unavoidable incidents. In the case of the latter, the TIC can
entrust others to do the business on its behalf.
Article 34 Confidentiality shall be kept regarding information of
the client, the beneficiary and the situation of entrustment
affairs, unless stipulated otherwise by laws, administrative
regulations or the entrustment contract.
Article 35 A TIC shall separate its own assets from entrusted
properties and manage entrusted properties of different clients
separately in different accounts.
Article 36 A TIC shall maintain complete records of entrustment
affairs, and report to clients and beneficiaries at least every year
situation of the entrusted properties, management, utilization and
disposal of entrusted properties and income and expenses.
Clients and beneficiaries are entitled to inquire about the
management, utilization and disposal of entrusted properties and
income and expenses at any time, and request explanations from TICs.
Article 37 A TIC receives remuneration for its trust business in the
way of commissions and service charges as agreed.
A TIC''s remuneration is determined through negotiation with its
clients, unless stipulated otherwise by the People''s Bank of China.
Article 38 Losses of the entrusted property due to a TIC'' violation
of the entrustment objectives and managerial responsibility or
improper operations shall be compensated or restored to the original
state by the TIC. The TIC cannot ask for any remuneration before the
compensation or the restoration is made.
Article 39 Any cost or debt of a TIC arising from its dealing with
entrustment affairs shall be paid with the entrusted property, while
the client shall be clearly informed with such a provision or the
provision shall be included in the entrustment contract. If a TIC
makes advance payment with its own assets, it can enjoy the
preferential reimbursement with the entrusted property. Any loss or
debt resulted from a TIC''s managerial failure or improper
operations shall be paid by the TIC''s own assets.
Article 40 If a TIC disposes of the entrusted property against
objectives of the entrustment or makes serious mistakes in its
management, utilization and disposal of the entrusted property, the
client shall be entitled to discharge the TIC in accordance to the
entrustment contract or apply to the People''s Court for discharging
the TIC.
Article 41 When a TIC ceases operation, its managerial
responsibility for the entrustment business also ceases. The
liquidation task force shall keep the entrusted property in careful
custody, prepare report on entrustment affairs and transfer the
entrusted property to the new trustee, unless being stipulated
otherwise by the entrustment contract.
Article 42 When a TIC''s responsibility as a trustee is brought to
an end according to laws and regulations, a new TIC shall be
selected according to the terms of entrustment contract; if there is
no such stipulation in the entrustment contract, a replacement shall
be selected by the client; if the client cannot make the choice, it
shall be selected by the beneficiary; if the beneficiary has no
civil capacity or only limited civil capacity, the selection will be
made by its guardian as stated by law.
Article 43 The entrustment terminates under any of the following
circumstances in a TIC''s trust business:
1) Occurrence of specific incidents that call for a termination as
defined in the entrustment contract.
2) Continuation of the entrustment is against objectives of the
entrustment.
3) The objectives of entrustment have been achieved, or are not
possible to achieve.
4) Agreed by all relevant parties of the entrustment.
5) The entrustment matures.
6) The entrustment is withdrew.
7) The entrustment is canceled.
8) All the beneficiaries give up their rights to benefit from the
entrustment.
Article 44 When the entrustment ends, a TIC shall prepare
liquidation reports on their entrustment affairs. If the beneficiary
or the owner of the entrusted property has no objection, the TIC
shall be released from responsibilities for affairs outlined in the
liquidation report, unless the TIC has been found in irregularities.
Article 45 When accepting funds entrusted to them to determine on
behalf of the clients how to manage these funds, a TIC shall be
subject to the following restrictions:
1) Maturity of the entrustment shall be no less than 1 year.
2) Every single entrusted fund shall be no less than RMB 50,000
yuan.
Article 46 The People''s Bank of China can formulate rules on the
management of entrusted funds that are entrusted to a TIC to
determine their management according to the need of financial risks
prevention.
Article 47 When engaged in foreign exchange trust business, a TIC
shall abide by relevant regulations on foreign exchange controls and
be supervised and examined by the foreign exchange control
authorities.
Article 48 The total amount of the guarantees provided by a TIC or
its outstanding borrowing shall not exceed its registered capital.
Article 49 A TIC shall conform to relevant regulations of the
People''s Bank of China when engaging in interbank lending with
entrusted funds or its own funds.
Article 50 A TIC shall retain 5% of its after-tax profit each year
as a provision to compensate losses of the entrusted property, and
it can stop this provisioning when the cumulative balance reaches
20% of its registered capital.
Compensation provision of a TIC shall only be deposited in
domestic commercial banks with sound operation and strong
performance or invested in treasury bonds.
Chapter V Supervision and Self-regulation
Article 51 A TIC shall formulate its own rules on trust business and
other businesses, establish and improve its own managerial system
and internal controls, and report to the People''s Bank of China for
record-keeping.
A TIC shall establish an internal audit department to audit and
supervise its operation. The internal audit department of a TIC
shall submit internal auditing reports to the board of directors at
least every six months, and send copies of the reports to the
People''s Bank of China at the same time.
Article 52 A TIC shall organize its account books in accordance with
laws, conduct separate accounting on trust and non-trust businesses,
and maintain separate accounts for each of its trust businesses. Its
financial and accounting standards shall be brought to be in line
with relevant rules of the Ministry of Finance.
Article 53 A TIC shall establish and improve its own financial and
accounting system according to relevant regulations, honestly keep
records and fully reflect its operation and financial position. Its
annual financial statement shall be audited by certified accountants
who have the required qualifications.
A TIC shall send required information to the People''s Bank of
China and other relevant authorities according to rules and
regulations, including business reports, accounting reports on trust
and non-trust businesses and catalog of trust accounts, etc.
Article 54 The trust business department of a TIC shall operate
independently from other departments. Staff of this department shall
not hold concurrent posts in other departments and specific
information of its business shall not be shared with other
departments.
Article 55 The People''s Bank of China can examine the operation of
a TIC regularly or irregularly. The People''s Bank of China can
order a TIC to invite qualified intermediaries to audit its
operation and financial position when it deems necessary.
A TIC shall provide accounting reports and information of its
operation and financial position according to the requirements of
the People''s Bank of China and honestly indicate situation of
relevant businesses.
Article 56 A qualification review system shall be applied to the
senior management of a TIC by the People''s Bank of China. No senior
manager can take his or her office without his or her qualification
being reviewed by the People''s Bank of China, or if he or she fails
to pass that review.
When a senior manager leaves his or her post, he or she shall be
subject to ex-post auditing and the outcome shall be recorded with
the People''s Bank of China. When a TIC changes its legal
representative, the old representative shall not leave the post
until qualification of the new representative has been certified by
the People''s Bank of China.
Article 57 The People''s Bank of China shall conduct trust business
qualification examination to the trust business personnel of a TIC.
Those who pass the examination will be granted by the People''s Bank
of China certificate of qualified trust business personnel; those
who fail the examination shall not be allowed to engage in trust
business. The particulars of this examination system are to be
specifically formulated by the People''s Bank of China.
Article 58 If any of the senior managers or business staff violates
laws, regulations or relevant rules of the People''s Bank of China,
the People''s Bank of China has the right to revoke his
qualification in trust business.
Article 59 The People''s Bank of China can question the senior
management of a TIC on significant problems discovered in its
supervision of the TIC, and require it to take corrective measures
within a certain period of time.
Article 60 When a TIC''s operation is found in trouble as a result
of chaotic management, the People''s Bank of China can require it to
take measures to consolidate or restructure, and suggest removal of
senior management. The People''s Bank of China can also take it over
if it deems necessary.
Article 61 TICs can jointly set up a trade association to promote
self-regulation.
Any activities of such a trade association are to be guided and
supervised by the People''s Bank of China.
Chapter VII Penalty Provisions
Article 62 Establishing a TIC or engaging in trust business without
the approval of the People''s Bank of China shall be banned and
punished according to the" Rules On Banning Illegal Financial
Institution and Illegal Financial Business".
Article 63 If the People's Bank of China found
any concealment or
misreporting of information in a TIC's application for its
establishment, alteration and termination, it could command the TIC
to make correction or withdraw the approval already granted.
Article 64 The People's Bank of China shall
require a TIC that has
violated Article 30 in handling entrusted funds business to return
all the deposits it has absorbed, and suspend part or all of its
business; senior management accountable for such a violation and
other staff with immediate responsibility shall be disciplined and
their qualifications for senior management or trust business staff
shall also be revoked by the People's Bank of China. When
committing a crime, they shall be subject to criminal prosecution.
Article 65 A TIC that has violated Article 31
shall be punished
according to Article 28 of the "Rules on Punishment of Financial
Irregularities".
Article 66 A TIC that has violated other
articles of these rules
shall be punished according to the "Rules on Punishment of Financial
Irregularities" and relevant rules by the People''s Bank of China.
Article 67 If a TIC does not accept punishments
issued by the
People''s Bank of China, it shall be allowed to request an
administrative review or file an administrative suit with the
People''s Court.
Chapter VIII Supplementary Provisions
Article 68 The People''s Bank of China is
responsible for the
interpretation of these rules.
Article 69 These rules shall enter into force
as of the date of
promulgation, and the " Regulation on Trust and Investment
Companies" published on January 10, 2002 by the People''s Bank of
China is abolished at the same time.
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