China's top legislature yesterday backed a legal amendment that will allow
the country's banking supervisory bodies to investigate non-financial
institutions and individuals connected with financial institutions.
draft amendment to the banking regulation and supervision law was passed
yesterday by the Standing Committee of the 10th National People's
The amendment is designed to further enhance supervision of the
banking sector in the face of rising foreign competition when the sector is
fully opened at the end of this year.
The current banking supervision
law, which came into force in February 2004, clarified the legal status of the
China Banking Regulatory Commission (CBRC). It has played an active role in
regulating supervisory activities, preventing risks in the banking sector and
protecting the legal rights of depositors and banking institutions' clients.
However, it only allows for the monitoring, investigation and
acquisition of information from financial institutions.
According to the
CBRC Chairman Liu Mingkang, it is not possible for banking watchdogs to conduct
effective supervision under the current law.
Increasing numbers of
illegal practices are taking place in the banking sector as a result of further
innovation and the development of e-banking.
There were a total of 461
cases involving sums of more than 1 million yuan (US$126,582) in 2005, with
these worth a total of 7.7 billion yuan (US$974 million).
many illegal practices are committed by bank insiders in collusion with people
outside the industry, which the CBRC has no legal right to
Liu said that the CBRC last year received 76 complaints from
its subsidiaries, saying their investigations involving some 100 cases were
"With the right to investigate non-financial institutions and
individuals, banking supervisory bodies will be better equipped to fulfil their
supervisory duties, and promptly discover illegal practices in the banking
sector, to avoid or minimize losses for banks and their clients," said Zhao
Xijun, a financial professor at Renmin University of China.
China has so
far not established a sound credit system, said Zhao, adding that banking
institutions still need to improve their capabilities in terms of risk control
and corporate governance.
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