The draft Financial Law of the People’s Republic of China was submitted on Monday for its second reading at the 25th Session of the Standing Committee of the 14th National People’s Congress. The revised draft expands provisions on the protection of financial consumers and investors and introduces more targeted regulatory requirements for activities such as online marketing of financial products and services.
As a fundamental, comprehensive and overarching piece of legislation governing China’s financial sector, the Financial Law is intended to serve as a cornerstone of the country’s financial legal framework, providing guidance and establishing overarching regulatory principles and standards. The draft underwent its first reading at the 23rd Session of the 14th NPC Standing Committee in June.
With respect to financial consumer and investor protection, the second-reading draft introduces requirements that financial products and services must be offered on fair and reasonable transaction terms.
It prohibits the use of standard-form contractual terms to impose unfair or unreasonable provisions that exclude or restrict the rights of financial consumers or investors, reduce or exempt the obligations of financial service providers, or increase the liabilities of financial consumers or investors.
The draft further requires entities marketing financial products and services to strengthen customer suitability management. Such entities must obtain information about customers in accordance with applicable requirements, accurately explain the terms and features of financial products and services, provide adequate risk disclosures, and ensure that the products and services offered are appropriate to customers’ individual circumstances.
The second-reading draft also introduces specific provisions to strengthen the regulation and oversight of online marketing and other internet-based financial activities.
Under the proposed rules, the provision or marketing of financial products and services via the internet must comply with the Financial Law, relevant laws and administrative regulations, applicable requirements issued by financial regulatory authorities, and specific rules governing the online provision or marketing of such products and services.
In addition, financial products and services offered through private placements may not be advertised, publicly solicited or promoted through means that constitute disguised public solicitation via the internet or other channels.
The second-reading draft also incorporates provisions emphasizing a market-oriented and law-based approach to financial sector development, as well as efforts to advance the development of international financial centers.
Additional provisions address the regulation of asset management business and cross-border financial activities, among other matters.
