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Bank watchdog gets new teeth
( 2003-12-29 09:35) (China Daily)

A new banking supervision law was passed by China's top legislature on Saturday, clarifying the legal status of the nation's new banking watchdog -- the China Banking Regulatory Commission.

The draft amendments to the Law on the People's Bank of China and the Law on Commercial Banks were also passed at the sixth session of the 10th National People's Congress Standing Committee, which ended Saturday.

The new law spells out the principles of banking supervision in China and establishes the legal status and responsibilities of the commission, which was set up in April to take over bank regulatory functions. It replaces the central People's Bank of China, which previously had the job.

The new law will "help bring China's banking supervision closer to international best practices, realize a shift from compliance supervision to risk supervision,''improving effectiveness of banks and government overseers, a commission spokesperson said.

The commission, which oversees banks, other depository financial institutions, as well as trust companies, has taken a string of measures to enhance bank supervision and press ahead with bank reforms. They include accelerating implementation of an internationally-accepted classification of loans and inspections into bank assets.

The commission said the new law is based upon relevant commercial bank law and the central bank laws, but its drafters have heavily referred to international best practices, especially the Basel Core Principles for Effective Banking Supervision. They say it will help ensure the effectiveness of banking supervision in China.

The new law also adopts mechanisms to regulate and monitor the banking commission's behaviour, including transparency requirements, external supervision by auditing and procurarate agencies, as well as accountability systems, the spokesperson said.

The other two major banking laws were amended to bring them into line with the new law.

The amendment to the Law on the People's Bank of China highlights the central bank's performance in monetary policy management.

According to the amendment, the central bank will organize steps to crack down on money laundering across the country, and co-ordinate relevant government departments in that regard -- tasks formerly undertaken by the Ministry of Public Security.

The amendment to the Law on Commercial Banks has left room for the possibility of banks dabbling in non-banking financial businesses.

Commercial banks are forbidden to engage in trust and securities businesses, or invest in non-banking financial institutions or enterprises in violation of government regulations, the amendment said.

Before being changed,the law had absolutely banned commercial banks from engaging in non-banking businesses such as securities, insurance and trust services.

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