Standardising China’s banking and insurance penalties

The China Banking and Insurance Regulatory Commission (CBIRC) issued the Measures for the Implementation of Discretionary Powers in Imposing Administrative Penalties (Draft for Comment) in December 2023. The measures aim to standardise the CBIRC and its delegated agencies’ discretion in administrative penalties, safeguard the order of the market in the banking and insurance industries, and protect the legitimate rights and interests of the parties concerned.

Once implemented, the draft will become the basis for discretionary powers of the CBIRC and its local counterparts in imposing administrative penalties. This is of practical relevance to the interest of financial institutions and deserves full attention.

General provisions

The draft, combining the content of China’s Administrative Punishments Law and other regulations, makes the following provisions in the General Provisions.

First, it provides that penalties should be based on such factors as the fact, nature, circumstances, harmful consequences and the degree of subjective fault of the offender’s illegal act, to realise equivalent penalties.

Second, it affirms the principle of legitimacy of procedures and, in the event of complicated circumstances or major violations of the law, the people in charge of supervision should collectively discuss and decide on the administrative penalty.

Third, it applies the legal framework, regulations and relevant regulatory provisions in place at the time of the action as the basis for penalties, so the judgment remains consistent with the laws in force during the occurrence. However, in cases where the original regulations have been amended or repealed by the time of the administrative penalty decision, and the new regulations are more favourable to the individual, then the new regulations will be applied.

Finally, it clarifies the relationship between ordering corrections and the administrative penalties, so that where the relevant provisions grant an offender a period of time to make corrections, the period should be set as a prerequisite for the imposition of administrative penalties, and the period of time for correction must be clear and reasonable.

In addition, the draft also makes specific provisions on liability for jointly committing an offence, and the statute of limitations for penalties.

Defining discretion

The draft mainly: defines the concepts of mitigated penalties, lighter penalties and heavier penalties; sets out the circumstances under which no penalties, mitigated penalties, lighter penalties and heavier penalties are applicable; and clarifies the factors to be considered in determining liabilities, which are specifically as follows.

If an illegal act is beyond the statute of limitations for penalties, no penalties shall be imposed. If an offender is coerced or enticed by others to commit the offence, a lighter penalty shall be imposed; if an offender is seriously coerced or enticed by others to commit the offence, a mitigated penalty shall be imposed.

If an offender co-operates with the administrative authorities in investigating or dealing with an illegal act with meritorious performance, a lighter penalty shall be imposed; if an offender co-operates with the administrative authorities in investigating or dealing with an illegal act with significant meritorious performance, a mitigated penalty shall be imposed.

With the inspection and the end of inspection by the CBIRC and its local counterparts as two milestones, if a person voluntarily confesses illegal acts that are unknown to the regulatory authorities before the end of the inspection, and takes the initiative to eliminate or mitigate the harmful consequences of the acts, a lighter penalty shall be imposed; if this is done before the inspection, a mitigated penalty shall be imposed.

In the case of a first-time violation of the law with minor harmful consequences and timely correction, the regulatory authority may decide whether to impose a penalty.

The draft outlines 10 situations warranting heavier penalties, serving as a warning to those involved.

To watch

The author believes that the main focus should be on the following. First, strictly abide by the rule of prudent operation. The draft points out that if the parties violate the rules of prudent operation, resulting in or likely to cause cases or significant risks, heavier penalties should be imposed.

Second, focus on the protection of consumer rights and interests. Where serious damage is caused to consumer rights and interests with high social concern and negative impact, the regulatory authority will impose heavier penalties in accordance with the law.

Third, it is important to learn from past experience to prevent recidivism. If, within five years of being penalised or ordered to correct by the regulatory authority, a person violates the same legal basis for the same type of violation, he or she will be deemed to be “recidivist”, and subject to heavier penalties.

Range of fines

In the banking industry, for statutory fine ranges from RMB50,000 to RMB500,000 (USD7,000-70,000), RMB200,000 and RMB350,000 are the cutoffs for lighter, moderate and heavier fines; for statutory fine ranges of RMB100,000 to RMB300,000, RMB150,000 and RMB250,000 are the cutoffs for lighter, moderate and heavier fines; for statutory fine ranges of RMB200,000 to RMB500,000, RMB300,000 and RMB400,000 are the cutoffs for lighter, moderate and heavier fines; and for statutory fine ranges of RMB500,000 to RMB2,000,000, RMB1 million and RMB1.5 million are the cutoffs for lighter, moderate and heavier fines.

In the insurance industry, 40% of the statutory maximum fine and 70% of the statutory maximum fine are used as the cutoffs for lighter, moderate and heavier fines. The draft requires that no administrative penalty of more than two fines shall be imposed on parties for the same offence.

Proceeds from the offence

When calculating proceeds from an offence, the amount that the party has already refunded in accordance with the law shall be deducted from the amount of the proceeds from the offence. Taxes and other lawful and necessary expenditures that can be proved to be directly related, as evidenced by the relevant receipts and ledgers provided by the concerned party, may be deducted.

Conclusion

The draft has been issued, providing that the provincial counterparts of the CBIRC have the right to refine the discretionary powers in imposing administrative penalties in light of the local economic and social development conditions, and to reasonably refine and quantify the order and range of administrative penalties, as well as the applicable circumstances in their jurisdictions. Relevant financial institutions are advised to pay full attention to the movements of the CBIRC and local regulatory authorities, and to adapt to the changes in the provisions as soon as possible.

Guang Zhenming is a senior partner at Joint-Win Partners