China - Four Authorities Jointly Issue Circular To Regulate Financial Marketing Activities.
Legal News & Analysis - Asia Pacific - China - Capital Markets - Regulatory & Compliance
30 January, 2020
On December 20, 2019, the People's Bank of China (PBOC), the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange jointly issued the Circular on Further Regulating Financial Advertising and Promotional Activities (Yinfa  No. 316) ("Circular").
In the Q&A session accompanying the release of the Circular, the PBOC provided an introduction including an explanation of the background and purpose of the Circular. According to the PBOC, they have observed a recent trend in extensive illegal marketing to mislead financial consumers early on, which later contributes to various levels of systemic financial risks and severely degrades the legitimate rights and interests of financial consumers. Accordingly, the purpose of the Circular is to unify the regulatory standards for financial marketing activities and urge market operators to comply with laws and regulations governing financial marketing activities. We have summarized below the key points of the Circular.
I. Scope of Application
The Circular covers all institutions that engage in financial businesses in accordance with laws, including financial institutions in banking, securities and insurance sectors, as well as other institutions that engage in financial or related businesses in accordance with laws ("financial product or service providers"). Given this definition, even though private fund managers are not financial institutions, they shall be covered by the regulations set out in the Circular. If any foreign fund manager or other financial institution is approved to engage in financial activities in China, it shall also be governed by the Circular. Pursuant to the Circular, financial advertising and promotional activities (“financial marketing activities”) refers to activities in which financial product or service providers use various tools or methods to advertise and promote financial products or services. Although the Circular does not specify what constitutes advertising or promotional activities, we understand that the core of financial marketing as defined under the Circular is to “advertise and promote”, and whether a given activity constitutes financial marketing will be determined on a case by case basis, according to the details of the activity.
II. Division of Duties Among Regulators
The Circular requires that the local branches or agencies of the financial regulators, accounting for the locality of the financial product or service providers and based on the problem-oriented principle, shall identify and address indications of illegal and non-compliant financial marketing activities in accordance with relevant laws, and strengthen the cooperation with relevant local governmental authorities to supervise financial marketing within their respective jurisdictions.
For market operators engaging in financial related marketing activities without having obtained the relevant financial business licenses nor being entrusted in accordance with relevant laws, the relevant local branches or agencies of the governing financial regulators shall take supervisory and enforcement actions over such market operators, in accordance with laws and their respective duties after seeking cooperation and conducting communication with various agencies of the local government involved.
III. Qualifications for Financial Marketing
The Circular provides that a market operator may conduct or entrust others to conduct financial marketing activities, provided that it has obtained the required financial business license, and the financial marketing shall not exceed the scope of the business license. However, the Circular also specifies that information platforms or media utilized by financial product or service providers to conduct financial marketing in accordance with laws, shall be exempted from the foregoing provision.
IV. Guidance for Financial Marketing
The Circular enumerates the marketing rules imposed on a financial product or service provider, including the establishment of a sound internal control and management mechanism, as well as a monitoring system for financial marketing and a strengthened supervision of the financial marketing activities carried out by its business partners. The Circular also requires a financial product or service provider to carefully determine the form of cooperation with its business partners in accordance with laws, and clearly stipulate the respective responsibilities assumed by it and the business partners in financial marketing. The financial product or service provider and its business partners shall jointly ensure that relevant financial marketing activities are legal and compliant. A financial product or service provider shall supervise the financial marketing activities conducted by its business partners on their behalf. Unless otherwise provided by laws, regulations or rules, a financial product or service provider shall not transfer, reduce or exempt its liabilities on the ground that the financial marketing activities are conducted by its business partners rather than itself.
In regard to the illegal or non-compliant activities that have prevailed in the market in the past and caused serious concerns, the Circular specifically proposes the following guidance on such activities:
(1) Financial product or service providers shall not advertise or promote financial products or services in a fraudulent or misleading manner or in a manner that undermines fair competition, or use government credibility to advertise or promote financial products or services.
(2) Financial product or service providers shall provide financial consumers with methods to inquire about the relevant information of financial products or services, and are prohibited from conducting advance advertisement or promotion for financial products or services that have not been reviewed by or filed with the financial regulatory departments of the State Council or local financial regulatory authorities, unless otherwise stipulated by relevant laws, regulations or rules.
(3) Financial product or service providers shall not use the Internet for improper financial marketing, or permit their practitioners to edit and post or re-post financial marketing information that has not been reviewed by them.
(4) Financial marketing shall use special indicators, such as words, symbols, fonts or colors that are capable of drawing the attention of financial consumers, to explain matters that restrict the rights of financial consumers or increase their obligations.
(5) Financial product or service providers shall not distribute financial marketing information to financial consumers in violation of relevant laws or regulations. Without the financial consumer’s consent or request, financial product or service providers shall not post financial marketing information to the financial consumer’s’ home or vehicle or send such information in an electronic form. When sending financial marketing information in an electronic form, the true identity and contact information of the sender shall be specified, and the receiver shall be provided with a right to refuse to continue receiving such information.
ZHENG, Yu, Partner, Jun He