China: banking sector adapts to regulatory overhaul
Banks and financial services institutions in China will have to navigate through a drastically different regulatory regime following the country’s recent structural overhaul of its supervision system.
The ‘Year of the Dragon’ will see China’s newly established ‘super’ financial regulator, the National Financial Regulatory Administration (NFRA), flex its muscles. The NFRA was formed in May 2023, replacing the China Banking and Insurance Regulatory Commission (CBIRC). But it wasn’t until November that its responsibilities and structure were fully revealed.
At the central government level, all financial sectors, excluding the securities industry, will be regulated by the NFRA, including the approval and supervision authority of financial holding companies, which has been transferred from the People’s Bank of China (PBOC). The PBOC will now be more focused on monetary policy formulation and macro-prudential supervision. The NFRA has also taken over the role of financial consumer protection from the China Securities Regulatory Commission (CSRC).
‘The new regulatory regime, which is overseen by a single, multi-sector, super regulator, is a familiar one to large global banks and international financial institutions,’ says Liam Flynn, European Regional Forum Liaison Officer of the IBA Banking & Financial Law Committee and co-head of the Financial Regulation team at Irish law firm Mason Hayes & Curran.
The new Chinese regulatory regime, which is overseen by a single, multi-sector, super regulator, is a familiar one to large global banks and international financial institutions
Liam Flynn
European Regional Forum Liaison Officer, IBA Banking & Financial Law Committee
Ireland went through a similar reform in 2003 and 2004, when it established a single multi-sector financial regulator. ‘The idea is to have a single regulator with the oversight of authorisation, prudential, conduct, corporate governance and other regulatory issues across different sectors, so there can be greater consistency and sophistication in the national financial regulator’s approaches and standards,’ explains Flynn, adding that the expectations for companies across these various sectors will also be similar.
For example, previously, the Chinese financial institutions involved in asset and wealth management, such as trust companies, insurance companies, banks and financial holding companies, were supervised by separate regulators. Under the new regime, they will be supervised by the NFRA’s asset and wealth management institution supervision department. ‘The reform enables the new regulator to […] better prevent business from profiting from possible regulatory arbitrage by institutions previously under different regulatory authorities,’ says Dorothy Xing, a banking and finance partner at Beijing-based law firm East & Concord.
Since its establishment, the NFRA has already published numerous sector-specific measures to strengthen the supervision of financial companies. These include interim measures for the supervisory rating of trust companies and rules on the risk management of banking and insurance institutions. ‘A common theme […] is the regulator’s increased focus and greater expectations on financial institutions’ corporate governance, risk control, operating rules and internal management. This is in line with other key legislative developments, such as the amendments to the Company Law,’ says Xing.
The past few years have seen more stringent enforcement from financial regulators in China. In 2023, the total value of fines issued for non-compliance and rule breaches by banks exceeded RMB2.8bn (£308.6m), according to Chinese media. Most enforcement actions relate to lending, corporate governance and internal control violations.
The financial regulatory reform will lead to higher requirements regarding compliance and risk control for domestic companies, as well as tougher enforcement actions being taken by the new regulator, says David Liu, Co-Chair of the IBA China Working Group and a partner at JunHe, based in Shanghai.
According to Liu, financial services compliance is already a rapidly growing area for Chinese law firms, and the rising level of fines resulting from non-compliance and rule violations – as well as the increasing number of new rules and measures issued by the NFRA – will drive up financial companies’ efforts on compliance, as well as their budget.
The central government has also announced policies to encourage banks to support the so-called ‘real economy’ and to lend to qualified property developers to ease the crisis in the property sector. Several other industries and initiatives have also been prioritised by the government for bank lending, such as green and low-carbon. ‘The policy mandates spurring banks to provide credit to stimulate the economy and support emerging but strategically important industries will require commercial banks to have more expertise in different areas and sectors when making lending decisions, as it is more difficult for them to identify eligible borrowers in these industries and effectively control risks,’ says Liu.
For example, when lending to startups in the field of new technologies, banks may need to rely on external expertise, such as lawyers who possess the relevant experience and who understand sectorial risks and intellectual property, in addition to traditional banking and finance lawyers. ‘To achieve the dual purposes of building a stable financial system and promoting lending to support the economy requires the new financial regulator to find an appropriate balance in its supervisory approach. If it regulates with a heavy hand, it may restrain banks’ development and lending activities, but a lax approach will lead to market disorder and financial risks. The balancing act will also largely depend on a large number of follow-on regulations and administrative measures that will show how these policies are being implemented in practice,’ says Liu.
Lawyers and their financial sector clients must embrace the new way of working, while the regulatory structural changes may affect the practice of law in certain areas. Given that different authorities have divergent review standards and processes, as well as varying approaches to the same issue, ‘lawyers should tailor legal documentation and the style of interaction accordingly,’ says Yuan Ting, a partner at Zhong Lun in Beijing.
The unified regulation of the domestic bond market is also an important part of the reforms. Previously, enterprise bonds, which were mostly issued by local government, were supervised by the National Development and Reform Commission, but in October 2023 they were placed under the CSRC’s supervision. ‘The recent consolidation of the regulatory responsibilities for enterprise bonds and corporate bonds will leads to necessary adjustments in relevant legal work,’ says Yuan.
Meanwhile, there are opportunities for foreign companies. The NFRA’s international department has recently published a document, confirming the regulator’s commitment to ‘promote high-level opening-up of the banking and insurance industries’. It has also relaxed the approval conditions for foreign institutions, including for the granting of insurance broker licences to foreign investors. At the local government level, there are also new measures and substantial incentives to encourage the establishment of foreign-invested financial institutions.
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All eyes on Mexico for IBA Annual Conference 2024
Registration is now open for the IBA’s Annual Conference, the flagship event in the Association’s calendar.
The event takes place from 15–20 September at the Centro Citibanamex in Mexico City and will bring together thousands of legal professionals hailing from almost all jurisdictions worldwide, looking to network and learn from each other. The event offers significant opportunities for lawyers to win more work and referrals, and to build invaluable international connections with leading practitioners worldwide and enhance both their personal profile and their law firm’s reputation, visibility and brand in the international legal world.
At the Annual Conference, the IBA’s Legal Practice Division and Section of Public and Professional Interest Division’s various committees present informative and engaging sessions covering current topics of significance to lawyers around the world.
Attendees can gain up-to-date knowledge of the major developments in their area of law and hear from leading international figures, government officials, general counsel and experts from all practice areas and continents. Last year’s Annual Conference saw International Criminal Court Prosecutor Karim Khan, Prime Minister of Denmark (2011–2015) Helle Thorning-Schmidt and former President of Poland Lech Wałęsa among the special guest speakers.
In addition, there will be an extensive social function programme featuring lunches, dinners, drinks receptions and more.
The IBA is once again offering a scholarship programme including waived registration fees for selected young lawyers who might otherwise face financial difficulty in attending, and will be presenting various awards for outstanding lawyers during the conference week. Mexico City is home to nearly nine million people and has 700 years of history from pre-Hispanic remains through to the modern city around Reforma, a key business district. It will provide an excellent location for this year’s event.
Find out more and register for the Annual Conference 2024 here.
See also:
- Global Insight reports on Mexico’s re-emergence as a key destination for companies and the lawyers advising them
- Annual Conference scholarship programme
Arbitration Committee updates guidance on assessing conflicts of interest
In February 2024, following a thorough review process, the IBA Arbitration Committee updated its Guidelines on Conflicts of Interest in International Arbitration (the ‘Guidelines’), first published in 2004 and updated previously in 2014.
A survey carried out by the Arbitration Guidelines and Rules Subcommittee in 2022 confirmed that the Guidelines remained a useful and effective tool and that a complete overhaul was not warranted. The survey responses did, however, suggest areas where the Guidelines might need to be modernised or fine-tuned, including arbitrator disclosures, third-party funding, expert witnesses and social media.
An updated draft version of the Guidelines was submitted for public consultation, including to hundreds of arbitration institutions worldwide. The comments were gathered and analysed and, particularly when consensus was ascertained among the comments, taken into account when adopting the final version.
The Guidelines represent the most comprehensive work to date defining the framework by which the impartiality of arbitration in the international arena can be most effectively assured. The publication sets out a series of seven general standards of independence and disclosure to govern the selection, appointment and continuing role of an arbitrator. The innovative traffic-light system of red, orange and green lists has become a worldwide norm in many respects. Practitioners apply the Guidelines as a default; most arbitration institutions and even courts also refer to them as an essential set of principles in the field.
View the Guidelines.
IBA launches Climate Registry to showcase proactive responses
The IBA Legal Policy & Research Unit has launched the IBA Climate Registry, a peer-to-peer platform facilitating local bar associations to showcase their proactive responses to the climate crisis. The IBA Climate Registry is designed for the benefit of bar associations and law societies to share information and inspire initiatives in sustainability, the environment and the climate crisis. Bar associations and law societies are encouraged to upload documents and statements relating to their approaches to sustainability and the climate crisis via the submissions form.
The IBA Climate Registry has already received submissions from the American Bar Association, Brazilian Bar Association, the Council of Bars and Law Societies of Europe, the Japanese Federation of Bar Associations and the Law Council of Australia, among others. A webinar was held for its official launch on 14 March.
Visit the IBA Climate Registry here.
IBA President initiates Ten Directives to Break the Glass Ceiling
IBA President, Almudena Arpón de Mendívil Aldama, marked International Women’s Day by introducing her Ten Directives to Break the Glass Ceiling. This index of recommendations aims to help young associates achieve senior roles within their organisations.
President Arpón de Mendívil commented: ‘Women lawyers from all over the planet have been able to reach senior positions, they are path markers who should guide the next generation to achieve success. This is the reason I have launched my Ten Directives to Break the Glass Ceiling. I am grateful to my co-authors, Maria-Pia Hope and Siân Keall, for their great input. Together, we decided to keep the suggestions as simple as possible to facilitate adoption.’
The Directives were launched at a virtual event on 8 March that was attended by more than 80 women lawyers from 30 different jurisdictions across the world. During the event, Arpón de Mendívil and co-authors Maria-Pia Hope, Managing Partner at Vinge, and Siân Keall, Partner at Travers Smith, discussed the conception of the idea and the categorisation of the Directives into actions to be taken that depend on the individual and environments to be created by the workplace to facilitate the advancement of women lawyers into senior roles.
Picture from IBA International Women's Day event.
Arpón de Mendívil added: ‘We are guided by common principles regarding the importance of the Law and of our role as lawyers. This is so powerful. This joint strength, combined with capacity, commitment, ambition, and merits should get talented women lawyers to the places where decisions are made. Together, we should accelerate change, convincing others, males, and females, to join us in that direction. We must recall that lawyers have a special responsibility in this field given that gender equality is a matter of Law.’
Read the Ten Directives here.
Watch the event recording here.
IBA Professional Wellbeing Commission launches guidelines for legal education
The IBA’s Professional Wellbeing Commission launched its International Guidelines for Wellbeing in Legal Education (the ‘Guidelines’) in mid-March. A comprehensive resource designed to promote wellbeing in the lawyers of the future, the Guidelines represent the IBA’s commitment to improving the wellbeing of legal professionals globally and to promoting the issue as a core priority for those studying or teaching law and working within the profession. The Guidelines follow the Wellbeing Commission’s ground-breaking survey and report of 2021, which involved the work of the IBA Legal Policy & Research Unit.
The competitive nature of the profession, the high-pressure environment and the academic demands of the legal field have been linked by research to higher-than-average levels of stress, anxiety and depression among students, faculty and staff in legal education.
The Guidelines are thus made up of ten recommendations, encouraging law schools to, among other things, acknowledge the importance of and actively promote wellbeing in legal education; abandon a view that wellbeing issues should be seen as signs of weakness; and commit to addressing systemic problems, such as excessive competitiveness.
Emma Jones, IBA Professional Wellbeing Commissioner and co-author of the Guidelines, said: ‘The IBA’s 2021 report refers to a crisis in wellbeing within the legal profession. These new Guidelines place legal education at the heart of our response.’
Read the Guidelines here.
IBA wins at the Women and Diversity in Law Awards
The International Bar Association has been recognised for its work in tackling gender disparity at the 2024 Women and Diversity in Law Awards. The Legal Policy & Research Unit was awarded ‘Gender Equality Initiative of the Year’ for the 50:50 by 2030 project: A longitudinal study into gender disparity in law (‘the Gender Project’). The award ‘sets out to recognise an initiative that has successfully promoted diversity, equity and inclusion [DE&I] related to gender equality’. The Gender Project aims to uncover the root causes of gender disparity in the legal profession and examine the impact of equality initiatives, to produce a blueprint for gender equality at all levels. Its latest report covers gender equality in the legal profession in Chile.
The IBA was also ‘Highly Commended’ for ‘Not for Profit Organisation of the Year’. This award seeks to recognise a not-for-profit organisation which ‘has advanced the cause of DE&I within the legal sector’. The ceremony was held on 13 March.
The LPRU’s Beatriz Martinez and Anurag Bana accept their award.
Technology: legislators fight disinformation as major elections approach
As numerous democracies around the world prepare to vote in elections in 2024, legislators in some jurisdictions are putting in place measures to tackle electoral disinformation, while courts and regulators are also taking action.
The challenge of disinformation is significant given that falsehoods can spread quickly online. The problem has become more acute as technology has advanced and disinformation has become increasingly sophisticated. Certain content posted on social media, for example, is often not clearly false, but instead represents a distortion of the circumstances. ‘It deliberately plays with possible interpretations and the perception of polarising topics’, says Marc Hilber, Member of the IBA Technology Law Committee Advisory Board and a partner at Oppenhoff, Cologne.
Such content presents significant risks to electoral processes, undermining voters’ abilities to make informed decisions. This leads to political disengagement, particularly where individuals feel they’re unable to discern the truth. At a societal level, disinformation can erode public trust in institutions and the media, fostering scepticism about the credibility of democratic governance.
The EU’s Digital Services Act (DSA) aims to prevent illegal and harmful activities online, including the spread of disinformation. It came into effect in August for very large online platforms and online search engine providers of a similar size, and has applied to all intermediary service providers since mid-February – in time for the EU Parliament elections in early June. Included in the legislation is the requirement that online platforms and search engines with more than 45 million monthly average users and which have been designated by the European Commission must take measures against disinformation and election manipulation.
The DSA subjects those online service providers that are categorised as ‘very large’ to its most stringent obligations, requiring them to create mechanisms for users to report content they deem to be dubious or unlawful. When such content has been brought to the service provider’s attention by national regulatory authorities or courts, they’re required to remove it quickly and efficiently. Of particular note is that the DSA also requires designated platforms to analyse the systemic risks posed by their operations, particularly on civic discourse, the electoral process and public security, while ensuring that freedom of expression is protected.
There’s a need for international cooperation between companies, as was recently the case at the Munich Security Conference
Marc Hilber
Member, IBA Technology Law Committee Advisory Board
Although the DSA doesn’t impose requirements on service providers to actively monitor content, it includes a type of provision – more typically found in US legislation – known as a ‘Good Samaritan’ clause. Through this, it offers an incentive to online intermediary services to carry out proactive monitoring activities, such as voluntary investigations, into illegal content by providing limitations to a service provider’s liability when it does so.
The European Commission has said that, since last August, the approach towards electoral integrity by those platforms that have been within the DSA’s remit has changed. The Commission highlights that providers are responding more quickly to content being flagged by local authorities and trusted partners, and clearer escalation processes for tackling disinformation and misinformation are now in place.
Martin Husovec, an associate professor of law at The London School of Economics and Political Science Law School, believes the DSA is sufficiently future-proofed to deal with election interference. He says that the key element, however, is that national law must also define when election interference takes place and create institutions that can assist platforms with understanding the local threats and context. ‘The DSA offers robust procedural tools once such acts are illegal, and fewer tools when such election interference is not illegal,’ he says. ‘The key obligation consists of timely and consistent removal of notified illegal content or conduct, which includes addressing inauthentic behaviour and similar coordinated attempts to influence elections.’
Political deepfakes – synthetic media digitally manipulated to replace an individual’s likeness convincingly with that of another, and which might therefore be used to spread electoral disinformation – and the malicious use of artificial intelligence (AI) appear to pose the greatest risk to elections at the current time. ‘It is becoming harder and harder to spot deepfakes, making it more difficult to distinguish what’s real and what’s not,’ says Robyn Mohr, a partner at Loeb & Loeb, in Washington, DC.
Deepfakes in particular have emerged as a major concern in the lead-up to the 2024 elections. In February, the US Federal Communications Commission (FCC) banned robocalls that use AI-generated voices. This was in response to a spate of deepfake robocalls impersonating President Joe Biden, which were being used to discourage people from voting in state presidential primaries.
Mohr commends the FCC for taking action so quickly. ‘My hope is that the FCC’s rule change serves as a signal that these types of behaviors have real consequences’, she says. ‘But, while a rule change is about as much as the FCC can do, I’m not sure it’s enough. Laws and rules are helpful, but industry also has a role to play here to help ensure their technologies are not being used in antidemocratic ways.’
Elsewhere the courts are becoming involved. For example, the Berlin Regional Court recently issued a temporary injunction prohibiting the publication of a deepfake video in which an audio track featuring an AI-generated voice was overlaid onto a speech by German Chancellor Olaf Scholz; this voiceover appears to announce that the German political party Alternative für Deutschland has been banned.
Sonia Cissé, a partner at Linklaters in Paris, highlights the relative ease and low cost of producing deepfakes. Their use in depicting politicians can lead to tarnished reputations and skewed public perception, she says, adding that ‘the proliferation of deepfakes could undermine the credibility of audiovisual media as a trusted source of information.’
An open letter, published on 21 February and signed by AI and tech industry experts, calls for further regulation of the creation of deepfakes given the potential risks to society, including elections. The statement recommends establishing criminal penalties for anyone who knowingly creates or facilitates the spread of harmful deepfakes, as well as legislating to require software developers and distributors to prevent their audiovisual products from creating them.
Tobias Kollakowski, a junior partner at Oppenhoff, says that laws and their enforcement can’t alone combat the spread of disinformation to manipulate elections, given that ‘technological change is faster than a generally lengthy legislative process.’ Additionally, Hilber adds, there must be international cooperation at government level, while there’s also a ‘need for international cooperation between companies, as was recently the case at the Munich Security Conference, where leading technology companies pledged to cooperate in recognising and combatting harmful AI content.’
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