Article 12 The banking regulatory authority under the State Council shall make public its supervisory process and procedures, and put in place a supervisory accountability system and an internal compliance monitoring mechanism.

Article 13 Local governments and relevant government departments at various levels shall cooperate with and provide assistance for the banking regulatory authority to exercise its supervisory activities, such as resolving risks of banking institutions, and investigating and taking enforcement actions against activities that violate laws and regulations.

Article 14 The banking regulatory authority under the State Council shall be subject to the oversight by relevant government agencies such as the audit institution and supervisory institution under the State Council.

Chapter III Regulatory and Supervisory Responsibilities

Article 15 The banking regulatory authority under the State Council shall, in accordance with applicable laws and administrative regulations, formulate and promulgate supervisory rules and regulations for banking institutions.

Article 16 The banking regulatory authority under the State Council shall, in accordance with the criteria and procedures provided in applicable laws and administrative regulations, authorize the establishment, changes, termination and business scope of banking institutions.

Article 17 The banking regulatory authority under the State Council shall review and assess the source of capital, financial strength, ability to replenish capital and integrity of the shareholders while reviewing the applications for the establishment of a banking institution or changes in the shareholders that hold a certain percentage or more of the total capital or total shares as stipulated in applicable laws and regulations.

Article 18 Products and services offered by a banking institution within its business scope authorized by the banking regulatory authority under the State Council shall, in accordance with applicable regulations, be subject to prior approval of the banking regulatory authority under the State Council or the report for filing requirement. The banking regulatory authority under the State Council shall, in accordance with applicable laws and administrative regulations, formulate and make public the products and services that are subject to prior approval or report for filing requirement.

Article 19 Without the authorization of the banking regulatory authority under the State Council, no institution or individual may establish a banking institution or engage in banking business.

Article 20 The banking regulatory authority under the State Council shall conduct fit and proper test for directors and senior managers of banking institutions. For this purpose, the banking regulatory authority under the State Council shall formulate specific rules and procedures on the fit and proper test.

Article 21 Prudential rules and regulations applied to banking institutions may be stipulated in laws or administrative regulations, or formulated by the banking regulatory authority under the State Council in accordance with applicable laws and administrative regulations.

“Prudential rules and regulations” referred to in the preceding paragraph shall cover, among others, risk management, internal controls, capital adequacy rates, asset quality, loan loss reserves, risk concentrations, connected transactions and liquidity management.

The banking institutions shall strictly observe these prudential rules and regulations.

Article 22 The banking regulatory authority under the State Council shall, within a prescribed period of time, make a decision of approval or rejection in writing in response to the following applications. If a decision of rejection is made, it shall specify the reasons for rejection:

(1) In the case of establishment of a banking institution, within six months from the date of receiving the application documents;

(2) In the case of changes or termination of a banking institution or offering new products or services within the business scope authorized by the banking regulatory authority under the State Council, within three months from the date of receiving the application documents; and

(3) In the case of fit and proper test for directors and senior managers, within 30 days from the date of receiving the application documents.

Article 23 The banking regulatory authority shall conduct off-site surveillance of the business operations and risk profile of banking institutions. For this purpose, it shall establish a supervisory information system to analyze and assess the risk profile of banking institutions.

Article 24 The banking regulatory authority shall conduct on-site examination of the business operations and risk profile of banking institutions.

The banking regulatory authority under the State Council shall formulate on-site examination procedures to standardize on-site examination activities.

Article 25 The banking regulatory authority under the State Council shall regulate and supervise banking institutions on a consolidated basis.

Article 26 The banking regulatory authority under the State Council shall respond to the proposals of the People’s Bank of China for the examination of banking institutions within 30 days from the date of receiving the proposals.

Article 27 The banking regulatory authority under the State Council shall establish a rating system and an early warning system for the purpose of supervision of banking institutions, thus, based on the rating and risk profile of banking institutions, determining the frequency and scope of on-site examination as well as other supervisory measures that may be deemed necessary.

Article 28 The banking regulatory authority under the State Council shall establish a system to identify and report emergency situations in the banking sector.

The banking regulatory authority shall, as soon as identified any emergency situations that may result in systemic banking risks, hence causing severe social instability, report to the chief responsible person of the banking regulatory authority under the State Council. The chief responsible person of the banking regulatory authority under the State Council shall, when deemed necessary, report to the State Council while informing relevant government agencies including the People’s Bank of China and Ministry of Finance.

Article 29 The banking regulatory authority under the State Council shall, in collaboration with relevant government agencies including the People’s Bank of China and Ministry of Finance, establish mechanisms to address emergency situations in the banking sector, including formulating contingency plans, designating institutions and staff members, specifying their responsibilities, and stipulating resolution measures and procedures, hence ensuring timely and effective resolution of the emergency situations in the banking sector.

Article 30 The banking regulatory authority under the State Council shall compile and publish statistics and reports of banking institutions in accordance with applicable regulations of the state.

Article 31 The banking regulatory authority under the State Council shall guide and oversee the activities of the self-regulation organizations of the banking industry.