2026.04.10 XIE, Qing (Natasha)、ZHANG, Chi (Austin)、Yongze LI
On March 20, 2026, the Ministry of Justice, the People’s Bank of China (PBOC), the National Financial Regulatory Administration (NFRA), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE) jointly issued the Financial Law of the People’s Republic of China (Consultation Paper) (hereinafter referred to as the Draft) to solicit public comments. The Financial Law is the first overarching fundamental law in the financial sector and together with special laws (including the People’s Bank of China Law, the Securities Law, the Futures and Derivatives Law, the Banking Regulation Law, the Insurance Law, the Trust Law), as well as other administrative regulations, departmental rules and normative documents, will form the Chinese financial legal system.
By comparing the Draft with the Financial Stability Law (Second Review Draft) (hereinafter referred to as the Financial Stability Law (2024 Draft)) and other relevant provisions, this briefing clarifies the logic and streamlines the structure of certain sections and key areas of the Draft, to help our clients’ understanding and the effective submission of their comments.
I. Fundamental Principal
Principle | Financial Law (Draft) | Comparative Provisions | Comments |
Comprehensive Supervision | Article 3: The state brings all financial activities under supervision and cracks down on illegal financial activities in accordance with the law. Article 8: ...Strengthen institutional supervision, behavior supervision, function supervision, see-through supervision and continuous supervision to achieve full coverage of financial supervision. | Financial Stability Law (2024 Draft) Article 4: ...Bring all financial activities under supervision in accordance with the law, strengthen institutional supervision, behavior supervision, function supervision, see-through supervision, continuous supervision and supervision accountability, and enhance regulatory capacity and the level of regulatory coordination. | The Draft is consistent with the Financial Stability Law (2024 Draft) in requiring the licensed operation of all “financial institutions and financial businesses” to achieve full coverage of supervision in the financial sector, with minor differences in expression. |
Licensed Operation | Article 8.2: Admission of financial institutions and financial businesses shall be strictly implemented through administrative approval. | Article 10: The establishment of financial institutions and the engagement in financial business activities shall be approved by the financial regulatory departments of the State Council in accordance with the provisions of the laws and administrative regulations. Without approval in accordance with law, no entity or individual may establish a financial institution or engage in or disguisedly engage in financial business activities. | |
Substance over Form | Article 71.2: The financial regulatory departments of the State Council, the competent industrial departments of the State Council, the other relevant departments of the State Council and the local governments shall, in accordance with their division of responsibilities and the principle of substance over form, be responsible for the prevention and crackdown on illegal financial activities. | Financial Stability Law (2024 Draft) Article 18: The financial regulatory departments of the State Council...identify and address unlicensed operation and other illegal activities in a timely manner in accordance with the principle of substance over form, cooperate with the anti-monopoly law enforcement authorities of the State Council to strengthen anti-monopoly law enforcement in the financial sector, promote fair competition in the financial industry and protect the legitimate rights and interests of clients. | Currently, in regulatory practice, financial regulatory authorities have generally applied the principle of “substance over form” to determine financial activities, and the Draft emphasizes that this principle shall also be applied to the crackdown on illegal financial activities. |
Prohibition of Regulatory Circumvention | Article 32: Financial products and services...shall not circumvent the laws, administrative regulations or regulatory provisions of the financial regulatory departments of the State Council by any means such as merger, split or nesting. | Guiding Opinions on Regulating the Asset Management Business of Financial Institutions Article 22: Financial institutions shall not provide channel services for the asset management products of other financial institutions to circumvent any regulatory requirements such as investment scope and leverage constraints. | The Draft expands the scope of prohibited regulatory circumvention acts to cover all types of financial products and services, rather than limiting it to the asset management sector, and expands the scope of the regulatory requirements against circumvention to all “provisions of the laws, administrative regulations and the financial regulatory departments of the State Council”. |
Our Suggestions:
The legal liabilities under Chapter X of the Draft may be triggered by any violation of provisions of the Draft. Therefore, breaches of the principled provisions of the Draft, such as Article 32 which stipulates that parties “shall not circumvent laws, administrative regulations and regulatory provisions of the financial regulatory departments of the State Council by any means such as consolidate, split or nesting”, may also trigger the legal liabilities specified in Chapter X. According to Article 87 of the Draft, in particularly serious circumstances, a fine of up to 5% of the annual turnover of the preceding year or an amount equivalent to the transaction value may be imposed, along with an order to suspend or prohibit engagement in the business, suspend operations for rectification, or revoke the financial license.
Although the last sentence of paragraph 1 of Article 87 of the Draft stipulates that “the specific circumstances and penalty measures shall be stipulated by the relevant laws and administrative regulations”, Article 32 and other similar general principles, along with the corresponding legal liability provisions, remain vague and lack enforceability.
It is recommended that prohibited acts and their corresponding legal consequences be prescribed only in specific financial laws and administrative regulations. Given that some of the rules issued by the financial regulatory departments of the State Council are highly detailed and complex, and are possibly inconsistent or even contradictory across different periods, directly conferring mandatory legal force on such provisions may introduce uncertainty regarding the legal validity of the existing financial products and services. Accordingly, to narrow the scope of Article 32 of the Draft, it is proposed to remove the reference to the “provisions issued by the financial regulatory departments of the State Council”, and keep “laws and administrative regulations” only.
II. Shareholders and De Facto Controllers of Financial Institutions
Key Point
Financial Law (Draft)
Comparative Provisions
Comments
Paid-in Capital
Article 21.2: Shareholders of financial institutions shall make capital contributions with their own capital, unless stipulated otherwise by the State. Shareholders of financial institutions shall ensure the legality and authenticity of the source of capital contributions, and shall not make false capital contributions or withdraw capital contributions by means of circular capital injection, etc.
Financial Stability Law (2024 Draft)
Article 13.1: Major shareholders of financial institutions shall make capital contributions with their own capital in accordance with the provisions. Shareholders of financial institutions shall not make false capital contributions, conduct circular capital injections or withdraw capital contributions.
Corporate Governance Guidelines for Banking and Insurance Institutions
Article 16: Shareholders of banking and insurance institutions...shall use legally-sourced own capital to subscribe for the shares of banking and insurance institutions and shall not subscribe for such shares with non-own capital such as entrusted funds or debt funds.
Strengthen the supervision over the shareholders and de facto controllers of financial institutions. In respect of registered capital, elevate the regulatory requirements currently set forth in the departmental rules to the status of statutory law with mandatory legal force, and ensure their uniform application to all types of financial institutions.
Clear Equity Structure
Article 21.3: No entity or individual may, in any form, conceal the de facto control over the equity of a financial institution, nor may they hold the equity of a financial institution in violation of the provisions by entrusting others or accepting such entrustment from others.
Financial Stability Law (2024 Draft)
Article 13.3: Shareholders of financial institutions shall not hold the equity of a financial institution in violation of the provisions by entrusting others or accepting such entrustment from others. De facto controllers of financial institutions shall not conceal de facto control rights by means of equity holding under nominee arrangement, hidden affiliated transactions, etc.
Corporate Governance Guidelines for Banking and Insurance Institutions
Article 16: Shareholders of banking and insurance institutions...shall not hold shares of banking and insurance institutions by entrusting others or accepting such entrustment from others.
Misconducts
Article 23: The de facto controllers, the shareholders of financial institutions and their de facto controllers...shall not illegally occupy the assets of financial institutions and their clients’ funds, illegally pledge the equity of financial institutions, abuse shareholder rights to damage the interests of financial institutions or other shareholders, or illegally interfere in the operation and management of financial institutions.
Article 13.2: Shareholders and de facto controllers of financial institutions shall not illegally occupy the funds of financial institutions or their clients, transfer the equity or assets of financial institutions in violation of the provisions, or abuse the limited liability of shareholders and de facto control rights to damage the legitimate rights and interests of financial institutions, other shareholders, creditors and other interested parties.
Corporate Governance Guidelines for Banking and Insurance Institutions
Article 16: ...Shareholders and their controlling shareholders and de facto controllers shall not abuse shareholder rights or use affiliated relationships to damage the legitimate rights and interests of banking and insurance institutions, other shareholders and interested parties...Nor may they directly interfere in the operation and management of banking and insurance institutions by bypassing the board of directors and senior management.
Ordering Shareholders to Transfer Equity or Restricting Shareholder Rights
Article 56: The financial regulatory departments of the State Council...may take the following measures:
...(IX) Order major shareholders to supplement the capital of financial institutions;
(X) Order liable shareholders to transfer their equity within a certain period, return the dividends distributed within a certain period or restrict their shareholder rights.
Financial Stability Law (2024 Draft)
Article 20: The financial regulatory departments of the State Council...may (IX) Order liable shareholders to transfer their equity or restrict their shareholder rights.
Article 24.2: Shareholders and de facto controllers of financial institutions under disposal shall supplement capital in accordance with the recovery and disposal plan or regulatory commitments, and shareholders and de facto controllers liable for financial risks shall bear corresponding compensation liabilities in accordance with the law and return the funds illegally occupied or transferred and the dividends distributed.
The Securities Law, the Futures and Derivatives Law and other applicable laws already empower regulatory authorities to order shareholders to transfer equity or restrict the exercise of their shareholder rights. The Draft extends such power to all types of financial institutions.
III. Financial Infrastructure
Key Point
Financial Law (Draft)
Comparative Provisions
Comments
Definition of Financial Infrastructure
Article 45: For the purpose of this Law, financial infrastructure refers to...multilateral systems or facilities that provide basic public services such as registration, escrow, custody, trading, payment, clearing and settlement for financial activities.
Measures for the Regulation and Administration of Financial Infrastructure
Article 3: For the purpose of the Measures, financial infrastructure refers to financial asset registration and escrow systems, clearing and settlement systems (including central counterparties conducting centralized clearing business), trading facilities, trade repositories, important payment systems and basic credit reference systems.
The wording of the Draft differs from that of the current Measures for the Regulation and Administration of Financial Infrastructure.
Asset Segregation of Central Counterparties
Article 48: Where a financial infrastructure acts as a central counterparty (CCP), the assets subject to centralized clearing and settlement shall have independent legal status and shall not be sealed, frozen, seized or subject to compulsory enforcement; the centralized clearing and settlement conducted in accordance with the law shall not be suspended, invalidated or revoked due to the insolvency proceedings of any participant.
Futures and Derivatives Law
Article 37: ...Where a clearing institution conducts centralized clearing as a CCP, it may conduct close-out netting in accordance with the law; the clearing assets shall be prioritized for clearing and delivery, and shall not be sealed, frozen, seized or subject to compulsory enforcement; no person may dispose of such assets before the completion of clearing and delivery.
Centralized clearing conducted in accordance with the law shall not be suspended, invalidated or revoked due to the insolvency proceedings of any party to the clearing.
The Draft establishes the principle of asset segregation and bankruptcy remoteness of CCPs in all financial sectors.
Over-the-Counter (OTC) Derivatives
Article 39.3: Where financial product trading and related activities are conducted outside trading venues, parties shall, based on the nature, positioning and risk level of the products, adopt appropriate pricing, trading, and clearing methods, and shall not violate laws, administrative regulations and provisions of the financial regulatory departments of the State Council.
Measures for the Regulation and Administration of Derivatives Trading (Trial) (Draft for Comment)
Article 26.2: Derivative operation institutions shall establish and improve the management policies and mechanisms for derivative pricing and valuation, and standardize the methods, models and processes for derivative trading pricing and valuation.
Mandate appropriate pricing, trading and clearing for OTC derivatives.
Our Suggestions:
1. It is proposed to revise Article 45 of the Draft as follows: “The designation, operation and supervision of financial infrastructures shall comply with the provisions of the laws, administrative regulations and relevant rules issued by the financial regulatory departments of the State Council”.
2. It is proposed to delete the content concerning OTC trading set forth in paragraph 3 of Article 39 of the Draft which provides that “the laws, administrative regulations and provisions of the financial regulatory departments of the State Council shall not be violated” and prescribe specific prohibited acts and the corresponding legal consequences in the Futures and Derivatives Law and its implementing rules.
IV. Financial Risk Disposal Mechanism
Key Point
Financial Law (Draft)
Comparative Provisions
Comments
Financial Risk Disposal Mechanism
Article 65: Where a financial institution...endangers its continuous operation and impairs financial order, the financial regulatory departments of the State Council may facilitate its reorganization, or make decisions on its takeover, trusteeship, revocation, etc. in accordance with the provisions of the laws and administrative regulations. Where a financial institution is in the circumstance of bankruptcy as stipulated by the law, the financial regulatory departments of the State Council may file an application with the people’s court for the reorganization or bankruptcy liquidation of the financial institution.
Financial Stability Law (2024 Draft)
Article 23: Where a financial institution is endangering its continuous operation and impairing financial order as stipulated by the laws and administrative regulations, the financial regulatory departments of the State Council may make and announce decisions on facilitating its reorganization, rectification, takeover, trusteeship, revocation or applying for bankruptcy in accordance with the law, so as to resume normal operations or the smooth and orderly exit of the financial institution under disposal from the market.
Both are consistent, i.e., establishing a progressive regulatory framework featuring early correction — rectification within a prescribed time limit — risk disposal.
Financial Risk Disposal Measures
Article 67: ...
(VII) Facilitate third-party institutions or establish interim transitional institutions to undertake part or all of the business, assets and liabilities of the financial institution under disposal;
(VIII) Suspend the right to the early termination of contracts under qualified financial transactions for a maximum of 48 hours;
(IX) Implement equity or debt write-down or debt-to-equity swap for financial institutions under disposal that meet the conditions stipulated by the financial regulatory departments of the State Council;
(X) Compulsorily transfer equity if systemic financial risks may be triggered in the course of financial risk disposal;
(XI) Require financial institutions under disposal to repatriate their overseas assets in accordance with the provisions;
(XII) When disposing the risks of systemically important financial institutions, require the domestic and overseas institutions of the affiliated group to provide necessary support to maintain the uninterrupted provision of critical financial services and functions;
(XIII) Other disposal measures stipulated by the laws and administrative regulations and approved by the State Council.
Financial Stability Law (2024 Draft)
Article 30: ...
(II) Facilitate third-party institutions or establish specific institutions to undertake part or all of the business, assets and liabilities of the financial institution under disposal;
(IV) Suspend the right to the early termination of contracts under qualified financial transactions for a maximum of 48 hours;
(V) Implement equity or debt write-down or debt-to-equity swap for financial institutions under disposal that meet the conditions stipulated by the financial regulatory departments of the State Council;
(VI) Repatriate the overseas assets of financial institutions under disposal in accordance with the provisions;
(VII) When disposing the risks of systemically important financial institutions, require the domestic and overseas institutions of the affiliated group to provide necessary support to maintain the uninterrupted provision of critical financial services and functions;
(VIII) Notify immigration administration authorities to take exit restriction measures against the relevant persons in accordance with the law;
(IX) Other disposal measures stipulated by the laws and administrative regulations and approved by the State Council.
Both are consistent, i.e., aligning with international financial regulatory standards by introducing the bailout mechanism and the resolution stay mechanism to block the transmission of systemic financial risks.
Exemption Mechanism
Article 67.2: In adopting measures set forth in the preceding paragraph, exemptions may be granted, in accordance with the laws and administrative regulations, from the provisions concerning approvals from shareholders' meetings and boards of directors, consents from other third parties (such as creditors), information disclosure, and prohibited transactions.
Financial Stability Law (2022 Version)
Article 36.2: Where the financial regulatory departments of the State Council organize the implementation of the measures for stabilizing the financial market, they may, upon approval by the State Council, exempt the application of the x provisions of the laws on information disclosure and prohibited transactions.
It is basically consistent with the Financial Stability Law (Draft) (2022 Version), while the Financial Stability Law (Draft) (2024 Draft) does not retain the article, resulting in adjustments between the two versions.
Exhaustion of Self-Rescue Measures
Article 69: The use of risk disposal funds shall adhere to the principle of internal rescue prior to external rescue, and the shareholders and de facto controllers of the institutions shall bear losses first in accordance with the law. ...The financial institution under disposal shall bear the primary responsibility for financial risk disposal, exhaust all self-rescue measures and take all necessary measures to settle claims and liabilities and recover losses.
Article 24.1: The financial institution under disposal shall perform its primary responsibility for financial risk disposal, exhaust all self-rescue measures and take all necessary measures to settle claims and liabilities and recover losses.
Establish the principle of internal rescue prior to external rescue, and require the shareholders and de facto controllers of the relevant institutions to bear losses first in accordance with the law.
Our Suggestions:
1. The exemption set forth in Paragraph 2 of Article 67 of the Draft essentially constitutes a “suspension” or “deprivation” of other statutory rights. It is proposed that specific provisions be formulated in the Financial Stability Law, accompanied by strict restrictions on the applicable conditions and procedures, to prevent abuse.
2. The financial risk disposal chapter of the Draft overlaps with that of the Draft Financial Stability Law (2024 Draft). It is proposed that detailed rules should be removed from the Draft, with general wording adopted to ensure alignment with the specific provisions of the Draft Financial Stability Law.
V. Anti-Foreign Sanctions and Blocking the Improper Extraterritorial Application of Foreign Laws and Measures
Key Point
Financial Law (Draft)
Comparative Provisions
Comments
Blocking the Improper Extraterritorial Application of Foreign Laws and Measures
Article 85.2: Where the extraterritorial application of foreign laws and measures violates international law and the basic norms of international relations and improperly prohibits or restricts citizens and organizations of the State from carrying out normal financial activities with countries or regions outside such foreign countries and their citizens and organizations, the State has the right to block the improper extraterritorial application of such foreign laws and measures in accordance with the law.
Measures for Blocking the Improper Extraterritorial Application of Foreign Laws and Measures
Article 2: The Measures shall apply where the extraterritorial application of foreign laws and measures violates international law and the basic norms of international relations, and improperly prohibits or restricts the citizens, legal persons or other organizations of the State from conducting normal economic and trade-related activities with third countries (regions) and their citizens, legal persons or other organizations.
Both are consistent, i.e., the competent commerce department of the State Council has the right to issue a ban on the recognition, enforcement and compliance with the relevant foreign laws and measures. Where such foreign laws and measures, falling within the scope of the ban, infringe upon the legitimate rights and interests of the citizens and organizations of the State, the relevant parties shall have the right to institute lawsuits with the court and claim compensation for losses.
Anti-Foreign Sanctions
Article 85.3: No organization or individual may enforce or assist in the enforcement of discriminatory restrictive measures adopted by foreign states against citizens and organizations of the State in financial sectors, nor may they engage in, assist in or support acts that harm the State’s sovereignty, security or development interests in financial activities.
Anti-Foreign Sanctions Law
Article 12: No organization or individual may enforce or assist in the enforcement of discriminatory restrictive measures adopted by foreign states against the citizens and organizations of the State. ...Citizens and organizations of the State may institute legal proceedings with the people’s court in accordance with the law to demand that the parties cease the infringement and compensate for losses.
Provisions on the Implementation of the Anti-Foreign Sanctions Law
Article 3: Where a foreign state...adopts discriminatory restrictive measures against citizens and organizations of the State to interfere with the State’s internal affairs, or a foreign state, organization or individual engages in, assists in or supports acts that harm the State’s sovereignty, security and development interests, the relevant departments of the State Council...may include the subjects in the list of targets of countermeasures and take countermeasures.
Both are consistent, i.e., in respect of the discriminatory restrictive measures adopted by foreign states against the citizens and organizations of the State in financial sections, and acts that harm the State’s sovereignty, security and development interests, the relevant departments of the State Council have the right to decide to include the subjects in the list of targets of countermeasures and take countermeasures, and the relevant parties have the right to institute lawsuits with the court and claim compensation for losses.
Our Suggestions:
To avoid any unnecessary overlap in the regulatory provisions, it is proposed to amend Paragraphs 2 and 3 of Article 85 of the Draft as follows: “the State may take necessary measures in accordance with the law to counteract, sanction and block the improper extraterritorial application of foreign laws and measures, with specific implementation to be governed by the relevant provisions of the State”.
General Observations
The Financial Law shall primarily serve to establish the basic legal framework for the finance sector. It should not duplicate content that more appropriately belongs in specific financial laws or administrative regulations, as doing so may result in overly broad and general provisions that grant administrative authorities excessive discretion in interpretation and enforcement. As the fundamental law governing the financial sector, the Financial Law shall help promote the development of a multi-tiered financial legal system consisting of fundamental laws (i.e., specialized laws, administrative regulations, departmental rules and normative documents) and strike a balance between full regulatory coverage and preserving market vitality.
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