On 28 June 2017, the China (Shanghai) Pilot Free Trade Zone (“Shanghai FTZ”) Administrative Commission and the Shanghai Financial Services Office jointly released the Guidelines on the Negative List for the Liberalization of Financial Services in the China (Shanghai) Pilot Free Trade Zone (2017 version).
The guidelines, which follow issuance of the Special Administrative Measures (Negative List) for Foreign Investment Access to the Pilot Free Trade Zone (2017 version), track China's new negative list approach to regulating market access for foreign investment and further implement the State Council's comprehensive reform plan for the Shanghai FTZ.
The guidelines comprise two main sections:
- A guiding list governing market access and post-establishment operation compliance for foreign investment in the financial services sector in the Shanghai FTZ.
- A set of instructions for using the list.
The list is divided into 10 categories and has 48 special management measures, which include requirements on shareholder assets and performance conditions, capitalisation, ownership structure, the establishment and operation of branches, business scope, operations and exchange qualifications.
None of these restrictive measures are new requirements on foreign investors but merely codify existing provisions that can be found in industry-specific regulations and policies.
The list also includes citations and explanations for each special measure, making this sector negative list more user friendly.
Harvey Lau, Partner, Baker & McKenzie, Shanghai
"Taken together with the underlying measures, the guidelines have lifted a number of restrictions on foreign investment in the financial sector in the Shanghai FTZ. In addition, the classification system is user friendly, and it is easy for foreign funded banks to identify applicable restrictions on business scope. What remains to be seen is whether the guidelines will be implemented in the way the regulators intended, that is, under the shadow of financial de-leveraging and foreign exchange control. "
General Counsel for foreign and foreign-invested financial institutions will want to closely study the guidelines to determine if new opportunities for market entry or expansion in the Shanghai FTZ exist and to identify any applicable restrictions. Counsel also will want to remain mindful of other restrictions not found in the guidelines, such as the fast-changing foreign exchange control regime and the newer requirements found in the 2016 Cybersecurity Law.