On November 26, 2009, China’s Banking Regulatory Commission (CBRC) issued the Pilot Administrative Measures for Commercial Banks to Make Equity Investment in Insurance Companies (the “Measures”). The Measures cover several key aspects of commercial banks’ equity investment in insurance companies, i.e., market access, risk control and regulatory supervision. Its enactment marks the official recognition of cross-sector operations within the banking and insurance industries. By and large, the Measures establishes the regulatory framework for enhanced partnership between the banking and insurance industry. Interestingly though, it has streaks of competition law in its provisions, which has the effect of fostering healthier competition in the future financial market of integrated operation.
First, the Measures prevent interlocking directorates. Article 10 provides that senior managers (including but not limited to president, vice president and CFO) appointed by investing commercial banks to sit in invested insurance companies must terminate salary and labor contract with the investing commercial banks. They shall not hold offices in both the investor and the investee. Couple that with the Measures’ requirement that each commercial bank may invest in only one insurance company and one can clearly see that the Measures are strict with the anticompetitive risk of interlocking directorates posed on financial sector. From the view point of antitrust law, the potential danger with interlocking directorates is that it will hypothetically enable or cause otherwise competing companies to coordinate their activities through common directors. For instance, a controlling bank investor may appoint the same group of persons to sit in both boards of directors of the two investee insurance companies. The directors may cause the competing insurance companies to engage in collusive activities. Through severing the interest relationship between the appointed senior managers and the investor banks and one-bank-one-insurance-company requirement, the Measures ensure that the anticompetitive risks brought by interlocking directorates are minimized.
Second, the Measures prohibit tying and bundling. Article 12 provides that investor commercial banks must not require customers to purchase the products of the investee insurance companies as a precondition of furnishing banking services. Tying and bundling without legitimate justifications are prohibited by the Anti-Monopoly Law of PRC. To be liable, the perpetrator must have market dominant position in the relevant markets. The dominance requirement, however, is absent in the Anti-Unfair-Competition Law of PRC. Thus, the two laws are broad enough to catch all bundling and tying committed by commercial banks with investments in insurance companies, regardless their market status. Article 18 further prohibits investee insurance companies from selling insurance products at the premises of investor commercial banks to some extent. As one commentator points out, reading the two provisions together reveal the law maker’s intention to protect consumers’ choice, enhance competition in financial markets and prohibit the combination of market powers from the different financial sectors.
Last but not the least, the Measures forbid discriminatory measures that may be taken by investor commercial banks to the similarly situated clients. Article 12 provides that investor commercial banks must not provide credit against insurance policy as security in terms more favorable to those issued by investee insurance companies than by non-affiliated parties.