Executive Summary
In May 2025, the National Financial Regulatory Administration (NFRA), China’s chief regulatory body for the banking and insurance sectors, issued the revised Measures for the Management of Affiliated Transactions of Banking and Insurance Institutions (the Affiliated Transaction Measures) , which took immediate effect. The revised Affiliated Transactions Measures institute a more comprehensive framework governing relationships between institutions and their shareholders. This includes clearer definitions of affiliates and affiliated transactions, prohibitions on certain activities, and the requirements for internal control, disclosure, and supervisory mechanisms. The rules apply to all domestic banking and insurance companies in China, as well as the Chinese operations of multinational financial institutions.
This regulatory enhancement forms part of China’s broader efforts to improve the governance of shareholder-institution relationships, standardize affiliated transaction practices, and mitigate systemic risks across the banking and insurance sectors.
The 2023 revision to the Company Law2, which took effect on July 1, 2024, addressed historical gaps in corporate governance by incorporating a “piercing the corporate veil” doctrine into Chinese jurisprudence. Art. 22 prohibits controlling shareholders, actual controllers, and senior management from abusing related-party relationships to the detriment of company interests, with clear provisions for violations. This resolved previous ambiguities regarding shareholder abuse of corporate structures, such as the commingling of assets and self-dealing transactions that benefit shareholders at a corporation’s expense. It also brings China’s legal framework into closer alignment with international standards.
Further reinforcing these changes, in 2021, the China Banking and Insurance Regulatory Commission (CBIRC, the NFRA’s predecessor) promulgated the Interim Measures for the Supervision of the Conduct of Major Shareholders in Banking and Insurance Institutions3 (the Major Shareholder Conduct Measures), establishing stricter boundaries on shareholder influence. Major shareholders are expressly prohibited from interfering in institutional decision-making, financial operations, or the personnel management of banking and insurance subsidiaries outside prescribed corporate governance procedures. Together, these provisions contribute to a more transparent and accountable operational environment for financial institutions in China.
Implications for Multinational Financial Institutions in China
For multinational banks and insurers operating in China, these regulatory updates introduce a dual reality of challenges and opportunities. Tighter scrutiny of affiliated transactions necessitates a thorough reassessment by foreign institutions of their internal governance frameworks and transaction review procedures. Special focus should be directed toward cross-border engagements with parent companies or regional headquarters to ensure adherence to the newly heightened standards.
The formal adoption of the piercing the corporate veil doctrine, alongside more rigorous shareholder conduct regulations, demands a reexamination of the control frameworks between global headquarters and their Chinese subsidiaries. Foreign financial entities may need to refine their governance approach to strike a balance between demonstrating operational autonomy at the local level and preserving effective corporate oversight. Maintaining this balance is crucial in key operational areas, including capital allocation, risk management, the appointment of key personnel, and the execution of affiliated transactions on an arm’s-length basis.
Although the compliance load has intensified, these changes also hold tangible benefits for multinational institutions that are well-prepared. A clearly defined legal environment diminishes ambiguities in corporate governance, and organizations that proactively adapt to the updated standards may secure a competitive edge in regulatory standing and market perception. Furthermore, the alignment of China’s corporate governance norms with international standards in the financial sector may promote a more seamless integration of worldwide operations for foreign financial Institutions.
As China continues to refine its financial regulatory framework, multinational banking and insurance institutions operating in the country should prioritize ongoing compliance reviews, strengthen corporate governance, and enhance internal controls—particularly concerning affiliated transactions. It is advisable for these institutions to promptly update their criteria for identifying affiliated parties and maintain current records of such relationships. In response to the newly introduced approval requirements for transactions involving directors, supervisors, and senior management, firms should also revise their internal policies and improve their reporting mechanisms for affiliated transactions. Proactive cooperation with the regulatory authorities may be essential throughout this process. These efforts not only help mitigate the risk of improper benefit transfers and support institutional safety and stability, but they also present an opportunity for foreign financial institutions to demonstrate their commitment to sound governance while effectively navigating one of the world’s most dynamic financial markets.
We highlight below some key aspects of these regulations in greater detail.
The Company Law (2023 rev.)
A key feature of China’s new Company Law is to prevent controlling shareholders and company insiders from exploiting their position for personal gain at the expense of the company, its minority shareholders and creditors. The key prohibitions are set out in Art. 21 to Art. 23 of the law.
Art. 21 establishes the fundamental rule of good faith for all shareholders. It mandates that shareholders must not abuse shareholder rights to harm the interests of the company or other shareholders. This article sets the stage by creating a general duty of care. Affiliated transactions—deals between a company and its shareholders, parent companies, or other related entities—must be conducted on an arm’s-length basis. The primary purpose must be to benefit the company, not to siphon value out of it to benefit shareholders and related parties. The article’s second clause provides basis for this rule: violators are explicitly liable for compensation for any losses caused.
Art. 22 directly addresses the key actors in a position to orchestrate self-dealing: controlling shareholders, actual controllers, directors, supervisors, or senior managers. These parties have the influence and access to manipulate company dealings for their own benefit. The article explicitly prohibits them from using affiliated relationships to harm the interests of the company. Art. 22, like Art. 21, also imposes liability for compensation, ensuring that the company can be made liable after any such violation.
Art. 23 addresses the most egregious form of abuse, in which shareholders cause harm not only to the company but also to its creditors. It introduces the doctrine of piercing the corporate veil, enabling Chinese judicial authorities and aggrieved parties to seek recourse against controlling shareholders who abuse their control to undermine the subsidiary’s independent legal personality. This article applies when a shareholder abuses the company’s independent legal personality and the principle of limited shareholder liability to evade debts. In cases involving fraudulent affiliated transactions that strip the subsidiary of assets and render it insolvent, courts may pierce the corporate veil and impose joint and several liability on the shareholder for the company’s debts.
Art. 23 accounts for complex corporate structures used to conceal misconduct and provides that shareholders employing multiple controlled entities to carry out such abuses may result in all implicated companies being held jointly liable for each other’s debts.
Together, these three articles create a multi-layered defense against the misuse of corporate structures. For multinational corporations operating in China, this legal framework underscores the critical importance of robust internal controls, transparent pricing in all inter-company transactions, and scrupulous documentation to prove that all affiliated dealings are fair and conducted at arm’s length. The Company Law is a fundamental law that applies to businesses across all industrial sectors, including banking and insurance.
The Major Shareholder Conduct Measures (2021)
In a significant move to uphold corporate independence and curb improper shareholder influence in the banking and insurance sectors, in 2021 the CBIRC issued the Major Shareholder Conduct Measures. These Measures establish a rigorous framework aimed at preventing major shareholders from exerting undue influence over their subsidiaries in the banking and insurance sectors.
A cornerstone of this regulatory effort is Art. 14, which delineates the boundaries of permissible conduct, expressly prohibiting actions that compromise a financial institution’s independent decision-making.
Under Art. 14(4), a fundamental principle is established: major shareholders must respect and not violate corporate formalities by interfering in the institution’s normal order of management policy. This foundational rule is further elaborated upon in subsequent clauses, which explicitly forbids interference in two critical areas: the normal decision-making processes and the financial and accounting activities of these institutions. The latter prohibition encompasses a wide range of functions, including but not limited to financial accounting, fund transfers, asset management, and expense control. To eliminate any potential ambiguity, Art. 14(6) specifically bars major shareholders from issuing business plans or orders directly to the subsidiary financial institution. Art. 14(9) acts as a catch-all provision, prohibiting shareholders from interfering in independent operations through any other means not explicitly listed, ensuring the rule’s comprehensive application.
The Measures also extend their protections to the vital area of personnel management, safeguarding subsidiary financial institutions from undue influence over their human resources. Articles 14(2) and 14(3) target two common forms of interference. First, they prohibit major shareholders from directly appointing or removing personnel without adhering to the proper procedures mandated by the shareholders’ meeting or the board of directors. Secondly, they forbid shareholders from interfering with the institution’s normal recruitment processes or the performance evaluations of its directors, supervisors, and other staff members. This ensures that hiring and promotion decisions are based on merit and corporate governance protocols rather than shareholder preference.
Art. 22 of the Measures prohibits major shareholders from engaging in improper affiliated transactions or leveraging their influence to obtain improper benefits. The prohibited conduct includes, but is not limited to: obtaining credit facilities or conducting insurance business on preferential terms not available to non-connected parties; illegally occupying or controlling the institution’s funds or other interests; causing the institution to bear unreasonable expenses; engaging in asset transactions on non-arm’s length terms; misusing the institution’s intangible assets; seizing business opportunities belonging to the institution; and exploiting non-public information for gain.
To reinforce the entire regulatory structure, Art. 42 states that the management of the subsidiary financial institution is deemed independent of the major shareholder. It mandates that banking and insurance institutions must adhere to the principle of independent operation, establishing effective risk isolation mechanisms. These include measures to isolate equity, assets, debt, management, finance, business, and personnel, thereby achieving independent accounting and risk assumption separate from major shareholders, and effectively preventing conflicts of interest and risk contagion. Where the CBIRC has other specific supervisory regulations, those provisions shall prevail.
Collectively, these provisions form a robust legal barrier designed to ensure that banking, insurance, and asset management entities in China operate with autonomous management, free from the improper influence of their controlling investors.
The Affiliated Transaction Measures (2025 rev.)
The Measures apply to banking institutions, insurance institutions, trust companies, financial asset management companies, financial leasing companies, auto finance companies, and consumer finance companies established in China, including multinational banking and insurance institutions in China.
Affiliated persons of banking and insurance institutions include both natural persons and business organizations connected through control, ownership, or significant influence. This includes any natural or legal person holding or controlling 5% or more of the institution’s equity, as well as those holding less than 5% but still exerting significant managerial influence (Art. 7). The definition extends to controlling shareholders, actual controllers, their ultimate beneficial owners, and persons acting in concert. Key personnel such as directors, supervisors, senior managers at the head office and major branches, as well as critical staff with decision-making authority on key matters are also included. Close family members (spouses, parents, adult children and siblings) of such individuals, along with entities controlled or significantly influenced by any of the above parties or by the institution itself, are considered affiliated persons.
Affiliated transactions are divided into two types: major and general. For banks, a transaction is major if either a single deal with a related party is worth 1% or more of the bank’s last quarter’s net capital, or the total deals with that party reach 5% or more (Art. 14). For insurers, a major transaction is one where a single deal or yearly total with one related party is over RMB 30 million and also exceeds 1% of the insurer’s year-end unaudited net assets (Art. 19). All other transactions are considered general.
New updates to Art. 45 include more types of deals under affiliated transaction rules—specifically those involving directors, senior managers, their close relatives, and the businesses they control. These transactions must now be reviewed by the Affiliated Transaction Control Committee and approved by the board or shareholders of the financial institutions. They are no longer exempt under previous exceptions (Art. 57(1), (2), (5)), which had excluded smaller transactions (under RMB 500,000 for individuals or RMB 5 million for entities) and certain cash investments in public securities. Exemptions still apply for deposit accounts and shared independent directors (Art. 57(3), (4)).
These newly included transactions must now follow the same review process as other affiliated transactions: (a) general transactions go through an internal review and are filed with the committee; and (b) major transactions need committee review first, then board approval—requiring a two-thirds majority vote from non-affiliated directors.
The NAFR has also clarified that senior management personnel refers to personnel at the legal entity level, excluding branch-level management. Close relatives are defined under Art. 1045 of the Civil Code and include spouses, parents, children, siblings, grandparents, and grandchildren. Institutions must identify other affiliates based on substance-over-form principles, focusing on relationships that may lead to interest transfers. Concurrent roles such as independent directors or positions in entities with equity ties to the institution generally do not fall under the amendment.
The amendment aligns with Art. 182 of the revised Company Law, which requires board or shareholder approval for transactions involving directors, supervisors, senior management, their close relatives, controlled enterprises, or other related affiliates. This strengthens fiduciary duties and expands review requirements beyond the original Measures, which only required board approval for significant affiliated transactions and allowed general transactions to be handled under an internally delegated authority. For the purchase of routine financial products or services—such as general deposits, wealth management products, or commercial insurance—where neither the single nor cumulative transaction amount reaches the threshold for a significant affiliated transaction, the review process may be streamlined. Such transactions may be approved via a blanket resolution from the board of directors or shareholders’ meeting, eliminating the need for an individual case-by-case review. This approach maintains compliance with the New Company Law while improving operational efficiency in practice.
For further information, please contact:
ZHOU, Ting (Kenneth), JunHe
Zhou_Kenneth@junhe.com
1.https://www.gov.cn/gongbao/2025/issue_12146/202507/content_7030979.html
2.https://www.gov.cn/yaowen/liebiao/202312/content_6923395.htm
3.https://www.gov.cn/zhengce/zhengceku/2021-10/15/content_5642783.htm
4.https://www.court.gov.cn/zixun/xiangqing/233181.html
