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 InstitutionsArticle 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.
