Update on netting enforceability in the People's Republic of China


5 August 2020 Earlier this year the China Banking and Insurance Regulatory Commission (CBIRC) issued a consultation draft of a notice, “Notice on Issues Relating to the Rules for the Measurement of Default Risk Assets of Counterparties in the Trading of Derivatives”. We understand that the notice, which describes the position in relation to netting enforceability in the People’s Republic of China (PRC), is the result of consultation with various PRC authorities, including the People’s Bank of China (PBOC), the China Securities Regulatory Commission (CSRC) and the Supreme People’s Court (SPC). In particular, the notice (i) clarifies that there is no conflict between Chinese Bankruptcy Law and close-out netting; and (ii) provides an overview of the key steps preceding the commencement of bankruptcy proceedings against a PRC Bank.
ICMA has, for many years, obtained an industry opinion on the GMRA for the People’s Republic of China (PRC opinion). The PRC opinion is authored by JunZeJun and is available to ICMA members on the ICMA website1. In consultation with JunZeJun, ICMA are closely monitoring developments in relation to the CBIRC notice, anticipating that there may be an impact on the analysis in the PRC opinion. Counsel expect that in some aspects, the position can be further strengthened in relation to the enforceability of close-out netting under the PRC law. We will keep the membership informed as the CBIRC consultation progresses and, if appropriate, will commission an update of the PRC opinion.
For further information, please do not hesitate to contact ICMA’s APAC office or ICMA’s legal team.

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