Authors: Ting ZHENG丨Eryin YING丨Shirley LIANG丨Hattie ZHANG
On December 12, 2025, the National Financial Regulatory Administration (NFRA) released the Measures for the Supervision and Administration of Commercial Bank Custody Business (Trial) (《商业银行托管业务监督管理办法(试行)》), hereinafter referred to as the "Measures"), which will take effect on February 1, 2026. This marks the first systematic regulation of commercial bank custody business by Chinese regulators and is set to implement a stricter custody framework. We have summarized the key provisions most relevant to custodian banks below for quick reference:
Clarification of custody bank's responsibilities and prohibited acts
The Measures clearly define the boundaries of a custodian bank's responsibilities, reinforcing the principle that the custodian is not a guarantor for the product. The custodian banks are advised to revisit their custody agreement template and existing executed custody agreements to ensure they are not required to take these prohibited responsibilities under the Measures set forth below.
Ref. articles |
Description |
Impacts on custodian banks |
Art. 19 |
Custodian banks are explicitly prohibited from: (1) undertaking credit risks and market risks for the assets of custody products; |
No material impacts. Custodian banks do not undertake these risks before the Measures come into effect. |
(2) providing direct or indirect, explicit or implicit guarantees for custody products, including promising principal repayment or guaranteeing returns; |
No material impacts. Similar prohibition has already been provided in the Guidelines for the Asset Custody Business of Commercial Banks (《商业银行资产托管业务指引》) issued by the China Banking Association (the "Guidelines"). |
|
|
(3) advancing funds, providing liquidity support, or making financing commitments for custody products; pursuant to NFRA's press release on the Measures (available at https://www.gov.cn/zhengce/202512/content 7051094.htm), qualified collateral management services for fixed-income securities conducted between commercial banks and products on a market-oriented and lawful basis is not prohibited for custodian banks; |
It will have impacts on those custodian banks that advance funds for money-market funds which is a prevalent market practice. After the Measures take effect, this practice will be prohibited. With the above said, in the Administrative Measures on Supervision of Money Market Funds (《货币市场基金监督管理办法》), custodians are permitted to provide liquidity support to money market funds, and in the Interim Provisions on the Regulation of Major Money Market Funds (《重要货币市场基金监管暂行规定》), fund managers are even required to enter into agreement with custodians to get short-term financing support from custodians via bond repurchase transactions or other available transactions, in case of liquidity risks of major money market funds. Custodian banks may be put in a disadvantage position in comparison to custodian securities firms, and it remains to be clarified whether the provision of liquidity support by bond repurchase transactions will fall in the exception prescribed by NFRA in the press release. |
|
(4) participating in investor suitability management; |
No material impacts. The Guidelines already prohibit custodian banks from taking responsibility for the suitability management of investors. The Measures take a further step and emphasize that banks shall not even "participate" in the suitability management which should cover the whole process of suitability management. |
|
(5) guaranteeing the authenticity of investment projects and transaction information; |
No material impacts. Similar prohibition has already been provided in the Guidelines. |
|
(6) guaranteeing the legality and compliance of fund sources of custody products; |
No material impacts. Similar prohibition has already been provided in the Guidelines. |
|
(7) undertaking safekeeping responsibilities for assets already transferred out of the custody account or outside the bank's actual control; |
No material impacts. This is consistent with the responsibilities provided for the custodian banks in the Guidelines. |
|
(8) participating in the investment decisions made by product managers for custody products; |
No material impacts. While not provided for in the Guidelines, the custodian banks shall not be involved in the investment decisions even before the Measures come into effect. |
|
(9) illegally disclosing information about custody products or providing related data to other institutions or individuals on behalf of the product manager. |
No material impacts. This prohibition should not prohibit all information disclosure made by custodian banks on behalf of the product managers, but only apply to illegal disclosures. For example, Article 28 of the Guidelines for the Operation of Private Securities Investment Funds (《私募证券投资基金运作指引》) requires custodians to provide relevant fund valuation information to third party custodians. Such disclosure shall not fall in the prohibited scope under the Measures. |
|
(10) taking responsibilities for such consequences arising from the product managers' failure to incorporate the commercial bank's review comments into the information disclosure; |
No material impacts. So long as the custodian banks have reviewed the relevant information disclosure and promptly remind the product managers as required under the Measures, the custodian banks should not be held accountable for the relevant consequences of the information disclosure made by the product managers. |
|
(11) taking responsibilities for fund recovery, asset preservation, litigation/arbitration, debt restructuring, or bankruptcy proceedings of products that fail to make payment, unless otherwise required by applicable laws or regulations; |
No material impacts. The Guidelines already prohibit the custodian banks from taking the responsibility of fund recovery. The Measures introduce more prohibited activities for the custodian banks. |
|
(12) taking responsibilities for losses due to force majeure or non-bank performance error/negligence; and |
No material impacts. The Measures further clarify the circumstances under which the custodian banks shall be exempted from liabilities for the losses suffered by the custody assets. Custodian banks should incorporate such limitation of liability clause into the custody agreement. |
|
(13) other responsibilities provided by NFRA to be outside custodian banks' business scope. |
No material impacts. |
|
Art. 17 |
The custodian bank shall provide investment supervision services on the basis of adequately obtaining all requisite data and information, and it shall not provide or promise to provide supervision services beyond its capability. The Measures provide for a white list of supervision services that custodian banks can provide, namely supervision on investment scope, ratio, style, restrictions, and related-party transactions. |
The custodian banks shall revisit their custody agreement template and existing executed custody agreements to ensure no supervision services are provided by them beyond their capability. |
Enhanced assessment for non-standard asset custody
Article 10 of the Measures introduces new requirements for commercial banks when providing custody services for products investing in non-standard assets, such as non-standard debt assets or equity interests in unlisted enterprises. Custodian banks shall conduct a thorough assessment based on their capabilities and service levels, focusing on two (2) dimensions:
1. assessment of the product manager: evaluating capital strength, corporate governance, compliance management, risk control, information disclosure, and market standing.
2. assessment of the product: reviewing transaction structure, investment targets, exit strategy, and valuation method/strategy.
Strengthening separate account opening requirements
Article 11 of the Measures requires custodian banks to open separate accounts for each custodial product, including but not limited to fund accounts and securities accounts necessary for investment and trading, to ensure the integrity and independence of product assets. Custody accounts shall bear clear identifiers, and the account name shall in principle include both the account holder and the product name.
In practice, some foreign funded custodian banks have proposed to adopt an omnibus account structure which is commonly used by overseas custodian banks that only one securities account is opened for multiple products under its custody. Upon coming into effect of the Measures, this account structure is expressly prohibited.
Detailed operational and risk management requirements
The Measures introduce specific operational and risk control requirements:
Ref. articles |
Requirements |
Art. 12 -Reconciliation |
At least once every six(6) months. |
Art. 14 -Use of third-party data for accounting |
Custodian banks are required to primarily use available and reliable third-party data (e.g., from CCDC) for accounting. Where accounting of the custodian banks relies solely on the product manager's data, and no reliable third-party data is available, the custody agreement shall clearly specify data sources and exemption clauses. |
Art. 15 - Valuation |
Custodian banks are required to clearly provide for the valuation subject, valuation principle, valuation method, valuation time and error handling in the custody agreement. Where the custodian banks use models for valuation, the parameters shall be set in a prudent manner, and shall not be adjusted arbitrarily. |
Art. 18 -Record retention |
Records, ledgers, reports, and related materials shall be retained for at least ten (10) years. |
Art.23 -System security |
This article sets out comprehensive requirements for custody business information systems, covering cybersecurity, data security and business continuity, with a special focus on data security to prevent tampering, leakage, or illegal use, and to protect custodial data and personal information. |
Disclosure and alert obligations
The Measures significantly strengthen the custodian's role in monitoring and alerting the product manager, particularly regarding information disclosure and compliance.
Ref. articles |
Requirements |
Art. 15 - Valuation |
Where valuation results of the custodian bank differ from those of the product manager and they cannot reach consensus on the result, custodian banks shall timely remind the product manager to make disclosures in accordance with applicable laws and regulations. |
Art. 16 - Material event reminder and verification |
Upon discovering material events relating to custodial products, custodian banks shall timely remind the product managers to perform information disclosure obligations. Where disclosures of the product managers and other related parties require verification by the custodian banks, custodian banks shall verify based on data and information available to them, and explicitly agree with the product managers and other related parties that when making the disclosure, they shall clearly state the scope of data and information verified by the custodian banks. |
Art. 17 -Compliance alert |
The custodian banks shall refuse to execute transactions that violate laws, regulations, or the custody agreement. Where the transaction has already been concluded in accordance with trading procedures or execution cannot be refused, the custodian banks shall promptly notify the product managers and other relevant parties. |
Transition period
Existing non-compliant custody arrangements shall be rectified within three (3) years of the Measures coming into force. For existing cases where custodian banks have advanced funds, provided liquidity support, or made financing commitments, they shall: (1) accurately identify and assess business risks based on the principle of substance over form and the look-through principle; and (2) conduct appropriate asset risk classification and make impairment provisions and capital allocations in accordance with relevant regulations.
Outlook
Overall, the new Measures represent a significant step towards standardizing and tightening the supervision of commercial bank custody business in China. The focus is clearly on reinforcing the custodian's role as a supervisor and safekeeper, while clearly delineating responsibilities and minimizing systemic risk. We have been actively advising commercial banks on a broad range of custody arrangements, and are more than happy to help custodian banks to analyze the impacts of the Measures and assist with gap analysis and transitional or remediation solutions. We will continue to closely monitor regulatory developments and keep you posted on any material updates.
Important Announcement |
|
This Legal Commentary has been prepared for clients and professional associates of Han Kun Law Offices. Whilst every effort has been made to ensure accuracy, no responsibility can be accepted for errors and omissions, however caused. The information contained in this publication should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If you have any questions regarding this publication, please contact: |
|
Ting ZHENG Tel: +86 21 6080 0203 Email: ting.zheng@hankunlaw.com |
