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China

China is continuing to work towards improving the business and financial health of the commercial banking sector by tightening internal controls. On September 18 the People's Bank of China (PBOC) issued its Guidelines for the Internal Control of Commercial Banks. The Guidelines declare the general goals and requirements of internal control systems and provide specific control functions in respect of credit business, treasury business, deposit and counter business, intermediary business, accounting and computer systems. In addition, the Guidelines impose personal liability for senior managers and internal audit committees and their members who fail in their duties to take measures to rectify breakdowns of internal controls.

Internal control over credit business

Key aspects of a commercial bank's internal control over its credit business are:

  • to carry out the uniform credit control;
  • to complete the system of identifying and monitoring credit risks;
  • to perfect the mechanism of decision making, examination, and approval;
  • to prevent the granting of loans to interested parties; and
  • to prevent credit funds from being invested in high-risk areas.

Internal control over treasury

Key aspects of a commercial bank's internal control over treasury matters are:

  • to pursue the strict separation of responsibilities between the front-counter and the back-counter;
  • to prevent dealers from trading ultra vires and from swindling;
  • to prevent heavy losses resulting from operation in violation of regulation; and inadequate identification of risk.

Internal control over deposit and counter business

Key aspects of a commercial bank's internal control over deposit and counter business are:

  • to execute accounts management, accounting system, and all operation rules;
  • to prevent internal embezzlement, corruption or money laundering;
  • to guarantee the safety of the bank and client's capital.

Internal control over intermediate business

Key aspects of a commercial bank's control over intermediate businesses are:

  • to obtain specific authorization before developing intermediate business;
  • to establish and implement relevant rules, regulations, and operation rules;
  • to make payment based on instructions of clients; and
  • to prevent clearing and contingent business risks.

Internal control over accounting

Key aspects of a commercial bank's control over accounting are:

  • to carry out the unified management over accounting;
  • to implement the accounting system, as well as the accounting operation rules;
  • to apply computer-based technical means to strengthen internal control over accounting;
  • to ensure the truth, completeness, and validity of accounting information; and
  • to prohibit misuse of accounting items and the creation and submission of false accounting data..

Internal control over computer systems

Key aspects of a commercial bank's internal control over computer systems are:

  • to divide the functions of the computer system development department, management departments, and application departments;
  • to establish and make sound the system of risk prevention for the computer system; and
  • to ensure the safety of the computer system devices data, system operation and system environment.

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