A sign featuring a HSBC Holdings Plc logo hangs outside a bank branch in London, UK. (Hollie Adams / Bloomberg)

BEIJING -  In a move to further open up the financial sector, China is mulling supporting foreign banks' access to the fund custody service business in the Chinese market, according to a draft revision of fund custody rules issued by the country's top securities regulator.

Besides meeting general entry requirements, branches that want to apply should have been operating for at least three years with good performance and asset quality, as well as enough working capital to match with the scale of the planned fund custody business, according to the draft revision

Eligible domestic branches of foreign banks would be able to apply for the permit for fund custody business, said the draft rules disclosed to solicit public opinions by the China Securities Regulatory Commission.

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Besides meeting general entry requirements, branches that want to apply should have been operating for at least three years with good performance and asset quality, as well as enough working capital to match with the scale of the planned fund custody business, according to the draft revision.

As for financial performance requirements such as net assets, which were revised down to 20 billion yuan (about US$2.82 billion) in the new version, the draft suggested using performance indicators of the applicants' headquarters overseas.

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The draft also improved regulatory measures over fund custodian banks to stem risks by having headquarters of foreign banks bear civil liability for their Chinese branches, as well as specifying requirements on cross-border information system deployment and cross-border flow of data.

The revision marks a further step in China's financial opening-up to further boost foreign banks' participation in the Chinese securities and fund market, Shanghai Securities News reported, citing remarks from HSBC Bank (China), which is looking forward to gaining access to the fund custody business in the domestic market.

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Liao Zhiming, an analyst with Tianfeng Securities, said the move is unlikely to impact the domestic banking sector but will encourage benign competition and bring in more funds to the capital market.

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