In April 2022, a well-established U.S.-based financial services firm approached us for assistance in expanding its operations into China’s banking and financial services sector. The firm was looking to set up a branch office in Shanghai, aiming to offer wealth management and financial advisory services to both local and expatriate clients in China. This expansion required navigating China’s complex financial regulatory environment and obtaining various licenses for operating in the highly regulated banking industry.

The client faced several legal and regulatory hurdles in their expansion, including:

Licensing Requirements: Navigating the multi-layered regulatory approval process to obtain the necessary banking and financial service licenses from Chinese authorities.

Compliance with Local Banking Laws: Ensuring the client complied with China’s financial regulations, including anti-money laundering (AML) laws, foreign exchange controls, and capital management rules.

Data Protection and Cybersecurity Laws: Understanding and complying with China’s strict data protection and cybersecurity regulations, especially for handling sensitive financial information.

Cross-Border Regulatory Issues: Managing cross-border financial transactions between China and the U.S., including compliance with both countries’ regulations.

Repatriation of Profits: Structuring the financial operation to ensure efficient tax planning and smooth repatriation of profits back to the U.S. while complying with Chinese tax and foreign exchange regulations.

The client required several licenses to legally offer financial services in China. In May 2022, we initiated the process by engaging with the China Banking and Insurance Regulatory Commission (CBIRC) and the People’s Bank of China (PBoC) to understand the specific licensing requirements for their range of services. We assisted the client in applying for licenses to offer wealth management, financial advisory, and cross-border banking services, ensuring all documentation met local legal standards. In July 2022, we successfully obtained preliminary approval for the firm to operate in China’s financial services market, allowing them to start initial setup while final regulatory clearances were underway.

We helped the client establish a local compliance framework to align with China’s Banking Law and Securities Law. This included drafting operational procedures for reporting to local regulatory bodies, managing risk, and ensuring transparency in financial transactions. In August 2022, we implemented an anti-money laundering (AML) compliance program, which included staff training, customer due diligence (CDD) procedures, and suspicious activity reporting protocols, ensuring full compliance with Chinese AML Law. We also developed a compliance manual tailored to China’s banking regulations, providing the client with a structured approach to meeting ongoing compliance requirements.

With China’s increasingly stringent data protection laws, including the Personal Information Protection Law (PIPL) and the Cybersecurity Law, it was critical to ensure that the client’s operations complied with these regulations. In September 2022, we worked with the client’s IT and data teams to implement a data localization strategy that complied with Chinese laws regarding the storage of financial and personal data within China’s borders. We also helped the client establish a cross-border data transfer framework, ensuring that sensitive client data could be transferred securely between China and the U.S. without violating local cybersecurity laws.

The client planned to facilitate cross-border financial transactions, making it necessary to comply with China’s foreign exchange regulations and international standards, including U.S. financial regulations. In October 2022, we helped the client navigate the complexities of managing foreign exchange controls imposed by the State Administration of Foreign Exchange (SAFE), ensuring that the firm could offer cross-border financial products and services without breaching local currency regulations. We advised on compliance with Know Your Customer (KYC) requirements and capital controls to prevent any regulatory issues related to cross-border money transfers.

In November 2022, we provided tax structuring advice to minimize the client’s tax exposure in China, ensuring that they complied with corporate tax regulations while maximizing the availability of tax incentives for foreign financial institutions. We developed a profit repatriation strategy, allowing the firm to transfer profits back to the U.S. efficiently, using China’s double tax treaty with the U.S. to avoid double taxation and ensuring compliance with both countries’ tax regimes. We worked with the client’s finance team to set up accounting practices that adhered to both Chinese GAAP and international financial reporting standards.

By December 2022, all final approvals were obtained, including the official financial service and advisory licenses from the CBIRC, enabling the client to formally launch its operations in China. We assisted the client in setting up their Shanghai branch office, including drafting lease agreements, employment contracts for local staff, and ensuring the firm’s corporate governance structure met all local regulatory requirements.

Successful Market Entry: By January 2023, the client successfully launched its financial services branch in Shanghai, fully compliant with local laws and regulatory requirements.

Full Licensing: The firm obtained all necessary licenses, including wealth management and cross-border financial services licenses, allowing them to offer a full range of financial products to clients in China.

Data Protection and Compliance: The client’s operations were fully aligned with China’s data protection and cybersecurity laws, ensuring that sensitive financial data was protected and could be securely transferred between China and the U.S.

Efficient Profit Repatriation: A tax-efficient structure allowed the client to repatriate profits back to the U.S. without incurring excessive taxes or breaching foreign exchange controls.

Ongoing Regulatory Compliance: With a robust compliance framework in place, the client was well-positioned to continue growing its operations in China while staying in line with the country’s evolving regulatory landscape.