China Draft Financial Law Legal Analysis

April 15, 2026

China’s Draft Financial Law and Key Regulatory Insights

Jake Laband, Eugena Liu, Lester Ross WilmerHale + Follow Contact LinkedIn Facebook X Send Embed On March 20, 2026, the Ministry of Justice (“MOJ”), together with the People’s Bank of China (“PBOC”), the National Financial Regulatory Administration (“NFRA”), the China Securities Regulatory Commission (“CSRC”) and the State Administration of Foreign Exchange (“SAFE”), released the Financial Law of the People’s Republic of China (Draft) (《中华人民共和国金融法（草案）》) (the “Draft”) for public comment through April 19, 2026. 1

China’s move toward a comprehensive Financial Law has developed quickly over several years. The concept was first officially proposed at the Third Plenary Session of the 20th Party Central Committee in July 2024 2 and was later reaffirmed by the State Council in November 2024 through its emphasis on advancing financial rule‑of‑law legislation. 3 In March 2026, the Standing Committee of the National People’s Congress (“NPC”) confirmed that enactment of the finance and financial stability law would be a legislative priority. 4 In line with these prior efforts, the Draft was officially released for public consultation, drawing significant attention and active review as stakeholders consider its potential impact on the financial landscape.

The Draft, consisting of 11 chapters and 95 articles, is positioned as China’s first system-level, overarching and foundational statute governing the financial system as a whole, serving as a comprehensive, cross-sector framework for the financial industry and encompassing banking, securities, insurance, trusts and other financial institutions and products and services. 5 The Draft primarily focuses on “(1) clarifying the guiding and overall requirements for financial work; (2) establishing a modern central banking system; (3) regulating the conduct and activities of financial institutions; (4) enhancing the standardization of financial products and services; (5) optimizing the functions of the financial market system; (6) comprehensively strengthening financial regulation; (7) improving the mechanisms for handling financial risks; (8) coordinating high-quality financial development with financial security; and (9) reinforcing legal liability.” 6

The Draft’s stated purpose is to “strengthen financial regulation across the board, prevent and defuse financial risks, promote high-quality financial development, address prominent issues constraining such development, and better leverage the rule of law to consolidate foundations, stabilize expectations and deliver long-term benefits.” 7

More broadly, the Draft aligns with policy priorities set by President Xi Jinping and the Party Center, which emphasize building China into a “financially strong nation” through the development of “a modern financial system with Chinese characteristics”—one that delivers higher‑quality financial services to the real economy, operates under comprehensive and law‑based regulation, and possesses strong institutional soundness and resilience, including financial infrastructure that is increasingly independent, controllable, and secure in a complex global environment, and that is less dependent on and fundamentally different from the existing Western-led financial model. 8 In other words, the Draft’s significance extends not only beyond individual financial sectors, but also to China’s financial structure as a whole and, to some extent, China’s position in the global world of finance.

The Draft constitutes a significant structural shift away from China’s traditional sector–specific regulatory framework. Historically, financial institutions have been governed primarily by sector‑specific legislation, most notably the Commercial Banks Law, Securities Law, and Insurance Law, supplemented by administrative regulations and departmental rules. The Draft is intended to sit above these sectoral regimes as the “first comprehensive basic law in China’s financial sector,” 9 establishing common principles and baseline obligations applicable across all financial sectors while leaving detailed and technical rules to be addressed in sector-specific laws for different industries and categories of transactions. As a result, this would establish a two‑tier model in which the Financial Law provides unified, system‑level standards, while each sector also continues to operate under a sector-specific statute and more detailed statutes and regulations governing specific activities and transactions.

Once formally enacted, the Financial Law will serve as a foundational framework law for China’s financial system, coordinating existing sector‑specific legislation, including the Commercial Banks Law, Insurance Law, Securities Law, Futures and Derivatives Law, and Banking Supervision and Administration Law, as well as such pending legislation as the Financial Stability Law.

We have outlined below a number of regulatory insights and takeaways from the Draft. As the Draft remains open for public comment, these observations are intended to facilitate a more targeted review of the Draft and help stakeholders identify areas that may warrant further attention.

Regulatory Insights

1. Comprehensive Scope of Financial Supervision

Building on the regulatory direction articulated at the Central Financial Work Conference to bring all financial activities within the scope of supervision, 10 Article 3 of the Draft adopts a broad, catch-all approach. It defines “financial activities” as encompassing monetary and credit activities directly related to deposits, loans, insurance, securities, futures and derivatives, funds, trusts, payments and settlements, credit reporting, and similar matters, engaged in by natural persons, legal persons, and unincorporated organizations. 11 Additionally, Article 3 encompasses a broad spectrum of financial intuitions—banks, securities firms, insurers, trust companies, financial holding companies and nonbank payment institutions—and their processes. 12 This formulation effectively expands the regulatory perimeter from “all financial business” to “all financial activities”. 13

2. Modern Central Bank System

Before the Draft, the statutory functions of the PBOC as superior financial regulator were specified in various laws, including the People’s Bank of China Law, 14 the Anti-Money Laundering Law, 16 the Commercial Banks Law, 16 and other related financial regulations. Now, Chapter 2 of the Draft consolidates and clarifies the statutory functions of the PBOC, providing unified legal grounding for the PBOC’s role in maintaining financial stability. It expressly provides that the PBOC is responsible for formulating and implementing monetary policy, conducting macroprudential policy, and maintaining financial stability, and it designates the PBOC as the lead authority for establishing the macroprudential policy framework in coordination with relevant State Council departments. 17 Chapter 2 further authorizes the PBOC to take counter‑cyclical and cross‑cyclical measures to promote the sound and stable development of financial markets. 18 Significantly, Article 12 formally recognizes the legal status of the digital renminbi, a digital currency issued by the PBOC. For the first time at the statutory level, it expressly affirms that the digital renminbi has equal legal footing with the physical renminbi, which will position the renminbi to challenge the dominance of the US dollar and other less widely used currencies for dominance in international transactions. 19

3. Special Governance Regime and Shareholder Accountability for Financial Institutions

The Draft establishes an enhanced governance and shareholder accountability framework for financial institutions. Rather than focusing on licensing and exit procedures, Chapter 3 of the Draft emphasizes (i) strengthening capital contribution requirements by elevating existing regulatory rules on paid‑in capital, source‑of‑funds verification, and prohibitions on false or circular capital contributions to the level of binding law applicable across all types of financial institutions; (ii) mandating transparency of shareholding structures and expressly prohibiting mechanisms designed to conceal actual controllers; and (iii) regulating shareholder conduct by prohibiting asset misappropriation, improper share pledges, abuse of shareholder rights, and undue interference with management. 20 To support a look-through supervisory approach, Chapter 3 equips regulators with robust enforcement tools, including the ability to require capital supplementation, restrict shareholder rights, and mandate equity transfers, 21 reflecting the policy objective of addressing governance and risk issues at the level of shareholders and actual controllers.

4. Financial Products and Services and Consumer Protection

The Draft expressly calls for stricter regulations on financial products and services and improved mechanisms to protect financial consumers and investors. Chapter 4 establishes a dedicated framework governing the approval, registration, filing and distribution of financial products and services, and expressly prohibits the use of bundling, splitting or nesting structures to circumvent applicable laws or regulatory requirements. 22 It further prohibits fraudulent sales practices and restricts the active promotion of products exceeding a client’s risk tolerance. 23 For financial institutions, these requirements imply heightened expectations around sales practices, the accuracy of disclosures, the reporting of data, and the handling of complaints. 24 In line with the forthcoming Measures for the Handling of Financial Consumer Complaints by Banking and Insurance Institutions (《银行保险机构金融消费投诉处理管理办法》), 25 banks and insurers are expected to establish independent and efficient frameworks for handling complaints and diversified dispute resolution mechanisms. Article 37 further extends regulatory expectations to third‑party service providers involved in financial activities, such as accounting firms, asset appraisal institutions, and other professional intermediaries. 26 It emphasizes that such third parties must independently adhere to principles of honesty, good faith and due diligence when performing services connected to financial activities, rather than merely relying on instructions from financial institutions. 27

5. Financial Risk Disposition and Resolution Mechanisms

Chapter 8 of the Draft, comprising 10 articles, sets out a comprehensive framework for the disposition of financial risk. The Draft adopts market‑driven and rule‑of‑law principles to handle financial risks, with the stated goal of preventing systemic financial crises. 28 To operationalize these principles, the Draft establishes a layered emergency response architecture. Article 65 authorizes the State Council’s financial regulators to require institutions showing elevated risk indicators to conduct internal‑reviews and implement rectification measures. 29 Article 66 further delineates risk‑disposition responsibilities based on the nature and scope of the at-risk institution. 30 At the national level, responsibility for risk disposition extends to nationwide financial institutions, including national-level commercial banks, securities, funds and futures institutions, and central financial enterprises and their financial institution subsidiaries. 31 The term “central financial enterprises” refers to state‑owned or state‑controlled financial institutions for which the State Council or its authorized entity exercises investor responsibilities on behalf of the state. 32 These entities are identified on a centralized list maintained by the Ministry of Finance and currently comprise approximately 27 institutions. 33 At the provincial level, risk disposal responsibility applies to subnationally operated or controlled financial institutions, such as city commercial banks, rural commercial banks, rural credit cooperatives, subnational insurance companies, township and village banks, and other subcentral non‑bank financial institutions, significant numbers of which have been operated imprudently, fostering financial and social instability. 34

Article 67 equips regulators with a diversified resolution toolkit—ranging from establishing takeover or resolution bodies, restructuring assets and liabilities, suspending transactions, and revoking licenses to measures such as debt‑to‑equity conversions—while also authorizing exemptions where appropriate, thereby providing flexibility in addressing financial distress. 35 Article 69 underscores a clear sequencing principle for risk resolution, requiring financial institutions to prioritize internal rescue measures—such as capital replenishment, debt restructuring, and debt‑to‑equity conversion mechanisms — before resorting to external support, thereby reinforcing market discipline and limiting moral hazard. 36

6. Financial Development and Priorities

As part of China’s broader high-quality financial development agenda, Article 74 of the Draft identifies science and technology finance, green finance, inclusive finance, finance for the elderly, and digital finance as key policy priorities and calls for financial resources to be directed toward structurally weaker segments of the economy. 37 Articles 75 and 76 further emphasize enhanced financial support for small and micro enterprises, equal treatment of market participants, and the promotion of more focused, disciplined and risk‑aware operations by financial institutions to strengthen their support for the real economy.
The Draft also underscores the deepening of capital market reform, reaffirming the objective of building a market that is well functioning, transparent, open and resilient and that supports long‑term investment and stable market expectations. 38

7. Financial Security and Countermeasures Against Foreign Sanctions

The Draft tightens supervision in areas such as anti‑money laundering and financial security while continuing to require regulatory approval for the establishment of financial institutions and engagement in other major financial activities. The Draft frames financial development and financial security as mutually reinforcing objectives. It strengthens requirements relating to financial infrastructure security, including network and data protection mechanisms, and introduces a national security review for financial data processing activities that may affect or potentially affect national security. 39

Notably, Article 85 introduces targeted provisions allowing China to take countermeasures against any country or region that imposes discriminatory financial restrictions on Chinese citizens or organizations. 40 These provisions also authorize measures to block the improper extraterritorial application of foreign laws and prohibit domestic entities from enforcing or assisting such foreign measures. 41 These provisions have significant implications for the effectiveness of sanctions imposed by the United States or other nations and regions that may apply to Chinese financial institutions. This is consistent with China’s long-standing position that only a global institution, particularly the United Nations in which China holds veto power on the Security Council, has the authority to impose sanctions on other countries. China has, however, increasingly imposed its own unilateral sanctions. 42

8. Legal Liability

Violations of the Financial Law are subject to penalty under Chapter 10. The Draft reinforces legal liability across the financial sector by increasing penalties for violations and generally raising the costs of noncompliance. Article 86 of the Draft introduces per‑occurrence penalties, under which repeated or ongoing violations may result in cumulative fines. 43 For example, penalties for repeatedly selling noncompliant financial products may be assessed separately for each independent violation, significantly increasing overall financial exposure. Article 87 further introduces revenue‑based penalties, authorizing fines of up to 5% of an institution’s prior‑year operating revenue (or the equivalent transaction value), 44 which may result in substantial financial exposure for large financial institutions.

9. “Effects-Based” Extraterritorial Application

Article 92 of the Draft introduces an express extraterritorial application provision based on an “effects‑based” rather than “territorial-based” jurisdictional approach. 45 Under this provision, financial activities conducted outside the territory of China may nevertheless be subject to liability under the Draft where such activities endanger China’s national financial security, disrupt domestic financial order, or infringe on the lawful rights and interests of Chinese citizens or domestic organizations. 46

This provision provides a clear statutory basis for regulators to address structuring techniques that seek to circumvent China’s financial regulatory and market‑access requirements through overseas entities, offshore structures, or cross‑border arrangements. 47 Consistent with the Draft’s broader emphasis on “substance‑over‑form” and “look‑through” supervisory approaches, Article 92 signals heightened regulatory scrutiny of cross‑border business models where financial products or services are substantively provided to domestic users without the requisite approvals, regardless of the location of the service provider, legal entity, or technical infrastructure. 48

In practical terms, Article 92 would bring certain cross-border business activities that effectively target PRC residents within the scope of regulatory approval requirement, such as offering wealth management products, facilitating margin financing, or providing trading access through app‑based or web‑based platforms. Even where the institution is incorporated abroad and its technical infrastructure is located outside China, liability may arise under Article 92 if the relevant activities disrupt domestic financial order or harm the interests of domestic investors. 49

10. Implications for Foreign-Invested Financial Institutions

Article 93 clarifies that foreign-invested financial institutions incorporated in China—including Chinese-foreign joint ventures, wholly foreign-owned institutions, and branches of overseas financial institutions established in China—fall within the scope of the Draft. It further clarifies that in the event of any conflict, provisions under laws governing foreign‑invested financial institutions will prevail over the Financial Law. 50 This signals a continued commitment to a unified regulatory framework applicable on a consistent basis to both domestic and foreign players, while preserving space for sector-specific or foreign investment regimes to operate as exceptions. Notably, although “financial activities” as defined in Article 3 do not expressly include private investment funds, Article 93 provides that such funds are subject to the Draft by reference 51 effectively bringing private investment funds within the broader regulatory framework. ****

Conclusion Looking ahead, we expect further rulemaking and implementation measures in China’s financial regulatory space, which may have implications for United States and other overseas companies operating in or engaging with Chinese markets, as well as the global financial regulatory system.

Footnotes

–

1. China Releases Draft Financial Law for Public Consultation (《金融法草案向社会公开征求意见》)(Mar. 20, 2026), https://www.moj.gov.cn/pub/sfbgw/gwxw/xwyw/202603/t20260320_532982.html; the official English-language announcement is available at: http://en.moj.gov.cn/2026-03/23/c_1170384.htm; the Draft Financial Law (Chinese only) is available at: https://npcobserver.com/wp-content/uploads/2026/03/Finance-Law-2026-Draft.pdf.
2. Central Committee of the Communist Party of China, Decision on Further Comprehensively Deepening Reform to Advance Chinese Modernization (《中共中央关于进一步全面深化改革 推进中国式现代化的决定》) (Jul. 21, 2024), available at https://www.mee.gov.cn/zcwj/zyygwj/202407/t20240721_1082070.shtml (Chinese only).
3. State Council of the People’s Republic of China, Report on the State Council’s Financial Work (《国务院关于金融工作情况的报告》) (Nov. 5, 2024), available at https://www.safe.gov.cn/gansu/2024/1120/2072.html.
4. Report on the Work of the Standing Committee of the National People’s Congress (《全国人民代表大会常务委员会工作报告》) (Mar. 9, 2026), https://www.news.cn/politics/20260315/bfc2a93919af46208459d9681242158c/c.html; the English translation is available at: https://npcobserver.com/wp-content/uploads/2026/03/2026-NPCSC-Work-ReportNON-FINALEN.pdf.
5. See note 1.
6. Id.
7. Id.
8. Xi Jinping, “Following the Path of Financial Development with Chinese Characteristics and Building a Financially Strong Nation” (《走好中国特色金融发展之路，建设金融强国》), Qiushi (求是) (Jan. 31, 2026), available at https://www.qstheory.cn/20260131/487aa5b5e0804f7ea968118e541b4e91/c.html (Chinese only).
9. See note 1.
10. State Council, “Central Financial Work Conference Is Held” (Nov. 2, 2023), https://english.www.gov.cn/news/202311/02/content_WS65430bb8c6d0868f4e8e0e33.html (Chinese only).
11. See note 1.
12. Id.
13. Id.
14. People’s Bank of China of the People’s Republic of China (《中华人民共和国中国人民银行法》) (adopted Mar. 18, 1995; amended Dec. 27, 2003), available at https://www.safe.gov.cn/heilongjiang/file/file/20190426/882cfe623eb6446a829a3829aa442a64.pdf (Chinese only).
15. Anti‑Money Laundering Law of the People’s Republic of China (《中华人民共和国反洗钱法》) (adopted Oct. 31, 2006; amended Nov. 8, 2024), available at https://www.spp.gov.cn/spp/fl/202411/t20241109_671653.shtml ((Chinese only).
16. Commercial Banks Law of the People’s Republic of China (《中华人民共和国商业银行法》) (adopted May 10, 1995; last amended Aug. 29, 2015), available at https://www.nfra.gov.cn/cn/view/pages/ItemDetail.html?docId=879929&itemId=927 (Chinese only).
17. See note 1.
18. Id.
19. Id.
20. Id.
21. Id.
22. Id.
23. Id.
24. Id.
25. NFRA, Measures for the Administration of Financial Consumer Complaint Handling by Banking and Insurance Institutions (Revised Draft for Comments) (《银行保险机构金融消费投诉处理管理办法（修订征求意见稿）》) (Mar. 20, 2026), available at https://www.nfra.gov.cn/cn/view/pages/ItemDetail.html?docId=1252215&itemId=917 (Chinese only).
26. See note 1.
27. Id.
28. Id.
29. Id.
30. Id.
31. Id.
32. MOF, Interim Measures for the Administration of the List of Central Financial Enterprises (《中央金融企业名录管理暂行规定》) (Jul. 13, 2020), available at http://jrs.mof.gov.cn/zhengcefabu/cqgl/202007/t20200715_3550190.htm (Chinese only).
33. MOF, Central Financial Enterprises List (《中央金融企业名录》) (Feb. 19, 2021), archived at https://web.archive.org/web/20250612160503/http://jrs.mof.gov.cn/gongzuotongzhi/202102/t20210219_3658752.htm (Chinese only).
34. See note 1.
35. Id.
36. Id.
37. Id.
38. Id.
39. Id.
40. Id.
41. Id.
42. Francesca Ghiretti, “How China Imposes Sanctions: A Guide to the Evolution of Beijing’s New Policy Tool, Mercator Institute for China Studies” (Jun. 6, 2023), available at https://merics.org/en/report/how-china-imposes-sanctions.
43. See note 1.
44. Id.
45. Id.
46. Id.
47. Id.
48. Id.
49. Id.
50. Id.
51. Id. Send Print Report ### Latest Posts

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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