The top legislature adopted an amended law on Tuesday to allow banking supervisory bodies to investigate non-financial institutions and individuals.
The amendment to the law on banking regulation and supervision will come into effect on January 1, 2007. It is designed to strengthen supervision of the banking sector in the face of rising foreign competition.
The original law, which came into effect in 2004, allowed the China Banking Regulatory Commission (CBRC) and its subsidiaries to monitor, investigate and gather information only from financial institutions.
Many officials and analysts agreed that the law failed to empower banking watchdogs to effectively crack down on illegal practices in the banking sector.
"Some problems fail to be clearly addressed if we can only check the banks. We have to work with the clients involved," said Zhang Xiao, member of the NPC Standing Committee.
CBRC Chairman Liu Mingkang said earlier that the increased authority will help the institutions detect violations and gather key evidence.
During the first nine months of this year, 724 suspicious cases were reported in banking financial institutions and 194 of them each involve over one million yuan (US$125,000) in misused capital.
Quite a number of frauds have been masterminded by bank insiders in collusion with outside institutions and individuals that banking supervisory bodies had no legal power to investigate.
Last year, the CBRC received 76 complaints of obstruction of investigations.
The amendment is expected to boost risk control and internal management of the financial sector to compete with foreign rivals. According to China's World Trade Organization commitment, its banking sector will fully open to foreign competition at the end of this year.
Foreign-invested banks in China are required to cooperate with banking regulators.
Institutions and individuals who obstruct investigations will face criminal charges.
(Xinhua News Agency November 1, 2006)