On 13 September the State Council officially released the “Decision Concerning the Implementation of Financial Holding Company Entry Regulation” (关于实施金融控股公司准入管理的决定), which is scheduled for implementation starting from 1 November 2020.
On the same date the State Council also released the “Financial Holding Company Supervisory and Regulatory Trial Measures” (金融控股公司监督管理试行办法) to accompany the Decision, which it first passed on 2 September at a regular meeting convened by Premier Li Keqiang.
Zeng Gang (曾刚), deputy-chair of the National Institute of Finance and Development (NIFD), said that the release of the Decision means that forms of financial holding that “did not exist in name but existed in reality” will now be included within the purview of regulation.
Zeng said that this will be of “benefit to preventing systemic financial risk and serving the sustainable development of financial holding companies.”
The Decision clarifies the conditions and requirements for the registration of financial holding companies in China, stipulating that under the following circumstances application should be made for the establishment of a financial holding company:
- Share-controlled or actually controlled financial institutions include commercial banks, and the total assets of such financial institutions are 500 billion yuan or over, or the total assets of the financial institutions less than 500 billion yuan, but the total assets of financial institutions aside from commercial banks are 100 billion yuan or over, or their total assets under management are 500 billion yuan or over.
- Share controlled or actually controlled financial institutions do not include commercial banks, and the total assets of such financial institutions are 100 billion yuan or over, or their total assets under management are 500 billion yuan or over.
- The total assets or assets under management of share controlled or actually controlled financial institutions do not satisfy the benchmarks of item 1 and item 2, but the Chinese central bank deems it necessary to establish a financial holding company on the grounds of macro-prudential necessity.
According to the Decision all financial companies must be registered with the approval of the Chinese central bank, or they are not permitted to use the terms “financial holding” (金融控股) or “financial group” (金融集团) in their names.
The Chinese central bank will issue a financial holding company permit to approved applicants, which will be used for registration with market regulators in order to obtain an operating license.
If financial holding companies should be established in accordance with the requirements of the Decision, application should be made with the Chinese central bank within 12 months of the date of implementation of the Decision on 1 November 2020.
The accompanying Financial Holding Company Supervisory and Regulatory Trial Measures further contains requirements with regard to shareholding, which include:
- The equity structure of financial holding companies should be clear and transparent, and the legal person level rational. Reverse shareholding and cross-shareholding by share-controlled institutions is not permitted.
- Financial institutions that are share controlled are not permitted to become main shareholders in other types of financial institutions, although they are permitted to become main shareholders in financial institutions of the same type or those that provide an extension of their services.
- Where corporate groups exist prior to the implementation of the Measures whose equity structures do not satisfy requirements, following approval by financial regulators they will reduce the level of complexity of their organisational structure and simplify their legal person level during a transitional period.
The Measures also make requirements with regard to corporate governance and financial regulation:
- Financial holding companies should improve corporate governance structures, and lawfully participate in the legal person governance of share-controlled institutions. They are not permitted to interfere in the independent operation of share-controlled institutions. Registration is performed for the appointment of the directors, supervisors and senior management personnel of financial holding companies.
- Financial holding companies establish healthy and comprehensive risk management systems on the foundation of consolidation, covering all share-controlled institutions and all forms of risk.
- Establish and improve group risk segregation mechanisms, make standardised use of coordination effects, and focus on protection of client information.
- Strengthen management of affiliate transactions. Transactions between affiliates of the group should be lawful and compliant and abide by market principles.