State Council Launches New Requirements for Establishment of Financial Holding Companies


China’s top government authority has provided further clarification for requirements in relation to the establishment of financial holding companies (FHC), in order to deal with risk in relation to investment in financial institutions by non-finance enterprises.

On 2 September a regular meeting of the State Council passed 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 clarifies FHC establishment requirements.

The State Council said that where non-finance enterprises or natural persons control via shares or actually control two or more financial institutions of different types, and the total assets of such financial institutions satisfy thresholds, they should apply for the establishment of a financial holding company.

The move is the first major development in China’s FHC regulatory space since the release of the draft version of the “Financial Holding Company Supervisory Administrative Trial Measures” (金融控股公司监督管理试行办法(征求意见稿)) for the solicitation of public opinions by the Chinese central bank in July 2019.

Chen Wen (陈文), chair of the Digital Economy Research Centre at the Southwestern University of Finance and Economics, said to National Business Daily that further regulation on acquiring controlling interests in financial organisations would be of benefit to dealing with regulatory arbitrage.

According to Chen some investment in financial institutions by non-finance companies had been for the purpose of acquiring financial licenses to facilitate affiliate transactions or dodge regulatory controls.

From a regulatory perspective mandating that such entities apply for the establishment of FHC’s would help to strictly inspect the shareholders in financial institutions and “strike” against illegal shareholding, as well as provide support for innovative policies.

During the meeting of China’s legislative assemblies in 2018 Wang Yuling (王玉玲) wrote an essay pointing out that the investment of non-financial enterprises in financial institutions could expedite the pluralisation of financial institution equity and shore up their capital, as well as optimise their own capital allocations.

Wang warned, however, that cross-regional, cross-sector and cross-industry regulatory gaps would continue to pose major risks.

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