Chinese Central Bank Steps up Regulation of Affiliate Transactions by Financial Holding Companies

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The Chinese central bank is further stepping up its regulation of financial holding companies with the release of a new set of Measures that target affiliate transactions.

On 9 February the People’s Bank of China (PBOC) released the “Administrative Measures for the Affiliate Transactions of Financial Holding Companies” (金融控股公司关联交易管理办法), for the purpose of “regulating the affiliate transactions of financial holding companies and promoting the stable operation of financial holding companies.” The Measures are scheduled to come into effect on March 1.

“Financial holding companies have a large number of participating institutions, complex operations and organizational structures, large-scale financial activities, and high-levels of affiliate business,” a PBOC official said. “Standardising the management of affiliate transactions is an important part of strengthening and improving the supervision of financial holding companies.”

The Measures stipulate that financial holding companies shall assume primary responsibility for the management of the affiliate transactions of financial holding groups, as well as standardising the operation of the group’s internal transactions, guiding and supervising subsidiary organizations in the management of affiliate transactions, and uniformly managing the group’s external affiliate transactions and risk exposure.

“The release and implementation of the ‘Measures’ will help promote financial holding groups to improve the management level of affiliate party transactions, prevent the transmission of benefits, risk contagion and regulatory arbitrage, and improve the macro-prudential policy framework.”

The Measures defines the various types of affiliate party transactions for financial holding companies and financial holding groups; clarifies prohibited behaviours, requires the setting of limits for affiliate party transactions, requires that financial holding companies improve the pricing mechanism for affiliate party transactions, establish and improve affiliate party transaction management and reporting and disclosure systems, and establish special audit and internal accountability mechanisms.

The Measures also clarify arrangements for the relevant supervisory measures to be undertaken by PBOC.

PBOC said that the next step will be to strengthen regulatory cooperation with relevant departments, guide and spur financial holding companies to conscientiously implement the requirements, strengthen the supervision of the affiliate transactions of financial holding companies, promote the healthy and orderly development of financial holding groups, and maintain the stability of the financial system.