New rules issued by the Chinese State Council for financial holding companies aim to separate the industrial sector from the financial sector

14 Sep, 2020 10:15
source: Singularity Financial

Singularity Financial Hong Kong September 14, 2020 – The Chinese central government just decided that, the companies outside the finance industry that owns two or more financial institutions are going to have to get registered as a financial holding company to comply with a slate of new rules.

The new rules (link in Chinese), released Sunday by the State Council — China’s cabinet — and the People’s Bank of China (PBOC), aim to bring nonfinancial companies, including Ant Group Co. Ltd. and China Evergrande Group, into the financial fold, stated by local financial media.

The regulations, which will take effect on November 1, specify rules on a wide range of issues concerning market access of financial holding companies, including registered capital, shareholders, actual controllers, capital replenishment and risk management, according to the State Council.

Non-financial companies or other eligible entities, which control at least two financial institutions doing business across financial sectors, are required to apply to and get approval from the central bank to establish financial holding companies.

As for financial institutions, paid-in registered capital should be no lower than 5 billion yuan (US$733 million) and account for no less than 50 percent of the total registered capital of the financial institutions under direct control to apply for the establishment of a financial holding company.

The “financial institutions” mentioned in the regulations refer to commercial banks (excluding those at village and township level), financial leasing companies, trust companies, financial asset management companies, and some other institutions designated by the financial authorities under the State Council.

Non-financial enterprises or authorized legal persons who hold financial assets comprising no less than 85 percent of their total assets and meet the general requirements can also directly apply to be certified as financial holding companies.

In accordance with the regulations, the central bank has taken the lead in formulating the measures which further clarify the requirements of financial holding companies in access management and supervision.

The measures institutionally separate the industrial sector from the financial sector; clarify qualifications of shareholders; strengthen capital management; require the ownership structure to be concise, clear and transparent; standardize related transactions; and optimize corporate governance and risk management.

In general, the release of new rules is aimed at deepening financial reforms, helping standardize the operation and management of financial holding companies, guarding against “cross-infection” of risks, standardizing the order of the financial market, better serving the real economy, and promoting a virtuous circulation of economy and finance, said Pan Gongsheng, deputy governor of the central bank and director of the State Administration of Foreign Exchange.