New rules for financial holding companies

China has issued new regulations on the admission and supervision of financial holding companies.

The State Council has unveiled new rules to regulate market access of financial holding companies, while the People’s Bank of China simultaneously issued trial measures on the supervision and administration of financial holding enterprises.

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.

For the next step, Pan noted the authorities' determination to further improve the institutional framework. 

The two documents have preliminarily set up the policy framework of financial holding companies, but the regulatory system requires more specific and detailed operational rules, such as rules for consolidated supervision, capital management, and related-party transaction management, Pan said.