State Council Proposes New Requirements for Establishing Financial Holding Companies

November, 2020

The People's Bank of China and other financial regulatory authorities announced a new tightening requirement to attempt to reduce financial risk. Starting from November 1, 2020, companies that hold or control two or more financial institutions, manage their own equity investments, and do not directly participate in commercial business activities will need to register as financial holding companies.

"Financial institutions" include:

1. Commercial banks (excluding village-level banks, same hereinafter), financial leasing companies;
2. Trust companies;
3. Financial asset management companies;
4. Securities companies, public fund management companies, futures companies;
5. Life insurance companies, property insurance companies, reinsurance companies, insurance asset management companies;
6. Other institutions recognized by the financial regulatory departments of the State Council.

The decision clarifies the conditions and requirements for registering a financial holding company in China, stipulating that an application to establish a financial holding company shall be made under the following circumstances:

1. Where the controlled or actually controlled financial institutions include commercial banks, the total assets of the financial institutions shall not be less than 500 billion RMB, or if the total assets of the financial institutions are less than 500 billion RMB but the total assets of other types of financial institutions other than commercial banks are not less than 100 billion RMB or the total assets entrusted for management are not less than 500 billion RMB;
2. Where the controlled or actually controlled financial institutions do not include commercial banks, the total assets of the financial institutions shall not be less than 100 billion RMB or the total assets entrusted for management shall not be less than 500 billion RMB;
3. Where the total assets of the controlled or actually controlled financial institutions or the total assets entrusted for management do not meet the standards stipulated in the first and second items above, but the People's Bank of China deems it necessary to establish a financial holding company according to macro-prudential regulatory requirements.

The State Council also issued the "Interim Measures for Supervision and Administration of Financial Holding Companies" to supplement relevant regulations. The "Measures" propose further requirements on shareholding, including clarifying the qualifications of shareholders of financial holding companies in core business, corporate governance, financial status, equity structure, and risk management, and making requirements for major shareholders, controlling shareholders, and actual controllers.

The People's Bank of China stated in a declaration that this new regulation will have a positive impact on the financial market, promote orderly competition among various institutions, and prevent systemic risk.

Source: China Banking News and the People's Bank of China