November, 2020

Author : Kayla Lau

The State Council Launches New Requirements for the Establishment of Financial Holding Companies

China is increasing its regulatory scrutiny of non-bank financial companies including Ant Group, HNA Group, and Fosun International. The People’s Bank of China and other financial regulators have announced a new decision tightening requirements in an attempt to reduce financial risks (the “Decision”). The postponement of the Ant Group IPO could have been affected by the new regulations as the company’s proposed offering might no longer meet the requirements for listing. 

Effective from 1st November 2020, companies that hold or control two or more types of financial institutions, manages its own equity investments and does not have direct engagement in commercial business activities will need to register as a financial holding company.

“Financial Institutions” include:

1. Commercial banks (excluding those at village and township level), financial leasing companies;
2. Trust companies;
3. Financial asset management companies;
4. Securities companies, public fund management companies;
5. Life insurance companies, property insurance companies, reinsurance companies, insurance asset management companies
6. Other institutions designated by the financial authorities under the State Council.

The Decision clarifies the conditions and requirements for registering financial holding companies in China, stipulating that under the following circumstances, application should be made for the establishment of a financial holding company:

1. Share-controlled or actually controlled financial institutions including commercial banks, with total assets of 500 billion yuan or over or total assets less than 500 billion yuan but the total assets of financial institutions aside from commercial banks are 100 billion yuan or over, or their total assets under management are 500 billion yuan or over.
2. Share controlled or actually controlled financial institutions do not include commercial banks, and the total assets of such financial institutions are 100 billion yuan or over, or their total assets under management are 500 billion yuan or over.
3. The total assets or assets under management of share controlled or actually controlled financial institutions do not satisfy the benchmarks of item 1 and item 2, but the Chinese central bank deems it necessary to establish a financial holding company on the grounds of macro-prudential necessity.

The State Council also released the “Financial Holding Company Supervisory and Regulatory Trial Measures” to supplement the regulations. The Measures contain further requirements with regards to shareholding, which includes clarify qualifications of shareholders of financial holding companies in terms of core business, corporate governance, financial status, equity structure, and risk management and impose requirements on major shareholders, controlling shareholders and actual controllers.

The new regulation will have a positive impact on the financial market, facilitating orderly competition among all sorts of institutions and forestalling systematic risks, the PBOC said in a statement.

Sources: China Banking News and The People’s Bank of China