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September 15, 2020

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Rules to cut risks in finance sector

Source: Xinhua/Shanghai Daily | 00:05 UTC+8 September 15, 2020 | Print Edition

China issued fresh rules yesterday to tighten regulation of the country’s financial holding companies, a move that experts say will forestall risks in the financial sector.

The regulation concerns non-financial companies and other eligible entities that control at least two financial institutions doing business across financial sectors, requiring them to apply for and gain approval from the central bank, the People’s Bank of China, to establish financial holding companies.

The move is aimed at plugging regulatory loopholes and deepening financial reforms amid efforts to maintain market order, reduce risks and enhance support for the real economy, according to the State Council.

The new rules will be effective from November 1, 2020.

While some large financial groups and non-financial enterprises have been operating as financial holding firms in recent years to conduct cross-industry investments, financial holding companies have not been included as a group in the country’s supervision framework, posing financial risks, PBOC Vice Governor Pan Gongsheng said yesterday.

Recognizing that some well-managed firms have optimized resources and reduced costs by means of financial holding firms, Pan also noted irregularities in the sector, including misuse of funds from financial institutions and improper profits from related-party transactions.

The new rules require non-financial firms to establish separate financial holding companies subject to regulation, effectively putting up a firewall between the real economy and the financial sector to reduce contagion risk, Pan said.

The regulation stipulates that 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.

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