China – CSRC Equity Management

China – CSRC Equity Management

On 5 July 2019, CHI CSRC updated equity management for securities.

  • Revised regulations on equity management for securities companies and
    supporting provisions, to reestablish approval of domestic securities companies.


  • From 30 March 2018, to 29 April 2018, CHI CSRC solicited opinions from public.
  • Feedback collected included asset size requirements of controlling shareholders,
    requirements on ratio of non-financial enterprises with controlling shareholding.
  • Main principles of regulations are specialized management, high qualifications,
    clear rights, responsibilities and structure, orderly change, openness, transparency.

Regulation Requirements

  • Differentiations should be made between conventional securities firms and financial companies dealing with multiple products (such as options, commodities, buybacks).
  • In stipulating shareholder prerequisites, the former only needs shareholders to fulfill basic legal conditions, while the latter needs higher standards and risk management.
  • Shareholder transparency to be strengthened with shareholder background checks.
  • Verify source of funds, funds from other origins e.g. entrusted funds are prohibited.
  • Substance over form, verify shareholder relationships to ensure division of control.
  • During equity lock-up period, no shareholders should pledge shareholding, after the lock-up period, their proportion of shareholding should not exceed 50% of shares.
  • Strengthen both internal management and external controls for full supervision.
  • Clarify roles and responsibilities of the board – CEO on top, followed by secretary.
  • Firm’s articles of association to limit voting rights of non-compliant shareholders.
  • Have clear measures on how to deal with unauthorized changes of shareholding,
    falsifying capital contributions and other sorts of violations of laws and regulations.
  • Any untrustworthy behavior to be recorded in capital market integrity database.

Supporting provisions

  • Declaration documents required for matters relating to changes in a firm’s registered capital, equity, and changes in 5% or more of equity of the controlling shareholder.
  • 5-year transition period granted if controlling shareholder of financial company with multiple products does not meet conditions for asset size specified in regulations.
  • If conditions still not met after 5 years, conventional financial trading activities are still allowed but trading in high-risk products (derivatives, etc.) will be disallowed.