- 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.
- 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.
- 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.