China plans to regulate ‘financial firms’

Bloomberg

China plans to start regulating large conglomerates that may pose systemic risks to the nation’s financial sector.
Certain non-financial firms or individuals with businesses that straddle at least two financial industries will be classified as “financial holding companies” and will need licenses from the People’s Bank of China to operate, the regulator said in proposals. If adopted, the rules would require the companies to hold specified levels of capital and regulators would scrutinise their ownership structure, related transactions, and source of funding.
“Some financial holding companies, mainly those formed by investments of non-financial enterprises, have been expanding blindly into the financial industry,” the PBOC said. “There has been a regulatory vacuum, and risks are accumulating and being exposed continuously.”
The PBOC last year identified HNA Group Co, Fosun International Ltd, China Evergrande Group, and Tomorrow Holding Co as “financial holding companies,” as well as internet giants such as Ant Financial. The firms’ growing role in the nation’s money flows and financial plumbing make them targets for authorities who’ve already shackled over-leveraged acquirers and reined in the sprawling shadow-banking system.
At the end of 2016, about 70 central-government owned enterprises had a total of over 150 financial subsidiaries, a central bank official said in March last year. Another 28 private firms each had stakes in at least five financial units.
The proposals also blacklist certain individuals from becoming major or controlling shareholders in financial holding firms, such as people who falsified capital injections or undertook illegal activities at financial entities.
Companies that will be covered under the rules will need at least 5 billion yuan in capital, according to the proposals.
Public feedback is sought through August 24.
Separately, the China Securities Regulatory Commission
said it plans to “substantially” increase penalties for falsified corporate disclosures.
The CSRC is revising laws to stiffen sentences and fines for listed companies, accounting firms, underwriters and other intermediaries that fail to carry out their responsibilities, the regulator said in a statement.