Mainland China briefing – Dec 2017

China to relax foreign shareholding limits in financial services sectors

On 10 November 2017, the State Council Information Office of the PRC held a briefing to discuss the economic outcome resulting from the Beijing meeting between the Chinese and US Presidents. The consensus reached by the two government leaders include that in order to implement the initiatives put forth at the 19th National People’s Congress, China will liberalise the foreign ownership limits for institutions in the financial services sectors. The detailed implementation rules or regulations are expected to be issued in due course with the implementation date announced then. Meanwhile, here is a summary of the briefing: 

• Foreign investors will be allowed to own as much as 51% equity in securities, fund management and futures companies. The cap will be removed after three years. Assuming implementation follows next year, this means foreign managers may use a WFOE structure to implement their retail strategies in the PRC in 2021.
• Current foreign ownership restrictions in Chinese banks and financial asset management companies will also be relaxed.
• After three years, foreign investors will be allowed to own up to 51% equity in life insurance companies, with the cap removed in five years.

CSRC’s new efforts for an enhanced compliance culture

Starting from 1 October 2017, Measures for the Compliance Management of Securities Companies and Securities Investment Fund Management Companies promulgated by the CSRC in June 2017 came into effect. Amongst other requirements, the Measures (available here in Chinese) provide that:

1. The Chief Compliance Officer is a member of the senior management.
2. The Securities Company or the Securities Investment Fund Management Company cannot terminate the employment of the Chief Compliance Officer without a “proper cause” prior to the expiry of the term of his employment. A “proper cause” includes: resignation by the Chief Compliance Officer; an order to replace the Chief Compliance Officer by the CSRC; and other circumstances where there is sufficient evidence showing that the Chief Compliance Officer is unable to perform his duties or fails to fulfil his duties diligently.
3. Where the Securities Company or the Securities Investment Fund Management Company refuses to adopt the compliance advice given by the Chief Compliance Officer, such matter shall be submitted to the Board of Directors to decide.
4. For any important meeting that the Securities Company or the Securities Investment Fund Management Company will hold or any meeting that the Chief Compliance Officer has requested to attend, a prior notice shall be served on the Chief Compliance Officer.  The Chief Compliance Officer shall have the right to attend such meetings, review and make copies of the meeting materials.
5. The annual income of the Chief Compliance Officer (on an all-in basis) must not be less than the medium of the senior management, and the annual income of each other compliance staff shall not be less than the average income of the other employees ranked at the same level of that company.

It is hoped that the Measures will afford further protection to the compliance personnel especially the Chief Compliance Officer in exercising his or her functions, and bring about a higher level of compliance culture.