Mainland China briefing – Aug 2018

SFC-licenced corporations can offer investment advisory services to PRC investors

On 27 June 2018, the China Securities Regulatory Commission (CSRC) issued The Interim Provisions on the Use of Hong Kong Institutions’ Securities Investment Consulting Services by Institutions Engaged in Securities or Funds Business (Interim Provisions) (available here in Chinese). 

The Interim Provisions allow PRC institutions engaged in securities or funds business (PRC Institutions) under the Stock Connect schemes to engage SFC-licenced corporations in Hong Kong as their investment advisers to provide securities advisory services on Hong Kong listed companies. Research reports issued by eligible SFC-licenced corporations can be distributed by PRC Institutions to their PRC investors. This enables the PRC investors, who participate in Hong Kong capital markets, to have better access to research reports and advice on those Hong Kong-listed companies which can be traded by them under the Stock Connect schemes.

CSRC to tighten regulations of overseas affiliates of Mainland financial institutions

On 4 May 2018, the China Securities Regulatory Commission (CSRC) released a consultation paper for the Administrative Measures for Securities Companies and Securities Investment Fund Management Companies to Establish, Acquire and Make Capital Contributions into Outbound Operation Agencies (the Consultation Paper)(available here in Chinese). The Consultation Paper sets out comprehensive compliance regulations for PRC securities companies and securities investment fund management companies (collectively, the Regulated Entities) to establish or acquire equity of overseas entities.

Eligibility requirements: The CSRC has proposed that its prior approval will be required for Regulated Entities to establish or acquire equity of an overseas entity, and that the following requirements should be satisfied: 

a)         The jurisdiction where the overseas entity is (to be) operated shall have a sound securities legal and regulatory system, and shall have signed a memorandum of understanding on regulatory cooperation with the CSRC or other institutions recognised by the CSRC;

b)         The Regulated Entities shall have not been subject to any administrative or criminal penalties in the latest three years, shall have not been subject to major regulatory sanctions in recent year, and shall not be subject to any ongoing investigations or sanctions;

c)         The securities companies shall have net assets of not less than RMB 6 billion and the securities investment fund management companies shall have net assets of not less than RMB 600 million, each with a track record of not less than two years’ operational history; they shall also remain compliant with various risk control indicators (if applicable); 

d)         The Regulated Entities shall have a sound corporate governance structure, risk management system, internal control mechanism, and overseas entity management framework; and

e)         Other conditions prescribed by the CSRC.

Restrictions on activities and structures: It was proposed that the overseas affiliates shall not be allowed to carry out business outside the financial services industries. There are also further restrictions proposed to be imposed on the business activities to be undertaken by the overseas affiliates. These restrictions aim to curb overly complicated structures adopted by the Regulated Entities, and to ensure the effectiveness of regulations and compliance.  A two year grace period was proposed for all Regulated Entities to bring their business in line with the Interim Provisions.

Notification obligations: It was proposed that the Regulated Entities shall comply with various notification obligations in relation to their overseas affiliates.