Measures for the Administration of Foreign-invested Securities Companies (Mainland China)

Joline Chen

The China Securities Regulatory Commission amended the Rules for Establishment of Securities Companies with Foreign Equity (the “Old Rules”), which came into effect in October 2012, by promulgating the Measures for the Administration of Foreign-invested Securities Companies (the “New Measures”) on April 28, 2018.  The New Measures came into effect on the day of their promulgation, and the Old Rules were abolished.  The five key reform measures under the new Measures are highlighted below:

1. The New Measures first add a new type of foreign-invested securities company in specifying” domestic-funded securities companies changing into securities companies as a result of foreign investors becoming their actual controllers” under Paragraph 3 of Article 2.

2. The New Measures remove the restrictions on the business scope under the Old Rules. However, in order to prevent a disorderly rush to apply for a securities business license, the initial business scope of a foreign-invested securities company required under Paragraph 2 of Article 5 should closely correspond with the operating experience of the controlling shareholder or of the largest shareholder in the securities business.

3. The New Measures raise the qualifications for foreign shareholders of foreign-invested securities companies. Foreign shareholders are now required to be legally established financial institutions and have continuously operated its securities business for more than 5 years, with various financial indicators in line with the requirements under the laws and of the regulators in the countries or regions where they are located. In addition, they shall not have been subjected to major penalties imposed by regulators or administrative or judicial agencies in the countries or regions where they are located over the past three years, and they shall not be currently subject to an investigation for alleged major violation of laws or regulations.  Also, their business scale, revenues and profitability shall have been ranked among the best performers internationally while maintaining a high quality credit level over the past three years.

4. The New Measures remove the requirement under the Old Rules that “one of the domestic shareholders of a securities company with foreign equity shall be a domestic-funded securities company.” Therefore, a joint venture securities company is no longer required to have a domestic-funded securities company as one of its domestic shareholders.

5. The New Measures ease the restriction on the shareholding of foreign shareholders.  A principle rule is made in Paragraph 2 of Article 7, which provides: “The cumulative shareholding of foreign shareholders in a foreign-invested securities company shall comply with the state’s arrangements for the opening up of the securities business.”  This reflects the most fundamental change of this amendment in allowing foreign investors to take control of a joint venture securities company.