December 2022
CBIRC Issued the Measures for the Administration of Finance Companies of Enterprise Groups
December 2022
Lihui Jiang and Teresa Huang
On October 13, 2022, the China Banking and Insurance Regulatory Commission (hereinafter referred to as the "CBIRC") issued the Measures for the Administration of Finance Companies of Enterprise Groups (hereinafter referred to as the "Measures"), which came into force on November 13, 2022; the Measures for the Administration of Finance Companies of Enterprise Groups issued by the China Banking Regulatory Commission Order No. 8 of 2006 (hereinafter referred to as the "Previous Measures") were repealed at the same time. Partial contents of the Measures are highlighted as follows:
1. Raising Access Standards and Expanding Opening-up
Article 9 of the Measures has made several adjustments to the conditions for applying for the establishment of a finance company compared with the Previous Measures and raised the threshold for the establishment of a finance company in terms of total assets, operating revenues and cash flows. At the same time, Article 7 thereof has also raised the minimum paid-up limit of registered capital from RMB100 million to RMB1 billion. Although the requirements for establishing a finance company have been raised, the policy of opening-up has still been implemented. Article 10 of the Measures clarifies that a foreign-funded multinational group may establish a finance company directly or through a foreign-funded investment company.
2. Optimizing the Business Scope and Implementing Hierarchical Supervision
The Measures have adjusted the business scope of finance companies and divided it into two parts. Article 19 thereof stipulates some basic businesses provided for internal members. In addition, Article 20 thereof stipulates the special businesses that need to be applied to the CBIRC and its local offices for operation.
3. Adding Regulatory Indicators to Strengthen Risk Supervision
Article 34 of the Measures provides the relevant regulatory requirements to be followed by finance companies, adding regulatory indicators such as loan ratio, liabilities owed to creditors outside the group and some negotiable instrument business to strengthen the risk supervision of finance companies.
4. Strengthening the Supervision of Shareholders' Rights to Ensure the Independence of Finance Companies as a Legal Person
The Measures have made some restrictive provisions on shareholders of finance companies, such as the shareholder prohibition clause. Specifically, Article 13 thereof stipulates the circumstances under which an enterprise may not be an investor of a finance company, such as its asset-liability ratio or financial leverage ratio being higher than the average of the industry. In addition, Article 14 thereof also clarifies that shareholders and the actual controller shall not interfere with the operation and management of a finance company. The purpose of the above Articles is to avoid risks arising from the affiliation between the group and the finance company and ensure the independence of the finance company.
5. Improving the Risk Disposition and Market Exit Mechanism
The Measures add new provisions on the bankruptcy of finance companies. In particular, Article 51 thereof stipulates the pre-approval of applying to the court for bankruptcy, reorganization and reconciliation, i.e., obtaining the approval of the CBIRC first, in order to avoid risk spillover.
Lihui Jiang and Teresa Huang
On October 13, 2022, the China Banking and Insurance Regulatory Commission (hereinafter referred to as the "CBIRC") issued the Measures for the Administration of Finance Companies of Enterprise Groups (hereinafter referred to as the "Measures"), which came into force on November 13, 2022; the Measures for the Administration of Finance Companies of Enterprise Groups issued by the China Banking Regulatory Commission Order No. 8 of 2006 (hereinafter referred to as the "Previous Measures") were repealed at the same time. Partial contents of the Measures are highlighted as follows:
1. Raising Access Standards and Expanding Opening-up
Article 9 of the Measures has made several adjustments to the conditions for applying for the establishment of a finance company compared with the Previous Measures and raised the threshold for the establishment of a finance company in terms of total assets, operating revenues and cash flows. At the same time, Article 7 thereof has also raised the minimum paid-up limit of registered capital from RMB100 million to RMB1 billion. Although the requirements for establishing a finance company have been raised, the policy of opening-up has still been implemented. Article 10 of the Measures clarifies that a foreign-funded multinational group may establish a finance company directly or through a foreign-funded investment company.
2. Optimizing the Business Scope and Implementing Hierarchical Supervision
The Measures have adjusted the business scope of finance companies and divided it into two parts. Article 19 thereof stipulates some basic businesses provided for internal members. In addition, Article 20 thereof stipulates the special businesses that need to be applied to the CBIRC and its local offices for operation.
3. Adding Regulatory Indicators to Strengthen Risk Supervision
Article 34 of the Measures provides the relevant regulatory requirements to be followed by finance companies, adding regulatory indicators such as loan ratio, liabilities owed to creditors outside the group and some negotiable instrument business to strengthen the risk supervision of finance companies.
4. Strengthening the Supervision of Shareholders' Rights to Ensure the Independence of Finance Companies as a Legal Person
The Measures have made some restrictive provisions on shareholders of finance companies, such as the shareholder prohibition clause. Specifically, Article 13 thereof stipulates the circumstances under which an enterprise may not be an investor of a finance company, such as its asset-liability ratio or financial leverage ratio being higher than the average of the industry. In addition, Article 14 thereof also clarifies that shareholders and the actual controller shall not interfere with the operation and management of a finance company. The purpose of the above Articles is to avoid risks arising from the affiliation between the group and the finance company and ensure the independence of the finance company.
5. Improving the Risk Disposition and Market Exit Mechanism
The Measures add new provisions on the bankruptcy of finance companies. In particular, Article 51 thereof stipulates the pre-approval of applying to the court for bankruptcy, reorganization and reconciliation, i.e., obtaining the approval of the CBIRC first, in order to avoid risk spillover.
