January 2018
Provisions on the Administration of Subordinated Debts of Securities Firms (Revised in 2017) (Mainland China)
2017.12.07
Joyce Wen
The China Securities Regulatory Commission (the "CSRC") promulgated the Provisions on the Administration of Subordinated Debts of Securities Firms as amended (the "New Provisions") on December 7, 2017, and the Provisions on the Administration of Subordinated Debts of Securities Firms of 2012 (hereinafter, the "Old Provisions") were abolished at the same time. These amendments were made by the CSRC to echo the administrative reform measures for "streamlining administration, delegating power, strengthening regulation and optimizing services" proposed by the State Council primarily by changing the approvals in the previous provisions into recordation provisions, as specifically highlighted below:
1. Change of borrowing or issuance of subordinated debts into ex post recordation system
Pursuant to Article 9 of the New Provisions, a securities firm borrowing or issuing a subordinated debt is only required to submit recordation documentation within five working days upon completion of the borrowing or issuance with no need for a prior application for approval. Compared with the application documents under the Old Provisions, the recordation documents required under the New Provisions are simpler, as a party only needs to submit a recordation report including the general terms and conditions concerning the borrowing or issuance of subordinated debts, the prospectus or contract of the subordinated debt, a list of creditors, a deposit receipt from the bank funding the debt, and other documents requested by the CSRC with no need to further submit materials such as a resolution on the borrowing or issuance of a subordinated debt, the risk control indicators over the last six months and creditor's assets and credit status. This greatly simplifies the obligation to prepare required materials for the borrowing or issuance of subordinated debts.
2. Approval not required for change of subordinated debts
Meanwhile, with respect to any extension involving a subordinated debt or change of other contractual terms and repayment, the CSRC no longer requires an approval. Instead, change recordation within five working days upon completion is permitted, and a securities firm only needs to prepare materials in accordance with Articles 11 and 12 of the New Provisions. In addition, the New Provisions also deleted Articles 14 and 17 of the Old Provisions and point out in Article 13 that when a recordation receipt is received, a relevant securities firm may include the subordinated debt so borrowed into its net capital by the required amount.
3. Change of ex post disclosure to ex ante disclosure
As the procedures for issuance, borrowing and changes go from approval to recordation, the practice of making disclosures only after approval is granted will also become making public disclosures of intended borrowing or issuance of subordinated debts at least three working days prior to borrowing or issuance. In addition, the securities firm will also required to timely disclose the status of the subsequent issuances of subordinated debts.
To conclude, these amendments seek to simplify procedures, deregulate markets and serve the public. However, this does not translate into reduced compliance obligations for enterprises. By shifting government administration from strict supervision to recordation-based supervision, enterprises now assume more responsibility for self-inspection and self-regulation. Therefore, they now must seek to enhance corporate compliance management.
Joyce Wen
The China Securities Regulatory Commission (the "CSRC") promulgated the Provisions on the Administration of Subordinated Debts of Securities Firms as amended (the "New Provisions") on December 7, 2017, and the Provisions on the Administration of Subordinated Debts of Securities Firms of 2012 (hereinafter, the "Old Provisions") were abolished at the same time. These amendments were made by the CSRC to echo the administrative reform measures for "streamlining administration, delegating power, strengthening regulation and optimizing services" proposed by the State Council primarily by changing the approvals in the previous provisions into recordation provisions, as specifically highlighted below:
1. Change of borrowing or issuance of subordinated debts into ex post recordation system
Pursuant to Article 9 of the New Provisions, a securities firm borrowing or issuing a subordinated debt is only required to submit recordation documentation within five working days upon completion of the borrowing or issuance with no need for a prior application for approval. Compared with the application documents under the Old Provisions, the recordation documents required under the New Provisions are simpler, as a party only needs to submit a recordation report including the general terms and conditions concerning the borrowing or issuance of subordinated debts, the prospectus or contract of the subordinated debt, a list of creditors, a deposit receipt from the bank funding the debt, and other documents requested by the CSRC with no need to further submit materials such as a resolution on the borrowing or issuance of a subordinated debt, the risk control indicators over the last six months and creditor's assets and credit status. This greatly simplifies the obligation to prepare required materials for the borrowing or issuance of subordinated debts.
2. Approval not required for change of subordinated debts
Meanwhile, with respect to any extension involving a subordinated debt or change of other contractual terms and repayment, the CSRC no longer requires an approval. Instead, change recordation within five working days upon completion is permitted, and a securities firm only needs to prepare materials in accordance with Articles 11 and 12 of the New Provisions. In addition, the New Provisions also deleted Articles 14 and 17 of the Old Provisions and point out in Article 13 that when a recordation receipt is received, a relevant securities firm may include the subordinated debt so borrowed into its net capital by the required amount.
3. Change of ex post disclosure to ex ante disclosure
As the procedures for issuance, borrowing and changes go from approval to recordation, the practice of making disclosures only after approval is granted will also become making public disclosures of intended borrowing or issuance of subordinated debts at least three working days prior to borrowing or issuance. In addition, the securities firm will also required to timely disclose the status of the subsequent issuances of subordinated debts.
To conclude, these amendments seek to simplify procedures, deregulate markets and serve the public. However, this does not translate into reduced compliance obligations for enterprises. By shifting government administration from strict supervision to recordation-based supervision, enterprises now assume more responsibility for self-inspection and self-regulation. Therefore, they now must seek to enhance corporate compliance management.
