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China Fund News reporter Zhao Xinyi

The China Securities Regulatory Commission plans to introduce new regulations on the management of securities brokerage business qualifications, which will involve securities brokerages’ “license hoarding” and “license protection” behaviors.

The reporter learned from the industry that the China Securities Regulatory Commission is currently soliciting opinions on the "Securities Firm Business Qualification Management Measures" (hereinafter referred to as the "Measures") and related supporting rules.

The Measures consist of five chapters and 46 articles, and the main contents include: clarifying the types of business qualifications, clarifying the management methods of different business qualifications, unifying the internal logic of qualification access, improving the business qualification exit mechanism, and ensuring the connection between business qualification management and daily supervision.

The main contents of the supporting facilities regulations include: clarifying the business scope of authorized review, implementing the transition period and rectification requirements, clarifying the implementation requirements of relevant provisions in the "Measures", and connecting the old and new qualifications.

Curbing the behavior of "hoarding license plates" and "protecting license plates"

Two new exit channels

The drafting instructions point out that current laws and regulations have established a mandatory exit (administrative exit) mechanism for securities companies' business qualifications, that is, the CSRC may revoke the securities business license of securities companies that violate laws and regulations in accordance with the law.

However, there is a lack of necessary constraints and clearance mechanisms for situations where there is no obvious violation of laws and regulations but no actual business development, or where the company no longer has the ability to continue operating. This has resulted in some "license hoarding" or "license protection" behaviors, which is not conducive to the high-quality development of the industry.

Based on this, the Measures add exit paths for canceling licenses, forming diversified exit paths such as actively reducing licenses, revoking licenses, and canceling licenses, to curb the behaviors of "hoarding licenses" and "protecting licenses".

Specifically, based on the existing exit channels of securities companies actively applying to reduce business and the CSRC revoking business licenses in accordance with the law, the Measures add two new exit channels:

First, if a securities company fails to continue to meet the relevant business qualification entry conditions during its continuous business operations after obtaining qualifications and fails to correct the situation within the prescribed period, the CSRC may restrict its business activities and revoke its business license depending on the circumstances.

Second, if a securities company fails to actually carry out the relevant business (i.e. the scale of its business remains below the prescribed standard for a certain period of time), it shall proactively apply for cancellation of the relevant business license.

It is worth noting that the drafting instructions indicate that "substantial business development" is the minimum requirement for the scale of business development of securities companies. In order to avoid significant impact on the industry, the relevant standards are generally not high.

On the other hand, the "substantial business development" requirement mainly applies to intermediary business. For capital-intensive or high-risk businesses such as securities margin trading and securities product sales, no requirements are currently made. For the "substantial business development" standards that have been stipulated in relevant individual measures (such as public fund sales and securities investment fund custody business), no repeated provisions will be made.

Follow five drafting ideas

The CSRC stated that in recent years, as new business forms of securities companies continue to emerge, the formulation of rules has gradually lagged behind practical development, resulting in increasingly prominent problems such as non-standard, unclear and non-uniform business qualification management, which is not conducive to legal supervision and the healthy development of the industry.

Implementing the spirit of the Central Financial Work Conference to "comprehensively strengthen financial supervision" and "submit all financial activities to supervision in accordance with the law", the Measures aim to propose solutions to the problems existing in the management of securities company licenses one by one, mainly following the following five ideas:

1. Clarify the nature. Clarify the logical relationship between the various business qualifications of securities companies, including clarifying the "business" qualifications and other "qualifications", and excluding qualifications that do not belong to the "business" qualifications from the scope of regulation; clarifying securities business and other types of business; and clarifying the different types of securities business.

2. Classification management. On the basis of clarifying the nature, for businesses that belong to the same category but have very different risk characteristics and need to implement differentiated access management, subdivide the business forms under this category of business and set differentiated access thresholds. For businesses with basically the same business substance and risk characteristics, try to integrate and improve access efficiency to reduce the burden on applicants.

3. Clarify the standards. First, take into account the commonalities and differences of the business. Divide the access conditions into basic conditions and special conditions. Basic conditions apply to the application of various business qualifications, and special conditions apply to high-risk or complex businesses. Second, make good connections between unified regulations and individual regulations.

The Measures focus on stipulating basic entry conditions such as corporate governance, compliance and risk control, site facilities, and personnel, and are basically consistent with the individual regulations. In terms of special conditions, the Measures aim to "fill in the gaps", that is, the individual regulations for related businesses have already detailed the entry conditions, and the Measures will no longer repeat the provisions. For those businesses that do not have individual regulations and it is necessary to make detailed provisions on key personnel, work experience, capital strength, etc., the Measures will "fill in the gaps" in a targeted manner.

4. Standardize responsibilities. Implement the authorization of the CSRC in the Securities Law and Regulations, and unify the approval of various businesses (including new businesses) of securities companies under the CSRC and its dispatched agencies.

The basic principle is: routine business is reviewed by the Securities Regulatory Bureau, and innovative and complex business is reviewed by the China Securities Regulatory Commission; for business qualifications that have been approved by the China Securities Regulatory Commission, the regulatory unit will no longer conduct "secondary" access, but can put forward supplementary self-discipline requirements based on the risk characteristics of the business.

5. Improve exit. Increase the exit paths of canceling licenses, form diversified exit paths such as actively reducing licenses, revoking licenses, and canceling licenses, and curb the behavior of "hoarding licenses" and "protecting licenses".

Editor: Joey

Audit: Wooden Fish

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