China proclaims new rules to tighten control over financial holding companies

On Sunday, Central Bank of China had introduced a number of legislation for the financial holding companies in a bid to solidify the country's vast financial sector

by Sourav D
China proclaims new rules to tighten control over financial holding companies

The People’s Bank of China (China’s Central Bank) had issued a statement on Sunday introducing a raft of new rules aimed at regulating the country’s financial holding companies, suggesting a cautious move which in effect would protect the world’s second-largest economy’s huge financial sector from a swathe of systemic risks.

In point of fact, China’s Central Bank was quoted saying in the statement that the new legislations had been introduced to fill up the gaps in regulatory systems and supervisory mechanisms, since even an unsupervised expansion of small number of financial companies could heighten up the risks of default.

A Chinese financial company must have at least $730 million to obtain license

Aside from that, in what could be contemplated as a hardball from the People’s Bank of China amid possibilities of a global-scale recession at large, China’s Central Bank had also added that a Chinese financial holding company must have a capital worth of five billion Chinese Yuan or $730 million in order to secure a financial holding company license.

The newly introduced rules for the financial holding companies in tandem had also specified the amount of assets a company could manage, while Chinese financial holdings with banking assets would require at least 500 billion yuan and the companies without banking assets must have a net asset worth of 100 billion yuan for obtaining a financial holding license in China, an unprecedented move aimed at stabilizing the nation’s vast financial sector amid rising risks of defaults.

Nonetheless, latest move from the Chinese Central Bank came forth nearly two years after it had added five financial holding companies including the retail group, fintech industry behemoth You Financial owned by Jack Ma alongside the state-owned China Merchants Group as a part of its plan to test the aforementioned financial holdings’ ability to manage risk.

Besides, the new legislations would be effective from November 1, while the companies would be provided with a one-year grace period in order to comply with the rules.