Name: Regulatory Measures on Branches of Securities Companies (Trial) (《证券公司分公司监管规定) (试行) 》, the “Measures”)
Issuing authority: China Securities Regulatory Commission (the “CSRC”)
Effective date: 13 May 2008
Subject: Branches of securities companies
The CSRC issued a consultation paper on regulatory measures in relation to branches of securities companies in April 2008 (the “Draft Measures”), which signals the willingness on the part of the CSRC to re-open the door for securities companies to establish branches and its intention to exercise more scrutiny over the current practice of establishment of operation centres by securities companies. The Measures are now officially promulgated by the CSRC. As compared with the Draft Measures, the key changes under the Measures as promulgated include: (i) stricter requirements on the establishment of a branch; and (ii) express permission for acquisition of an existing branch of another securities company.
Highlights
- Under the Measures, a “branch” is broadly defined as an organisation established by a securities company (other than a trading outlet) to engage in operational activities. A branch is not a legal person and all its legal liabilities should be borne by the securities company establishing the branch. However, the provision permitting a branch to be registered in the name of a “centre” as contained in the Draft Measures is removed from the Measures.
- The permitted scope of activities of a branch largely remains unchanged under the Measures: a branch may engage in any business subject to authorisation from the securities company, which may be any of the following: (i) to manage the trading outlets within a region; (ii) to conduct securities underwriting and sponsoring business within a region; (iii) to conduct proprietary trading business; (iv) to conduct securities asset management business; and (v) to conduct other businesses approved by the CSRC. Securities companies are prohibited from authorising a branch to engage in conflicting businesses. Furthermore, where a branch is authorised by the securities company to engage in proprietary trading business or securities asset management business, neither the head office nor any other branch may engage in the same business.
- Stricter prerequisites are introduced under the Measures for the establishment of a branch, such as (1) the applicant must not have conducted any material illegal or non-compliant activities within the last two years and must not be subject to any on-going investigation in this regard; and (2) the proposed person in charge of the branch must have obtained the required senior management qualification.
- Under the Measures, the six-month requirement on timing of preparation and establishment of the branch after obtaining CSRC approval is retained.
- Subject to CSRC approval being obtained, acquisition of an existing branch of a securities company is expressly allowed. In order to acquire an existing branch of another securities company, the acquiring securities company is required to satisfy the relevant requirements applicable to the establishment of a branch. The securities company which intends to transfer its branch should be one which intends to transfer all of the business of the branch or the business in certain geographical areas out of a need to adjust its development strategy and restructure its business operation.
- A securities company may establish representative offices or liaison offices outside the region where it is located to engage in non-operational activities such as liaison, research, market survey or IT management activities. The securities company is required to make a filing with the local CSRC offices where it is domiciled and where the relevant representative office or liaison office is located respectively.
- The requirements on operation of a securities company at its place of incorporation are retained under the Measures, i.e. the principal place of business (head office) of a securities company must be at its place of incorporation and certain operations and functions must be housed at the place of incorporation. For instance, the senior management personnel must be stationed at the head office and certain functions, including the board, finance, audit, compliance and risk control functions, must be located at the head office.
- The Measures provide for a one-year grace period (commencing from 13 May 2008 and ending 12 May 2009) for all existing operation centres and branches of securities companies to rectify any non-compliance.
Please contact Zili Shao ( zili.shao@linklaters.com tel: +86 21 2891 1868) or Fang Jian ( jian.fang@linklaters.com tel: +86 21 2891 1858) if you would like further details.
