Securities Regulator Restricts Offshore Financial Branches

Chinese securities regulators are stepping up scrutiny of domestic brokerages and fund managers that have subsidiaries abroad to mitigate risk as more financial institutions set up offshore branches.

The China Securities Regulatory Commission (CSRC) ordered financial institutions to strengthen management of their units abroad, according to a new regulation released Friday. Such subsidiaries should not conduct non-financial business, the agency said.

Multi-layered structures and vast arrays of business have created difficulties for parent companies to manage foreign subsidiaries, according to an official of the CSRC. Some overseas subsidiaries have expanded their business scope to match the size of their parent companies. About 55 Chinese brokerages and fund management companies have either set up subsidiaries or acquired companies overseas.

China’s securities watchdog ordered Chinese brokerages to create concise, transparent shareholding structures for their overseas subsidiaries. While such units are allowed to set up their own companies for financial operations, they are barred from having more sub-units under subsidiaries, according to the new regulation.

Foreign subsidiaries should focus on their core businesses and restrict home-bound investment, the CSRC said. It granted existing companies a transition period of 36 months to meet the requirement.

Parent companies should strengthen management of their overseas subsidiaries to improve compliance and risk management, the commission said.

To strengthen supervision and management, securities brokerages and funds are required to regularly report to the CSRC's regulatory information platform about operations of their foreign subsidiaries. The Chinese regulator will also establish a communication and supervision mechanism with regulatory agencies abroad.