On October 30, 2008, the China Securities Regulation Committee (CSRC) issued the Interim Provisions on the Examination and Approval of the Business Scope of Securities Companies which took effect on December 1, 2008. The Provisions abolished the Several Opinions on Further Strengthening the Supervision of Securities Companies issued in March 1999.
The Interim Provisions specify two situations in which a securities company is not required to obtain permission from CSRC to operate its business. If a securities company provides consulting services on securities investments to its securities brokerage business clients, but does not conclude a separate contract with that client or charge an additional fee, and the commission it charges for its securities brokerage business service does not exceed the upper limit given, the company does not need to obtain CSRC’s permission to engage in such consulting services. If a securities company conducts cash management and invests its funds in low risk and high fluidity securities, such as publicly offered treasury bonds, investment-grade corporate bonds, and specific asset management plans, that have been approved by the CSRC, and if its investment scale does not exceed 80 percent of its net capital, the company does not need to obtain permission from CSRC for its self-operated securities.
The Interim Provisions include an article on innovative businesses, a new component that was not included in the Several Opinions. An innovative business refers to a business that is not clearly prescribed in the Securities Law, the Regulation on the Supervision and Administration of Securities Companies, or other regulatory documents of CSRC. Companies that wish to engage in innovative businesses are expected to establish internal assessment and review mechanisms to ensure the innovative businesses’ compliance with laws and regulations, their feasibility, and an evaluation of their related risks.
Under the Interim Provisions, the approved business scope of a newly established securities company may not include more than four kinds of businesses; and the company can only apply to add at most two businesses at a time. Also, the securities company has to meet a list of discretionary requirements if it wishes to expand its business scope. For example, the securities company’s registered capital, after the addition of the new businesses, must comply with Article 127 of the Securities Law; the company must have obtained its license to engage in securities related businesses, and have operated for a full year; and it must allow for a minimum of six months between the last time the company applied for additional businesses and its next application. A securities company must also register its additional businesses with local commercial registration authorities upon CSRC’s approval. Once its application for additional businesses has been approved, a securities company must apply to the company registration authority to register the modification, and submit a photocopy of its business license, as well as a roster, resumes, and qualification certificates of the senior managers to be responsible for the additional businesses and practicing staff, within 15 workdays from the modification registration date.
According to the Interim Provisions, securities companies must follow relevant existing regulations, as opposed to these Interim Provisions, with respect to the examination and approval of financial consulting services on the merger, acquisition and reorganization of listed companies, the securities recommendation business, the consigned sale of securities investment funds, and reference services for futures companies. Additionally, the Interim Provisions state that the permits for operating a securities business, which CSRC has issued to securities companies in accordance with the Securities Law before it was amended in 2005, will remain effective. Securities companies may operate the business according to the corresponding relationship between the business type recorded in the original permit and the business prescribed in Article 125 of the Securities Law.