With the fast development of Chinese securities companies in recent years, some securities companies have already set up branches, and many other securities companies intend to follow suit. In order to better supervise these branches, the CSRC issued the Rules Regarding the Supervision and Administration of Branches of Securities Companies (the Rules) on May 13, 2008.
According to the Rules, the branch of a securities company (the Branch) is an entity other than securities trading house that a securities company establishes in accordance with the Company Law and Securities Law to conduct business operations. According to the Rules, the Branch is not a legal person, and it does not bear legal liability. Instead, the securities company that sets up the Branch will be legally liable for the Branch.
The Rules explicitly require the CSRC’s approval of the establishment of any Branch. Accordingly, the securities company must submit its application to CSRC, as well as file its application documents at the local securities regulatory bureaus in the locations of both the securities company and the proposed branch.
- To obtain the CSRC’s approval, the securities company must meet the following requirements: the company must have a good corporate governance structure, risk management system, and internal control mechanism;
- the plan to set up the Branch must be rational and feasible, which means that the proposed Branch fits the business and management conditions of the securities company;
- the company has not had any material incompliance in the past two years, and does not have any ongoing investigation proceedings;
- the company must have sufficient financial, technical, human, and other resources to support the Branch; and
- the proposed head of the Branch is well-qualified.
Once the CSRC approves the application, the securities company has 30 days to register the Branch with the competent government authority and six months to complete the establishment of the Branch. After the establishment of the Branch, the Branch will be subject to the inspection by the local securities regulatory bureau where the Branch is located. If the Branch fails to pass the inspection, the original CSRC approval will be automatically invalidated. If the Branch passes the inspection, the CSRC will issue a securities business operation permit to the Branch, and the Branch must file copies of its permit and business license at the local securities regulatory bureaus of both the securities company and the proposed Branch.
In terms of Branch operation, the Branch must carry out its business within the prescribed business scope of the securities company. The securities company may authorize its Branches to:
- manage the securities trading houses of the securities company in a certain area;
- operate the securities underwriting and sponsorship business in a certain area;
- exclusively manage securities accounts under the company’s own name;
- exclusively operate the asset management business of the company; and
- operate any other CSRC-approved business of the securities company.
However, the Branch may not directly operate business of the securities trading houses. In addition, if a Branch is authorized to manage the securities accounts under the securities company’s name, or to operate the securities company’s asset management business, the Branch may not operate any other businesses. Moreover, the Branch will be the only entity that manages the securities accounts under the company’s name, and it will be the only entity that operates the company’s asset management business. Additionally, the securities company may not authorize the same branch to operate different business with conflicting interests. The local securities regulatory bureau where the Branch is located will supervise the Branch’s operation.
The Rules require securities companies to bring already-established Branches into compliance with the Rules within one year from the promulgation date of the Rules. Failure to do so will lead to the cancellation of the Branch.