On 28 April 2018, the China Securities Regulatory Commission (CSRC) issued the Measures on the Administration of Foreign-invested Securities Companies (外商投资证券公司管理办法), which replaced the 2012 Rules on the Establishment of Securities Companies with Foreign Equity Participation (2012 Rules) (外资参股证券公司设立规则), with immediate effect.
The measures significantly relax restrictions on foreign investment in securities companies and follow recent highprofile government commitments (Commitments) to further open the financial sector to foreign competition.
The measures raise the foreign ownership cap (that is, the aggregate percentage of the registered capital held directly or indirectly by foreign firms and individuals) on China-registered securities firms by reference to the Commitments, to 51% from 49% generally and to 51% from 25% for listed securities companies specifically. The measures also remove the ownership cap (20%) on any single foreign investor in listed securities companies under the 2012 Rules.
Under the Commitments, China has committed to eliminate all caps on foreign ownership in this sector by 2021.
The measures also:
• Allow a newly established joint venture securities company to gradually expand its scope of business according to its own circumstances, provided the initial business scope corresponds to the securities experience of its controlling shareholder or largest shareholder.
• Increase the prudential qualifications requirements for foreign investors in securities companies and update the qualifications requirements for Chinese partners in Sino-foreign joint ventures. A foreign investor must have a good international reputation, among other qualifications, while a Chinese joint venture partner is no longer required to be a financial institution.
• Clarify that where, after establishment, the actual controller of a domestic-invested securities company becomes a foreign investor, the company will be regulated as a foreign-invested securities company.
Natasha Xie, Partner, Junhe, Shanghai: "China is now speeding up its implementation of the opening-up measures. We expect more revised and new legislation to be promulgated by the end of this year. In addition, more applications are expected to establish joint venture securities companies, mutual fund management firms and futures brokerages or to amend the ownership structure of existing firms to increase foreign ownership up to the new 51% cap."
GC for foreign investors in China-registered securities companies should be aware of the new foreign ownership caps under the measures, as well as the revised prudential qualifications requirements and increasingly sophisticated treatment of the ultimate owners of a foreign-invested securities company, and remain watchful for additional changes as new and revised rules are rolled out later this year.