BEIJING -- China's central bank has rolled out new restrictions that would bolster governance at companies with banking, brokerage and insurance operations in a bid to prevent fraud and curb risks in the country's financial sector.
The move comes partly as a response to companies like the Tomorrow Group and Anbang Insurance Group funneling assets from their financial operations to fund other parts of their business. The People's Bank of China also seeks to create a regulatory framework that makes sense for new types of financial businesses, such as Alibaba Group Holding's Ant Group.
The PBOC recently issued draft legislation that would impose stricter restrictions on financial companies. Ahead of a formal legal change, companies that meet certain thresholds, like possessing banking assets of more than 500 billion yuan ($74.5 billion), will be required effective Sunday to set up a financial holding company that is registered with the central bank.
The registration must be submitted by the end of October 2021. Any changes to the holding companies' leadership or their stake in financial subsidiaries must be reported to the PBOC as well.
About 80 financial holding companies already existed in China as of the end of 2018, according to Chinese media. Some, like state-owned conglomerate Citic, have been specially approved by the government. But many "have not been included as a group in the country's supervision framework, posing financial risks," PBOC Vice Gov. Pan Gongsheng has said.
The central bank is looking to put an end to the sort of high-profile scandals that have rocked China's financial sectors in recent years. Anbang Insurance Group was placed under government control in 2018 after it fell into financial trouble from binging on overseas assets, and was dissolved in September. Baoshang Bank and other units of Tomorrow Group, founded by magnate Xiao Jianhua, were essentially nationalized following the discovery of illicit money flows within the group.
The central bank will also work to stabilize China's financial system as a whole. Its draft legislation said the PBOC will take a leadership role in making recommendations to curb financial risks.
Specifically, the bank is expected to instruct financial institutions to create capital buffers that can offset losses during financial crises, and to conduct stress tests to see how prepared institutions are for an economic downturn or a credit crunch.
The new legislation would enable the PBOC to acquire and inject capital into failing financial institutions through a special-purpose company, and create a framework to expand the central bank's capital.
