On March 17, 2022, the people’s Bank of China announced that it approved the establishment license of the financial holding company of China CITIC Financial Holding Co., Ltd. (Preparatory) and Beijing Financial Holding Group Co., Ltd. Since accepting the applications of the two enterprises to establish financial holding companies in June and August 2021, the first batch of licenses of the two financial holding companies have been implemented in less than a year, which fully reflects the importance of supervision on the standardized development of financial holding companies, further complements the shortcomings of financial supervision, and helps to prevent systemic financial risks. The new era of financial holding has officially opened. The following points deserve attention:
First, after nearly 20 years from the initial pilot period, high-speed growth period to the standardized development period, the comprehensive financial group has increasingly improved its external system and internal management, and the time to land the financial holding license is ripe. China’s comprehensive financial group began in 2002. The State Council approved Everbright Group, CITIC Group and Ping An Group as pilot institutions of comprehensive financial holding group, and the three have become Toread Holdings Group Co.Ltd(300005) and pioneers of comprehensive operation. From 2005 to 2016, under the multiple favorable backgrounds of the combination of industry and finance, financial reform and scientific and technological innovation, the comprehensive financial group entered a period of rapid growth, and its establishment objects expanded from central enterprises and large state-owned groups to private enterprises and Internet enterprises. Various forms of financial groups emerged one after another, many of which carried out business in the name of financial holding companies. According to the enterprise investigation data, the number of enterprises with “financial holding” in their names increased from 206 in 2005 to 3576 in 2016, with an average annual growth rate of nearly 30%. Enterprises with a registered capital of more than 5 million accounted for about 80%, which is enough to reflect the rapid expansion speed and large business scale of such enterprises, and realize resource integration and synergy to a certain extent. However, the blind expansion in the absence of supervision has also led to risks such as related party transactions, regulatory arbitrage, from real to virtual. In particular, some private financial groups are full of chaos and frequent problems, accumulating a large number of potential risks. Since 2017, the state has repeatedly emphasized strengthening the supervision of financial holding companies. New regulations for non-financial enterprises to invest in financial institutions, Trial Measures for financial control supervision and management, and financial control access management decisions have been issued one after another to gradually fill in the regulatory shortcomings and guide compliance and stable operation. Financial holding companies have entered a period of standardized development. From June 2021 to January 2022, the central bank successively accepted the applications of five enterprises to establish financial holding companies, namely CITIC Group, Everbright Group, Beijing Financial Holding, Wanxiang holding and Zhaorong investment; CITIC Group and Beijing Financial Holding obtained the first batch of financial holding licenses. They are the representatives of central enterprise group and local financial holding companies respectively. They have standardized operation and high reputation. They took the lead in obtaining the approval, which is in line with the gradual and phased supervision idea.
Second, the two licensed financial holding companies determine different establishment modes according to their own business structure. The standards and characteristics of “big financial holding” and “small financial holding” are different. According to the Trial Measures for the supervision and administration of financial holding, the establishment of a financial holding company has the requirements of business scope and asset scale. If it actually controls two types of financial institutions and the asset scale meets the regulatory requirements, it must apply for a financial holding license. The establishment mode is determined according to the proportion of financial assets in the total consolidated assets of the group. Enterprises with financial assets accounting for more than 85% can freely choose two ways. One is that the parent company specially establishes a financial holding subsidiary, that is, the “small financial holding” mode, One is that all the parent companies are transformed into financial holding companies, that is, the “big financial holding” model; Those whose financial assets account for less than 85% can only adopt the “small financial holding” mode. Although both CITIC Group and Beijing Financial Holding meet the requirements of accounting for more than 85% of financial assets, they have chosen different establishment modes. CITIC Group adopts the “small financial holding” mode and internally establishes a financial holding subsidiary to uniformly manage the equity of its financial institutions; Beijing financial holding selected the “big financial holding” mode, and the group was transformed into a financial holding company as a whole. The different establishment modes of the two are related to their respective business characteristics and business structure. The contribution of the non-financial business segment of CITIC Group to the revenue and net profit is high, with an annual average of about 50% in 2020. The “small financial holding” model can better isolate the industrial and financial sectors and enhance the flexibility and innovation of non-financial businesses on the basis of preventing cross infection of risks; Beijing Financial Holding mainly focuses on the financial sector, which has certain foundation and conditions to transform into a financial holding company as a whole. The inclusion of all business sectors into the financial holding company also meets the requirements of strict financial supervision.
Third, financial holding companies will face comprehensive, continuous and penetrating supervision to help their standardized and sustainable development, and the competition pattern of the industry may change. The Trial Measures for financial control supervision and management stipulate that the central bank is responsible for implementing consolidated supervision on financial holding companies and strengthening the risk management of financial holding companies in terms of capital adequacy, corporate governance, liquidity and reputation. For example, financial holding companies should establish a capital supplement mechanism, and the capital should be commensurate with the scale of assets and risk level; Carry out penetration supervision on the share capital of its main shareholders and controlling shareholders, and strictly review the source, nature and flow direction of share capital; Strictly control debt risk, establish and improve reputation risk monitoring, evaluation and emergency response mechanism, etc. Obtaining the financial holding company license means facing more strict supervision. We should further improve the corporate governance mechanism, strengthen comprehensive risk management, innovate financial products and services on the premise of compliance, balance the relationship between finance and industry, build a benchmarking international and China’s first-class financial holding platform, and improve the ability to serve the real economy. At the same time, the competition pattern of the financial holding industry may change, and the financial holding companies that do not meet the establishment requirements need to be rectified in terms of equity transfer, business divestiture, change of company name and so on; Some private and Internet financial holding companies with major problems and endangering the financial order may face a wave of withdrawal; The central bank said that it is steadily and orderly promoting other qualified enterprises to apply for the establishment of financial holding companies. More enterprises that meet the requirements will actively apply for financial holding licenses, learn from the experience of leading institutions, build an operation and management framework and standardize business operation.
