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Announcement of the China Securities Regulatory Commission [2008] No.21
The China Securities Regulatory Commission (CSRC) hereby announces the “Provisions on Further Regulating Securities Business Branches”, which shall be effective as of the day of announcement.
May 16, 2008
Provisions on Further Regulating Securities Business Branches
The following provisions on further regulating securities business branches are formulated to adapt to development requirements of the securities market, further reinforce supervision over securities business branches, improve services of securities companies, increase competitiveness of the securities industry, and protect legal rights and interests of investors as well:
I. The establishment of securities business departments.
(1) If a securities company applies for establishment of its securities business departments within the jurisdiction of the securities regulatory bureau in the place where its domicile is located (hereinafter shortened as the departments layout within jurisdiction), it shall meet the following prudential requirements:
1. the third party deposit of clients’ trading settlement capital has been carried out;
2. the opening and management of accounts shall be canonical, data of clients be complete and authentic; the standardization of accounts shall be timely completed in accordance with supervisory requirements; there have been no violations of rules within the recent two years such as opening unqualified accounts; or circumstances such as opening unqualified accounts have occurred, but the company has timely self-rectified and seriously determined legal responsibilities of related personnel after finding out the above circumstances, with no severe results. Besides, it has also reported to supervisory authorities, and more than six months have passed by since the reporting day;
3. possessing a sound corporate governance structure and internal control mechanism, compliance management system and monitoring system of risk control indices shall all be in accordance with supervisory requirements;
4. its information technology system shall be in accordance with related rules and supervisory requirements; the system operation shall be safe, stable and reliable, and there have been little technical failures and no severe technical accidents within recent two years;
5. possessing a perfect business management system, formulating definite business rules and clear operation procedures;
6. establishing an effective investor education system and starting to set up a clients’ management and service system with the two cores of “getting to know our clients” and “proper services”;
7. its net capital and all risk control indices of the recent two years shall always be in accordance with prescribed standards;
8. in the recent three years, there has been no administrative punishment or criminal punishment due to severe lawbreaking; there have been no circumstances such as agency business of opening securities account, adding and purchasing business branches, relocation and transfer of business branches that were limited with the limitations not removed, or circumstances of unfinished significant restructuring and rectification; the company shall not be under investigation due to being suspected of violation of laws and rules;
9. the securities department’s average net income of the agency securities trading last year shall not be lower than the average of the securities companies within the jurisdiction where the company is located;
10. the latest classified evaluation of the securities company shall rank C or higher; and
11. other requirements stipulated by the CSRC;
(2) If a securities company applies for establishment of securities business departments in China (hereinafter shortened as the national department layout), besides the above eight items, the following requirements shall also be met:
1. possessing good management ability, and the net income from the company’s agency business of securities trading in the last year shall rank among the top 20 in the industry, with the securities business department’s average net income of the securities trading agency business not lower than the average level in the industry; or the average net income of the securities trading agency business shall rank top among the top 3 in the industry;
2. realizing centralized management of trading, accounting, calculation and supervision systems; establishing centralized management system of electronic archives and data;
3. the latest classified evaluation of the securities company shall rank B or higher; and
4. other requirements stipulated by the CSRC.
(3) Establishment of a securities business department shall meet the following requirements:
1. having necessary personnel; the engaged personnel shall possess qualifications as security practitioners, and the to-be-head has obtained the professional qualification as a head of securities companies’ branches;
2. having a fixed business site in line with all safety management provisions;
3. having technical facilities conforming to business requirements and information technology system in accordance with related standards and supervisory requirements;
4. possessing complete business rules and operational flow, and establishing work mechanisms of investor education, client management and service; and
5. other requirements stipulated by the CSRC.
(4) Securities companies shall, according to securities market’s requirements and the company’s business development strategy, branches layout, human resources, business management and risk control capability, fully evaluate the necessity and feasibility of establishing securities business departments. Priority shall be given to areas without securities business departments or with few securities business departments.
(5) If a securities company applies for the establishment of a securities business department, it shall submit the written application to the CSRC and send a copy to the securities regulatory bureau in the place where the company’s domicile is located. The CSRC shall examine and verify the application and ask for regulatory opinions of the securities regulatory bureau in the place where the company’s domicile is located on whether the securities company meets the requirements of establishing the securities business department.
For those securities companies who meet the requirements of setting up nationwide branches, they can apply for the establishment of no more than five securities business departments for one time; for those securities companies who meet the requirements of setting regional branches, they can apply for the establishment of no more than two securities business departments for one time. For those securities companies who cannot meet the requirements of establishing securities business departments shall not put forward corresponding applications. Before securities companies’ securities business departments whose establishment has been approved obtain the “Business License of Securities Business Institutions”, establishment of their new securities business departments shall not be approved.
II. Standards for securities service departments.
(1) Securities companies shall standardize those qualified securities service departments into securities business departments before the end of August 2010 according to the principle of “standardizing by stages, implementing by steps”.
(2) The following conditions shall be met if securities service departments are to be standardized into securities business departments:
1. conforming to the condition stipulated in Item 3 of Article 1 of this provision herein;
2. there are no problems left over by history, or those problems have been solved; and
3. no serious violations of laws and rules in the last year.
(3) A securities company shall provide a written application of standardizing a securities service department into a securities business department to the securities regulatory bureau in the place where the securities service department is located. The securities regulatory bureau shall examine and verify the application material and carry out on-spot examination and acceptance. As for the eligible application, the securities regulatory bureau shall make written approval, submit on-spot examination and acceptance report to the CSRC for putting on record and send a copy to the securities regulatory bureau in the place where the securities company is located.
(4) As for the securities service departments who cannot meet the requirements of being standardized into securities business departments, or cannot be standardized within the stipulated time limit, its securities company shall send revocation plan to the securities regulatory bureau in the place where the securities service department locates; deadline of submitting the revocation plan is the end of August 2010. The revocation plan shall include the allocation scheme of personnel and clients, and the promises of undertaking all problems left over by history or potential risks and completing account standardization as well. The revocation plan shall be implemented after the approval by the securities regulatory bureau in the place where the securities service department locates.
(5) A securities company shall provide the following application materials to the securities regulatory bureau in the place where its securities service department locates if it applies for standardizing the securities service department into a securities business department:
1. an application report, including name and address of the securities service department, the name of the securities business department to be adopted, and an explanation on meeting the requirements of being standardized into a securities business department;
2. basic information of the securities service department, including the approval documents of establishment, the business license, the property right certificate or lease contract of business sites, name list, resume, certification and contact methods of personnel, business performance of last year, and business, internal control system and information technology system of the securities service department;
3. compliance operation of the securities service department; and
4. other materials required by the securities regulatory authority.
(6) If a securities company applies for revocation of a securities service department, it shall provide the following materials to the securities regulatory bureau in the place where the securities service department locates:
1. an application report, including the name of the securities service department to be revoked, its address, business performance, clients and personnel, and revocation reasons, and etc.;
2. a revocation plan, including allocation of personnel and clients, asset liquidation, debt discharge and settlement of problems left over by history;
3. a promise letter issued by the securities company concerning properly allocating clients and personnel of the to-be-revoked securities service department, undertaking problems left over by history or potential risks as well as completing account standardization;
4. approval documents of the establishment of the securities service department; and
5. other materials required by the securities regulatory authority.
III. Disposal of illicit business branches.
(1) Relevant securities companies shall liquidate and close the securities business branches that were left over by history or set up without approval (hereinafter shortened as the illicit business branches) before the end of August 2010.
If there are local legal business branches, relevant securities companies shall actively organize and cooperate with clients to transfer to other local legal branches; otherwise, other eligible securities companies can set up new securities business departments to help solve the problems.
Account standardization, other problems left over by history and potential risks of the illicit business branches shall be undertaken and settled by its original securities company.
(2) After clearing the illicit business branches, properly allocating the original personnel and clients, determining internal responsibilities and confirming by the local securities regulatory bureau upon on-spot examination, relevant securities companies can apply for the establishment of securities business departments according to regulations.
(3) If the illicit business branches were left over by high-risk companies under punishment, the former ones shall be cleared by securities-related asset receiving companies. If there are local legal business branches, clients shall be smoothly transferred to other branches with proper personnel allocation; otherwise, the receiving companies shall solve the problems by newly establishing securities business departments.
(4) The securities regulatory bureau in the place where the illicit branch locates shall be responsible for supervision over clearing and closing, implement the on-spot examination and acceptance. The examination and acceptance report shall be submitted to the CSRC for record, and its copy shall also be sent to the securities regulatory bureau in the place where the securities company’s domicile locates.
IV. A securities company’s acquisition and revocation of securities business departments according to its business development and management requirements shall be approved by the CSRC.
A securities company shall meet the requirements of setting up securities business departments while acquiring the securities business departments; the securities company qualified for setting up regional branches can only acquire regional securities business departments. Relevant transferor shall be the securities company who transfers all or part of regional securities brokerage business based on its development strategy adjustment and business integration.
A securities company, which applies for revocation of a securities business department, or is ordered to revoke a securities business department according to law, shall formulate a revocation scheme and implement after submitting it to the securities regulatory bureau in the place where the securities business department locates for approval.
V. A securities business department shall not relocate to other cities. Before the end of August 2010, the securities company with the need of optimizing its branch layout can relocate according to current policy and the principle of relocating from the area with comparatively excessive branches to that with insufficient branches. If a securities business department has to change address in the same city for the reasons such as urban reconstruction or termination of its property lease contract, the change of address shall be approved by the securities regulatory bureau in the place where the securities business department locates.
VI. for the circumstances including establishing securities business branches without approval, or violating the Provisions herein in standardization of securities business branches, falsification, disguise or omission of major issues and other problems, the CSRC and its agencies shall deal with them according to law.
VII. This Provisions shall take effect since the day of announcement. The “Notice of Clearing and Standardizing Long-Distance Securities Business Branches” (Zheng Jian Ji Gou [1999] No.123), the “Notice of Some Problems on Strengthening Management of Securities Service Department” (Zheng Jian Ji Gou [2000] No.131) and the “Notice of Related Problems on Securities Companies’ Application for Establishing Securities Service Departments” (Zheng Jian Ji Gou [2000] No.264) of the CSRC shall be abolished at the same time.
Should any disparity occur between the CSRC’s announced documents and the Provisions herein, the latter shall prevail.
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