CSRC Solicits Comments on Administrative Measures for Foreign-Invested m88 casino app Companies

On May 4, 2018, following the promulgation of the Administrative Measures for Foreign-invested Securities Companies, the China Securities Regulatory Commission (“CSRC”) released a consultation paper on the Administrative Measures for Foreign-Invested m88 casino app Companies (“Consultation Paper”) addressing additional measures to open up the financial industry. Below we have summarized the main points of relevance for foreign investors.

I. Scope of Application

The Consultation Paper starts by specifying that aggregate foreign ownership in a m88 casino app company shall comply with the State’s current commitment to open up of the m88 casino app industry, i.e. the percentage of equity in a m88 casino app company held by foreign investors, whether directly or indirectly, will be limited to 51% for the first three years, after which the cap will be lifted. In recognition of the differing operational characteristics of foreign-invested and domestic-invested m88 casino app companies, the CSRC has formulated separate and specific administrative measures to regulate those m88 casino app companies invested by foreign investors. The Consultation Paper defines a foreign-invested m88 casino app company as “any m88 casino app company in which 5% or more equity is directly owned or indirectly controlled by a single foreign shareholder or multiple affiliated foreign shareholders.” Those m88 casino app companies whose foreign ownership is less than 5% will continue to be governed by the Measures for Supervision and Administration of m88 casino app Companies (“Measures for m88 casino app Companies”).

II. Qualification Requirements m88 casino app m88 casino appeign Shareholders

Currently, the establishment of a m88 casino app company is primarily governed by the Administrative Regulation for m88 casino app Trading (“Regulation for m88 casino app Trading”) and the Measures for m88 casino app Companies. The Regulation for m88 casino app Trading requires that the major shareholders and de facto controller of a m88 casino app company should “have sustained profitability and good credit and no record of material violations of laws or regulations over the past three years”, while the Measures for m88 casino app Companies provide that a foreign shareholder shall be a “validly existing financial institution” and that “all financial and regulatory indexes of the company for the past three years shall comply with the relevant requirements.”

The Consultation Paper further specifies the qualification requirements for foreign shareholders. As well as complying with Articles 7 and 9 of the Measures for m88 casino app Companies, any foreign shareholder directly holding 5% or more equity in a m88 casino app company, shall also be a “validly existing financial institution”, and moreover “be a financial institution having operated continuously for at least five years and have not been subject to any material punishment for violations of law or regulations for the past three years.” In addition, the Consultation Paper requires “sustained profitability”, defined as “having good international reputation and operation performance, and the business scale, incomes, profits of the company shall be ranked in the forefront of the world” and also “good credit”, meaning the company shall “have maintained its long-term credit at a high level for the past three years.” We note that the qualification requirements for foreign shareholders proposed by the Consultation Paper are basically in line with those for foreign-invested securities companies provided in the Administrative Measures for Foreign-invested Securities Companies.

As for a foreign shareholder indirectly holding equity in a m88 casino app company, the Consultation Paper requires that “for any foreign investor having actual control over 5% or more equity in a m88 casino app company through an investment relationship, agreement or another arrangement, the equity shall be directly transferred to such investor.” Given the current situation, in which some m88 casino app companies are wholly owned or controlled by securities companies, and that foreign investors may currently buy shares in onshore listed m88 casino app companies through QFII/QDFII channels and the stock connect mechanism, the Consultation Paper grants exemptions from the direct shareholding requirement for “any equity indirectly held by domestic securities companies or other circumstances provided by the CSRC.” Moreover, if the shares in a listed m88 casino app company purchased by a foreign investor, whether through a stock exchange trade, through joint ownership by a foreign investor and others, or through some other arrangements, reach 5% or more, such foreign investor shall meet the qualification requirements for foreign shareholders pursuant to the Consultation Paper as set forth above.

III. Appom88 casino apptment of Management

Along with the increase of the foreign ownership limit in m88 casino app companies, given foreign shareholders’ desire to appoint more foreign senior management personnel, the Consultation Paper requires that all such senior management personnel of the foreign-invested m88 casino app company shall be present in China to perform their duties, and that the number of senior management having Chinese nationality shall be not less than one third of the total number of senior management personnel.

IV. Deployment of IT System

The Consultation Paper provides that, “the main server of a foreign-invested m88 casino app company, used as the information system for trading, settlement and risk control and as the data device for recording and storing customer information shall be hosted inside China (excluding Hong Kong, Macao and Taiwan).”

V. Busm88 casino appess Scope

The Consultation Paper does not provide any additional restrictions on the business scope of foreign-invested m88 casino app companies. As is the case for domestic m88 casino app companies, foreign-invested m88 casino app companies can apply for domestic m88 casino app brokerage, overseas m88 casino app brokerage, m88 casino app investment consulting and other m88 casino app business as stipulated by the CSRC in accordance with the Regulation for m88 casino app Trading and other relevant regulations, but are prohibited from engaging in any m88 casino app proprietary trading business, whether directly or in a disguised form. In practice, a foreign-invested m88 casino app company may establish a risk management subsidiary to conduct m88 casino app proprietary trading business such as market making business in accordance with the Working Guidelines for the Pilot Business of m88 casino app Companies' Establishment of Subsidiaries for Operating Businesses Focusing on Risk Management Services as stipulated by the China m88 casino app Association. We understand that as is the case for domestic m88 casino app companies, foreign-invested m88 casino app companies may apply to set up a risk management subsidiary to conduct m88 casino app proprietary trading activities in accordance with the above provisions.

The deadline m88 casino app soliciting public comments on the Consultation Paper is June 4, 2018 and we expect that the final version will be issued soon thereafter.