China Securities Regulatory Commission released the "Guidelines for the Consolidated Management of Securities Companies (Trial)"

April 18, the China Securities Association issued the "Consolidated Management Guidelines for Securities Companies (Trial)". The drafting of the "Guidelines" follows the principles of comprehensiveness, substance, and effectiveness. Firstly, it clarifies that the consolidated management covers securities companies and their various levels of subsidiary institutions, as well as various types of on-balance sheet and off-balance sheet, domestic and foreign, domestic and foreign currency businesses, covering multi-level responsibilities for the board of directors, supervisory board, management team, various departments, and so on, involving key areas such as corporate governance, business coordination, internal transaction management, risk management, and capital management. Secondly, it emphasizes that securities companies should adhere to the principle of substance over form, based on actual management and control, fully consider business complexity and risk relevance, reasonably and prudently determine the scope of consolidation, and establish an appropriate consolidated management system and work mechanism. Thirdly, it emphasizes that securities companies should manage the overall risk of the company, effectively identify, measure, monitor, assess, and control the overall risk of the company. In addition, considering the actual situation of the industry and factors such as system adjustments, the "Guidelines" have set different transition periods for different types of securities companies. For securities companies that have formally implemented consolidated supervision pilot projects, the transition period is one year from the date of publication; for other securities companies with overseas subsidiary institutions, the transition period is two years from the date of publication; and for the remaining securities companies, the transition period is three years from the date of publication.Enterprise institution management, to ensure the independence of the governance of securities companies and affiliated institutions; third, to clarify that the board of directors, board of supervisors, management, departments, branches, and affiliated institutions must fully perform their respective consolidated management responsibilities, establish a sound consolidated management cooperation mechanism, and incorporate consolidated management into the scope of internal audit; fourth, requiring external professional organizations to assess the effectiveness of consolidated management, with a frequency of at least once every 3 years; fifth, clearly stipulating that within four months after the end of each fiscal year, the annual consolidated management situation should be submitted to the China Securities Industry Association.In terms of business collaboration and internal transaction management, first, business decisions should be scientifically made based on the type of business, regional layout, market environment, and the company's consolidation management capabilities. This will guide subsidiary institutions to fully leverage synergies around the company's overall strategy, allocate company resources reasonably, and regulate outsourced services and cross-businesses conducted by members. Second, coordinate and plan the positioning of subsidiary institutions to ensure that each subsidiary institution has clear business objectives and market positioning to avoid internal business confusion. Third, establish and continuously improve an internal firewall system within securities firms to effectively prevent the disorderly transmission of financial risks internally and cross-region, cross-market, and cross-border contamination. Fourth, collect and use the necessary data for consolidation management in accordance with legal and regulatory requirements. Fifth, conduct consolidation management on internal transactions, pay full attention to potential interest transfers, capital inflation, income transfer, risk transmission, regulatory arbitrage, and other negative effects that may impact the company's sound operation. Sixth, establish internal transaction management systems and implement major internal transaction approval decision-making procedures. In terms of risk management, first, establish a comprehensive risk management system that is compatible with the organizational structure of consolidation management, development strategies, business scale, and complexity. Second, strengthen the risk management capabilities of securities firms in all aspects from risk culture, systems and preferences, risk identification assessment, monitoring and early warning, response reporting, and centralized management. Third, increase investment in risk management resources of securities firms in information system construction, risk management personnel allocation, and consolidation data governance and quality control to ensure a solid foundation. In terms of capital management, first, adhere to capital-intensive and high-quality and stable development, focus on core responsibilities and main businesses, improve capital utilization efficiency and return levels. Second, develop capital planning and implement capital management, adhere to rationality and prudence principles, strengthen forward-looking risk assessment and capital management. Third, based on the pilot practice of consolidation supervision, refer to the calculation standards for securities firms' risk control indicators officially implemented in January 2025, consider developments in various business sectors of the securities industry in recent years, as well as the differences between domestic and foreign businesses, and set industry consolidation risk control indicator calculation standards accordingly. Securities firms should calculate relevant risk control indicators of the consolidation management system according to the consolidation risk control indicator calculation standards. Fourth, securities firms should build an index system reflecting the overall risk level of the company, various risk levels, and capital adequacy levels based on the number of subsidiary institutions, complexity of businesses, internal management needs, and gradually achieve systematic calculation and monitoring. (IV) Transition Period for Consolidation Management Considering the actual situation of the industry and system adjustments, the "Guidance" sets different transition periods for different types of securities firms. Firstly, securities firms that have formally implemented consolidation supervision pilot projects have a transition period of one year from the date of publication. Secondly, securities firms with other overseas subsidiary institutions have a transition period of two years from the date of publication. Thirdly, the transition period for other securities firms is three years from the date of publication. This article is excerpted from the "China Securities Industry Association", GMTEight Editor: Liu Xuan.