September 20, 2024 – Beijing, China – In a move to further strengthen risk management within the securities industry, the China Securities Regulatory Commission (CSRC) has unveiled a revised set of risk control indicators for securities companies. The updated regulations, titled Regulations on the Calculation Standards for Risk Control Indicators of Securities Companies (hereafter referred to as Regulations), are set to be implemented on January 1, 2025.
According to an official from the CSRC, the revision aims to improve the risk control system for securities companies, encouraging them to comply with comprehensive risk management requirements and enhance their service capabilities to the real economy. This move is also intended to foster high-quality development within the securities sector.
The official highlighted that in January 2020, the CSRC revised and published the initial version of the Regulations. Since then, the securities industry has seen a steady improvement in its risk resistance capabilities, with the four core risk control indicators consistently maintained at 1.5 to 2.5 times the regulatory standards. This indicates that the risk control indicator system has played a crucial role in enhancing risk management and bolstering the sector’s ability to withstand risks.
The official also mentioned that the revision of the Regulations is based on a summary of practical experience and takes into account the new challenges and requirements faced by the securities industry. The updated Regulations primarily focus on the following adjustments:
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Optimization of Risk Control Calculation Standards for Stock Investments and Market Making: The Regulations have been modified to optimize the risk control calculation standards for securities companies’ investments in stocks and market-making activities. This is intended to guide securities companies to better fulfill their roles in long-term value investment, financing for the real economy, and wealth management for residents.
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Risk Control Classification Adjustment Coefficients Based on Risk Management Levels: The Regulations have introduced a mechanism to adjust risk control indicators based on the risk management capabilities of securities companies. This will enable compliant and stable high-quality securities companies to improve capital utilization efficiency moderately, thereby better serving the real economy through comprehensive financial services.
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Comprehensive Risk Control Coverage for All Business Activities: The Regulations ensure that all business activities of securities companies are subject to risk control indicators. The Regulations also specify the risk control indicator calculation standards for new businesses, such as participation in public Real Estate Investment Trusts (REITs), to improve the completeness and scientificity of the risk control indicator system, thereby reinforcing the risk control foundation.
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Tightened Risk Control Standards for Innovative and High-Risk Businesses: The Regulations have set stricter risk control standards for innovative businesses and those with higher risks, enhancing regulatory intensity and effectiveness.
The CSRC’s revision of the Regulations demonstrates the regulator’s commitment to ensuring the stability and healthy development of the securities industry. The updated regulations are expected to strike a balance between risk control and innovation, guiding securities companies towards more sustainable and responsible business practices.
As the new regulations take effect in January 2025, securities companies will be required to adjust their operational strategies and risk management frameworks accordingly. This is a significant step in China’s ongoing efforts to strengthen its financial regulatory system and promote the long-term health of the securities market.
The implementation of the revised Regulations is anticipated to further enhance the competitiveness and resilience of China’s securities industry, positioning it for continued growth and development in the years to come. The CSRC’s proactive approach to risk management underscores its dedication to safeguarding the interests of investors and maintaining market stability.
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