Gold Control "Runaway" Regulation Entry BATJ Challenges Have Arrived

In August 6th, finance was a coveted pie, and the establishment of a financial holding company was once a way to Channel private capital to finance. With the gradual exposure of risks in the industry, the regulatory sword came quietly.

According to the media, recently, the central bank issued the "financial holding company supervision and management pilot scheme (Draft)" (hereinafter referred to as the "measures"). The measures define the admission criteria of financial holding companies, and the focus of supervision is on financial holding companies initiated by non-financial enterprises.

In accordance with the definition given in the "measures", financial holding companies refer to limited liability companies or Limited by Share Ltd that are legally established to have two or more than two different types of financial institutions with actual control rights, conduct only their own equity investment management, and do not directly engage in commercial activities.

From the actual situation, there are a large number of financial holding companies do not have the above characteristics. Insiders pointed out that, motivated by interests, many non-financial enterprises set up financial holding companies through investment, blindly expanded to the financial industry, and their industrial and financial industries lacked a risk isolation mechanism. Some enterprises even regarded the golden control group as a "cash machine" to carry out illegal profits and damaged the legitimate rights and interests of financial institutions and investors.

For the current financial turmoil in China's financial holding companies, the relevant financial regulatory authorities are clearly aware of that. In the China financial stability report (2018) issued by the central bank, the central bank pointed out that a large number of non-financial enterprises invest in financial institutions by means of initiation, merger and acquisition and equity participation. There are such problems as excessive investment, barbaric expansion, false injection or circular injection, improper intervention in financial institutions, and the transfer of interests through related party transactions.

The central bank's description was not sensational. In May this year, the news of the takeover by the central bank and the CIRC had triggered an uproar in the industry. Later, the central bank said that the major shareholder of the package bank was tomorrow's group, which collectively held 89% of the shares of the package bank. As a result, the large amount of funds of the Contractor's Bank was occupied illegally by the large shareholders, which was overdue, and it was difficult to return in the long term, which led to a serious credit crisis in the package bank and triggered a legal takeover condition to be taken over by law.

According to the media, financial holding companies often have multiple financial licences, various types of business, complex shareholding structure, and high risk of affiliated transactions. Once financial businesses generate risks, they often lead to systemic risks and systemic risks.

This is more common in financial holding companies established by non-financial companies. Insiders pointed out that while some financial institutions are developing their main businesses, they will also invest or set up other financial institutions to form integrated financial groups, such as ICBC, Ping An Group, China Life Insurance and so on.

However, such a financial holding company established by a financial company is still under the supervision of the corresponding financial supervision department (the SFC and the Banking Regulatory Commission). Its operation is relatively stable and its risk level remains low.

As a result, the regulatory scheme for financial holding companies was introduced, and the gold controlled group invested by non-financial enterprises was more influential. Among them, the Internet giant led by BATJ was the first to bear the brunt of this round of regulatory storm.

Take the Alibaba ant's gold suit as an example, relying on the electricity supplier flow, and gradually grow and grow from Alipay, we have completed the "Grand Slam" of financial license including payment, fund, bank, small loan and Internet financial asset transaction.

As the first batch of 5 pilot institutions to be included in the trial, the ants were immediately reacted. In the evening of the announcement of the "measures", Liang Shidong, vice president of ants' gold clothing, said that an independent team was set up to study the relevant requirements of financial holding companies and actively participated in the consultation.

Today, the ants' golden clothing has some countermeasures. According to Bloomberg report, the ant golden suit plans to split its business into two parts, which are placed under two companies. On the one hand, in order to reduce capital demand, the related business of financial licence should be incorporated into the newly established subsidiary company. On the other hand, the financial technology business of the original financial cloud and risk management should be retained in the ant's gold clothing.

Judging from the current situation, Baidu's Jingdong branch of Du Xiaoman financial and Jingdong is facing the same challenge as ant gold suit.

It is worth mentioning that, unlike Baidu, Alibaba and Jingdong, Tencent's financial technology business has always been hidden in the group and has not been split yet. However, it is also difficult to avoid the impact of regulatory storm. That is, supervision requires strict ownership structure management and clear corporate governance structure. It requires clear ownership structure and organizational structure of financial holding companies, and transparent structure of shareholders and beneficial owners.

Insiders pointed out that, in the future, financial holding companies will strictly enforce the licensing system. Non-financial enterprises, especially giant enterprises, need to be prepared ahead of time if they want to make a difference in this respect. They should prepare for the rainy day in terms of company's organizational structure, business line sorting, talent recruitment and so on, so as to avoid unnecessary factors affecting the subsequent establishment and application of the license.

For BATJ, the new challenge has arrived, the situation is grim and the breakthrough is not easy, but I believe that as long as we walk through this single log bridge, the road ahead will only be wider.