What Is a Financial Holding Company?

A financial holding company refers to a limited liability company or a company limited by shares that has substantial control over two or more different types of financial institutions, and only conducts equity investment management and does not directly engage in commercial business activities. ^[1]

Financial holding company

A financial holding company refers to a limited liability company or a company limited by shares that has substantial control over two or more different types of financial institutions, and only conducts equity investment management and does not directly engage in commercial business activities. ^[1]

A financial holding company is an organizational form for the financial industry to achieve comprehensive operations, and a form of capital operation that pursues capital investment optimization and capital profit maximization. In the financial holding group, the holding company can be regarded as

As a diversified financial enterprise group, financial holding companies have the following characteristics:

Group holding, joint operation

Group holding refers to the existence of a holding company as the parent of the group. The holding company may be a pure investment institution or a financial institution as a carrier. The former is a financial holding company and the latter is

System risk

Because financial holding companies have too much financial resources, their systemic risks are at stake.

The financial holding company system established by the "Financial Services Modernization Law" in the United States is an organizational innovation of financial mixed operations. Japan, Canada, many developed countries, and many developing countries have adopted the financial holding company system to implement mixed operations. The financial holding company system has become the world's main financial mixed operation organization system. Under the WTO system, reforming China s legal system of financial divisions, implementing mixed financial operations, cultivating and developing financial holding companies, and setting up "aircraft carriers" in China's financial industry are a realistic choice to deal with increasingly fierce international competition. Although a large number of financial holding companies and "quasi" financial holding companies have appeared in China, there are currently no corresponding provisions in China's laws and regulations, and there are many legal problems. It conducts in-depth research on legal issues of financial holding companies and proposes corresponding legal countermeasures. It is an urgent requirement of China's financial practice. The thesis focuses on the legal issues of preventing the legal risks of financial holding companies. It selects the main legal issues of financial holding companies for research, and strives to go deeper than to cover everything. The thesis mainly adopts a comparative study of the relevant legal systems of financial holding companies in the United States, Japan, and the United Kingdom. Based on a comparative study of related legal systems, corresponding laws are proposed for related legal issues of financial holding companies in China. Countermeasures. The thesis is divided into six chapters, the main contents are as follows: Chapter one studies the basic legal issues of financial holding companies. The first section analyzes the concept of holding company, the meaning of holding and the type of holding company, then analyzes the concept, type and legal characteristics of financial holding company, and makes a comparative analysis of related concepts. The second section mainly discusses the specific evolution process and reasons of American financial holding companies, and introduces the development and reform of financial holding companies in the United Kingdom, Japan, South Korea, and Taiwan. The third section analyzes the special legal issues arising from financial holding companies. The second chapter studies the organizational system of financial holding companies. The first section studies the theoretical evolution of financial mixed operations. It first analyzes the concepts of joining separate operations and mixed operations, then analyzes the theoretical evolution of financial separate operations and financial mixed operations, and finally discusses the motivation of financial mixed operations. The second section compares the relevant organizational systems of mixed operations. An analysis of the advantages and disadvantages of the German universal banking system and the British "financial hybrid" system, and finally a comparative analysis of the three types of mixed business organization systems, and draw enlightenment. The third section analyzes the legal economics of the financial holding company system. The third chapter studies the legal issues of financial "firewall". The first section analyzes the concepts and types of financial firewalls and discusses the reasons for their existence. The second section compares and analyzes the legal financial firewall systems in the United States and Japan.

Financial holding company formed by financial institutions

The characteristic of this type of company is that the parent company is a bank, trust, securities or insurance company that mainly engages in a certain type of financial business, and participates in another financial service or financial services through a subsidiary or directly by the parent company. This type of company can be divided into three categories; one is a financial holding company established by a state-owned commercial bank through a sole proprietorship or a joint venture; the second is a financial holding company engaged in trusts, securities, banks, and industry, with trust and investment companies as the main body; A financial holding company engaged in insurance, securities and trusts with insurance companies as the main body.

1. Financial holding company established by a state-owned commercial bank through a sole proprietorship or joint venture

(1) In 1979, Bank of China set up China Construction Finance (Hong Kong) Co., Ltd., an investment banking business in Hong Kong, to engage in capital market business. In July 1992, the Bank of China established the Bank of China Group Insurance Co., Ltd. in Hong Kong to carry out insurance business. Based on this, in 1996, Bank of China registered BOC International Bank of China International Holdings Limited, which is principally engaged in investment banking or commercial banking business. In 1998, Bank of China's overseas investment banking institutions and businesses were reorganized in Hong Kong. BOC International Holdings Limited (BOCI International) was re-registered. In 1999, BOC and the British Prudential Group jointly established an asset management company and a trust company to expand the provident fund market in Hong Kong. BOC International is a wholly-owned, fully-functioning investment bank established by BOC overseas, which fully demonstrates that the structure of BOC's financial holding company has begun.

(2) In 1995, China Construction Bank and Morgan Stanley Company jointly established China International Capital Corporation Limited. CCB has a controlling stake of 42.5%. Because the relevant investment agreement was signed before the Commercial Bank Law was implemented, according to Article 43 of the Commercial Bank Law, before the implementation of this law, commercial banks have invested in non-bank financial institutions and enterprises, and the State Council The implementation measures are separately stipulated, so the company is licensed by the State Council to operate the brokerage, self-employment and underwriting of people's special stocks, overseas issuance of stocks, domestic and overseas government bonds, corporate bonds and corporate bonds, fund launch and management, project financing consultants Extensive investment banking. In 2002, China increased its shares to 51% and obtained an A-share brokerage license. Therefore, China Construction Bank started its business structure of financial holding company by controlling China International Capital Corporation Limited.

(3) In 1998, the Industrial and Commercial Bank of China and the Hong Kong Bank of East Asia cooperated to acquire Westminster Securities, which is good at investment banking in Hong Kong, and registered the Industrial and Commercial East Asia Financial Holding Company in Hong Kong to engage in investment banking in Hong Kong and the Mainland. In April 2000, Industrial and Commercial Bank of China also invested in the acquisition of the Hong Kong Union Bank to develop retail banking business directly in Hong Kong and set foot in investment banking. Except for China International Capital Corporation Limited, which was specifically approved by the state for registration in China, the remaining two companies were registered overseas in accordance with foreign laws. The purpose of these companies was very clear: state-owned commercial banks intend to get involved in investment banking and use their long-standing customer relationships with large state-owned enterprises to vigorously promote investment banking products. In turn, investment banking products can boost sales of traditional banking products.

2. A typical representative of a financial holding company, such as a trust holding company, is CITIC Group. Founded in 1979, CITIC Group covers financial and non-financial industries. In 2002, the State Council approved the establishment of CITIC Holdings to transform the financial holding company's financial business. CITIC Holdings is the first standardized financial holding company in China. Through the transformation of the original CITIC Group's financial holding company, CITIC Holdings was restructured into a pure holding company, no longer engaged in specific financial business, but only a pure investment holding And management agencies, holding five important financial subsidiaries including CITIC Industrial Bank, CITIC Securities, CITIC Industrial Trust, CITIC Ka Wah Bank, and Xincheng Insurance, covering all aspects of banking, securities, and insurance.

3 Financial holding company with insurance company as main body

The main representative of this type of financial holding company is Ping An Insurance Company of China. The parent company, China Ping An Insurance Co., Ltd., invested a total of 150 million yuan to control the Ping An Trust and Investment Corporation, and Ping An Trust and Investment Corporation invested another 91.5 million yuan, controlling 61% of the shares of Ping An Securities. In December 2001, the China Insurance Regulatory Commission approved Ping An Insurance's institutional reform plan. Ping An Insurance Co., Ltd. was renamed Ping An Insurance (Group) Co., Ltd. In December 2003, Ping An Trust and HSBC Bank jointly acquired the original Fujian Asian Bank, 2004. In March, it was renamed as Ping An Bank and opened for business in Fujian. So far, Ping An Group has formed a financial holding group that focuses on insurance and is involved in trusts, securities, banks and industrial investment.

Financial holding company formed by industrial capital investment

There are restrictions on the investment of financial institutions in China. In recent years, many financial holding companies have emerged, including industrial capital holdings and equity participation in the financial industry, including state-owned enterprise groups such as Baosteel, Shandong Electric Power, Haier, and private enterprise groups. Investments such as New Hope and Deron, which have collapsed. The emergence of this type of financial holding company is mainly based on two reasons. On the one hand, most of these investors are enterprise groups (or listed companies) that have expanded rapidly in recent years. They have rich cash flow and can invest abroad at any time. In addition, China's existing laws and regulations allow ordinary industrial and commercial enterprises and trust and investment companies to use Private capital invests in any financial institution, and there are almost no restrictions on corporate group finance companies and financial leasing companies to use their own capital to invest in other financial institutions. On the other hand, I also hope that through investment in the financial industry, we can ensure funds and other financial needs for business expansion. There are three main ways for industrial and private capital to hold financial institutions: one is to directly lead or participate in newly established financial institutions; the other is to take the opportunity of state-owned shareholders to withdraw and transfer the equity of financial institutions; Financial Institutions.

On July 26, 2019, the People's Bank of China publicly solicited opinions on the trial measures for the supervision and management of financial holding companies. The People's Bank of China led the drafting of the trial measures for the supervision and management of financial holding companies and put forward strict market access controls for financial holding companies.

The measures impose strict requirements on the shareholders of financial holding companies. Through positive and negative lists, the conditions for becoming shareholders of financial holding companies are clarified. Among them, the negative list specifies behaviors prohibited by the controlling shareholders of financial holding companies, and situations where they cannot become major shareholders, controlling shareholders, or actual controllers of financial holding companies. For example, financial institutions that have made false investments, revolved capital injections, and Or financial institutions have failed to operate or have major responsibilities for major violations.

The measures require that financial holding groups should have capital appropriate to their asset size and risk level. In the next step, specific regulations for capital adequacy supervision of financial holding groups will be formulated based on consolidated management.

In terms of equity structure, for enterprise groups that should apply for the establishment of a financial holding company, but the equity structure does not meet the requirements, the method requires them to formulate an equity rectification plan. After being approved by the financial management department, the complexity of the organizational structure is reduced during the transition period, and the corporate level is simplified . In principle, the number of new financial holding companies, shareholders of financial holding companies, financial holding companies, and controlled financial institutions shall not exceed three levels.

According to requirements, some non-compliant enterprise groups need to integrate equity. Equity transfer is carried out within the group and the actual controller has not changed, and financial institutions have limited impact. For non-financial enterprises, those with relatively standardized management generally meet the requirements of the measures. And those financial holding groups that are rapidly expanding through illegal and illegal means often have large volumes, miscellaneous businesses, and high associated risks. It is necessary to correct their behavior through strict supervision. ^[2]