In the spirits of the 19th CPC National Congress, the Central Economic Work Conference, and the National Financial Work Conference, and in response to the directives of the State Council on administrative reform by streamlining administration, delegating power, strengthening regulation and improving service, the China Securities Regulatory Commission (CSRC) has officially released the revised Measures for the Administration of Representative Offices of Foreign Stock and Futures Exchanges in China (the Measures, CSRC Decree No. 157), which is based on its previous version referenced CSRC Decree No. 44, with focuses on strengthening ongoing and ex post oversight of the representative offices of foreign stock and futures exchanges in China (representative offices) to comport with the reform towards a registration-based regulatory framework.
As in due legislative procedure, commencing September 28, 2018, the draft Measures was made available for a one-month public consultation on the CSRC’s official website and chinalaw.org.cn. With thorough studies on the public feedback received, the CSRC carefully effected some modifications in the final version of the Measures.
The Measures comprises of eighteen articles in six chapters, covering general provisions, establishment registration of representative offices, changes and termination, regulatory oversight and administration, legal liabilities, and ancillary provisions. The main revisions are as follows.
First, defining scope of applicability. In implementing the decisions of the National Financial Work Conference, representative offices of foreign stock and futures exchanges shall be brought under regulatory oversight so as to fill the regulatory vacuum.
Second, instituting an ex post registration-based procedure for establishing a representative office as part of the administrative reform to replace the approval-based system. In addition to specific requirements on registration documents and process, the Measures also prescribes that application information be made available on the CSRC’s official website for public inquiries.
Third, delineating the range of activities permitted for representative offices for risk management purposes. The Measures clearly defines a representative office as an entity of not-for-profit operations, such as liaison and market research. Market promotion activities, which now require ex post report instead of ex ante approval, are specified with a negative list barring introductions to specific products and trading related information, such as account opening, trading channels, and trading fees. In addition, The Measures also provides for prohibited undertakings of representative offices and their staff, such as entering into agreements or contracts with any legal or natural person that may generate income to the representative office or its offshore exchange, engaging in explicit or implicit profit-making activities, providing direct trading access for entities or individuals in Chinese Mainland, and other activities prohibited by related laws and regulations.
Fourth, strengthening ongoing and ex post oversight. Aiming to improve regulatory transparency and protect the public’s right to know, the Measures improves procedural clarity of registration, changes, and termination, includes clear provisions that lawbreaking conduct committed by representative offices will be reported to the public and their foreign authorities, and specifies the representative offices’ legal liabilities for misconduct.
Going forward, abiding by the directives of the CPC Central Committee and the State Council on expanding financial opening up and administrative reform, the CSRC will continue to support foreign stock and futures exchanges to set up representative offices in China and fulfill its regulatory mandates under the rule of law. Meanwhile, the CSRC and regional offices will release ancillary service guide to facilitate registration applications and day-to-day engagement.