Source: China Fund News
Author: Li Shuchao

On November 3, the official website of the Securities Regulatory Commission reported that according to the relevant provisions of the “Administrative Measures on Risk Control Indicators of Securities Companies”, taking into account market conditions and the development needs of securities companies, the CSRC revised the “Regulations on Calculation Standards for Risk Control Indicators of Securities Companies” (hereinafter referred to as the “Calculation Standards”) and solicited comments from the public.

Industry insiders said that the revision of the “Calculation Standards” is an important measure to implement the Central Financial Work Conference on comprehensively strengthening financial supervision and enhancing the service capabilities of investment banks. The revision of the rules is conducive to further playing the “baton” role, improving the risk control index system of securities companies, and enhancing the initiative and effectiveness of comprehensive risk management; at the same time, it is conducive to promoting the functioning of the brokerage industry, highlighting the brokerage industry's main business of serving the real economy, and promoting its own high-quality development.

Promote the performance of functions and highlight the main business of serving the real economy

In order to implement the spirit of the Central Financial Work Conference, comprehensively strengthen institutional supervision, further improve the risk control index system of securities companies, push securities companies to implement comprehensive risk management requirements, enhance investment banking service capabilities, improve the economic quality and efficiency of service entities, and promote the high-quality development of industry institutions, the Securities Regulatory Commission has revised the “Regulations on Risk Control Index Calculation Standards for Securities Companies” in accordance with the relevant provisions of the “Administrative Measures on Risk Control Indicators of Securities Companies” (CSRC Order No. 166), and is now seeking comments from the public.

In January 2020, the Securities Regulatory Commission revised and issued the “Calculation Standards”. Judging from the implementation situation, the securities industry's ability to withstand risks has been steadily improving. The four core risk control indicators have remained at 1.5-2.5 times the regulatory standard for a long time. The risk control index system plays an important role in raising the risk management level of securities companies and enhancing the industry's ability to withstand risks. On the basis of fully summing up practical experience and taking into account the new situation and requirements facing the current development of the securities industry, the Securities Regulatory Commission revised the “Computational Standards” to further play the “baton” role of risk control indicators.

The main contents include: First, promoting the performance of functions and highlighting the main business of serving the real economy. The risk control index calculation standards for securities companies that carry out market-making, asset management, and participation in public REITs are optimized to further guide securities companies to work on the investment side, financing side, and transaction side, giving full play to the role of long-term value investment, serving real economy financing, serving residents' wealth management, and invigorating the capital market.

The second is to strengthen classification supervision and expand the capital space of high-quality securities companies. Appropriately adjust the risk capital preparation adjustment factors of securities companies with the highest classification and evaluation for three consecutive years and the conversion factors for total assets inside and outside the table, promote advanced risk measurement methods such as the pilot internal model method, and support high-quality securities companies with steady compliance to moderately expand capital space, improve capital use efficiency, and become better and stronger.

The third is to highlight risk management and effectively improve the effectiveness of risk control indicators. According to business risk characteristics and term compatibility, calculation standards are reasonably improved, stable capital requirements for assets of different matures are refined, and the scientific nature of risk control indicators is further improved. Appropriately raise measurement standards for OTC derivatives, etc., strengthen supervision, improve the effectiveness of supervision, and maintain the steady operation of the market.

Further play the role of “baton” and enhance the initiative and effectiveness of comprehensive risk management

In recent years, the Securities Regulatory Commission has continuously improved the risk control index system centered on net capital and liquidity, urged securities companies to implement comprehensive risk management requirements, and consolidated the foundation for internal control compliance. Since the Securities Regulatory Commission revised and published the current risk control index calculation standards for securities companies in January 2020, after more than three years of practice, the ability of the securities industry to withstand risks has been steadily improved. The four core risk control indicators of risk coverage, capital leverage ratio, liquidity coverage, and net stable capital ratio have remained at the level of 1.5-2.5 times the regulatory standards for a long time. The industry has continued to develop steadily, and no major risk events have occurred.

In order to further develop the role of risk control indicators as the “baton” in the resource allocation of securities companies, enhance the initiative and effectiveness of comprehensive risk management, and provide strong support for economic and social development through its own high-quality development, it is necessary to revise the “Calculation Standards” in line with the actual situation of industry development.

This revision of the calculation standards for risk control indicators for securities companies is an important measure to implement the Central Financial Work Conference on comprehensively strengthening financial supervision and enhancing the service capabilities of investment banks. It mainly reflects four aspects of regulatory orientation: the first is to promote functional performance. Further develop the role of securities companies' risk control indicators as the “baton”, guide securities companies to optimize their business structure and asset allocation, and increase their efforts to serve the real economy and residents' wealth management.

The second is to support the good, limit the bad, and classify supervision. Appropriately expand the capital space of high-quality securities companies, improve the efficiency of capital use, become better and stronger, and be the main force serving the real economy and the ballast stone for maintaining market stability.

The third is to comprehensively strengthen supervision. All business activities of securities companies are included in the scope of risk control indicators, and risk calculation standards are strictly set for innovative businesses and high-risk businesses.

The fourth is to consolidate the foundation of risk control. Through the revision of risk control index calculation standards, securities companies are guided to actively strengthen risk management and follow the path of steady development of capital-intensive specialization.

editor/tolk