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The CSRC is released! Comprehensively optimize the risk control index system of securities firms

The China Securities Regulatory Commission reported on September 20 that recently, the China Securities Regulatory Commission issued the revised "Regulations on the Calculation Standards for Risk Control Indicators of Securities Companies".

In the view of industry insiders, the revision will promote securities companies to increase their efforts to serve the real economy and residents' wealth management, enhance the initiative and effectiveness of comprehensive risk management, and lay a good foundation for enhancing the service capacity of investment banks by improving the scientificity, effectiveness and orientation of risk control indicators. At the same time, capital constraints on key businesses will be strengthened, reflecting the orientation of strict supervision, and the bottom line of no systemic risk will be maintained.

Quick Facts

All business activities of securities companies are included in the scope of risk control index constraints, and the completeness of the risk control index system is improved

Strict standards for calculating risk control indicators are set for innovative businesses and high-risk businesses

According to the risk management level, business risk characteristics and maturity matching of securities companies, the calculation standards should be reasonably improved

Guide securities companies to optimize their business structure and asset allocation, increase their efforts to serve the real economy and residents' wealth management, and improve the efficiency of capital use

The calculation standards for risk control indicators for securities companies investing in stocks and carrying out market-making and other businesses have been optimized and improved

Strictly set standards for the calculation of risk indicators for securities companies carrying out over-the-counter derivatives and other businesses

Appropriately adjust the risk capital reserve adjustment coefficient and the conversion coefficient of total on- and off-balance sheet assets of securities companies that have been classified and evaluated for three consecutive years, differentiate and enrich the available and stable funds, and support high-quality securities companies to appropriately expand their capital space

All business activities are subject to the indicators

According to the China Securities Regulatory Commission, the revision of the calculation standard of risk control indicators of securities companies is an important measure to implement the Central Financial Work Conference on comprehensively strengthening financial supervision and enhancing investment banking service capabilities, which mainly reflects the regulatory orientation in four aspects.

Highlight comprehensive coverage. All business activities of securities companies are included in the scope of risk control indicators, improving the completeness of the risk control index system, and consolidating the foundation for risk control.

Highlight prudence and strictness. Strict calculation standards for risk control indicators are set for innovative businesses and high-risk businesses, and securities companies are guided to take the road of capital-intensive professional and steady development.

Strengthen risk management. According to the risk management level, business risk characteristics and maturity matching of securities companies, the calculation standards should be reasonably improved to improve the scientificity and effectiveness of risk control indicators.

Promotes function. Guide securities companies to optimize their business structure and asset allocation, increase their efforts to serve the real economy and residents' wealth management, improve the efficiency of capital use, and become an important force in promoting the healthy, stable and high-quality development of the capital market.

In recent years, the China Securities Regulatory Commission (CSRC) has continuously improved the risk control index system with net capital and liquidity as the core, urged securities companies to implement comprehensive risk management requirements, and consolidated the foundation of internal control and compliance. Since January 2020, when the China Securities Regulatory Commission revised and issued the current calculation standards for risk control indicators for securities companies, the securities industry has continued to develop steadily, and its ability to resist risks has been steadily improved, and no major risk events have occurred. The risk control index system has played an important role in improving the risk management level of securities companies and enhancing the industry's ability to resist risks.

Promote the play of functions, strengthen supervision, and support the good and limit the inferior

It is worth mentioning that the revision has introduced many measures in promoting the play of functions, strengthening supervision, and supporting the good and limiting the inferior.

In terms of promoting the function, institutions believe that the revision has optimized and improved the calculation standards for risk control indicators for securities companies investing in stocks and carrying out market-making and other businesses, which will help further guide securities companies to make efforts on the investment side, financing side and trading side, give full play to the role of long-term value investment, service real economy financing, and service residents' wealth management, so as to provide high-quality financial services for economic and social development. For example, in the calculation table of risk capital reserves, the calculation coefficients of risk capital reserves for single and collective asset management investment in standardized assets have been lowered from 0.3% and 0.5% to 0.1% respectively, which reduces the capital burden of securities companies' asset management business to invest in standardized assets and helps guide the asset management business of securities companies to increase investment in standardized assets such as stocks. The calculation coefficient of risk capital reserves for major index constituents and general listed stocks will be lowered from 10% to 8% and 30% to 25% respectively, and the proportion of high-quality liquid assets included in major index constituents will be raised from 40% to 50%, which will be more conducive to securities firms to increase investment in equity assets such as A-shares. Optimize the stable funding coefficient of short-term assets, 50% within 6 months of maturity, 75% from 6 months to 1 year, and 100% before, and the detailed term matching requirements reflect the risk re-evaluation of assets of different maturities, and encourage brokerages to carry out more reasonable term matching and capital management. Relax the risk capital reserves for market-making business, and the market risk capital reserves for financial assets and derivatives held in market-making accounts are calculated at 90% of the calculation standards, which is more conducive to the role of securities firms in activating the capital market through market-making business.

Strengthen capital constraints and enhance supervision

The revision implements the requirements of the Central Financial Work Conference on comprehensively strengthening institutional supervision, behavior supervision, functional supervision, penetrating supervision, continuous supervision, etc., and strictly sets risk index calculation standards for securities companies to carry out over-the-counter derivatives and other businesses, strengthens capital constraints, and enhances supervision. Securities companies are required to adhere to the principle of prudence in calculating risk control indicators, reflect the compatibility between business development and compliance and risk control, consolidate the foundation for risk prevention and control, and consolidate the foundation for high-quality development.

Securities companies need to pay more attention to risk management while pursuing innovation and business growth, which will help establish a more robust risk management system and reduce possible systemic risks.

Supporting the good and limiting the inferior

Support high-quality securities companies to appropriately expand their capital space

The amendment supports compliant and stable high-quality securities companies to appropriately expand their capital space, better provide comprehensive financial services for the real economy, and appropriately optimize the risk control indicators of high-quality securities companies: appropriately adjust the risk capital reserve adjustment coefficient and the conversion coefficient of total assets on and off the balance sheet of securities companies that have been classified and evaluated for three consecutive years, differentiate and enrich the available and stable funds, and support high-quality securities companies to appropriately expand their capital space. It is expected to release nearly 100 billion yuan of funds, promote the effective improvement of capital use efficiency, and increase the service of the real economy and residents' wealth management.

The revision expands the capital space of high-quality securities companies by relaxing the adjustment factor for risk capital reserves and the conversion factor of total assets on and off the balance sheet of high-rated high-quality securities firms.

In terms of the adjustment coefficient of risk capital reserves, the adjustment coefficient of Class A AA or above (inclusive) has been lowered from 0.5 to 0.4 for three consecutive years, and the Class A has been slightly adjusted from 0.7 to 0.6 for three consecutive years, and Class A, Class B, Class C and Class D have remained unchanged at 0.8, 0.9, 1 and 2 respectively. In terms of the conversion coefficient of total assets on and off the balance sheet, the conversion coefficient of Class A AA or above (inclusive) for three consecutive years is 0.7, Class A is 0.9 for three consecutive years, and the rest is 1. In terms of the net stable funding ratio, companies with Class A AA or above for three consecutive years and Class A for three consecutive years are allowed to include liabilities with a remaining duration greater than or equal to 6 months and less than 1 year into the available stable funds at the ratio of 20% and 10% respectively.

According to the results of the 2024 classification evaluation released by the China Securities Regulatory Commission to securities companies in August, at present, there are 146 securities companies in the industry, of which 39 subsidiaries have been merged into the parent company evaluation, with a total of 107 participants. It is understood that in recent years, the number of securities companies of various categories has remained stable, and the number of A, B and C companies accounted for 50%, 40% and 10% respectively.

In the view of industry insiders, after the revision, the higher the classification evaluation of the securities company, the greater the benefit, will encourage the long-term stable operation, standardized operation and compliance operation of securities companies.

The CSRC is released! Comprehensively optimize the risk control index system of securities firms

Source: China Securities Journal

Editor: Xiaoya