China's securities regulators have invited overseas experts to help design a new risk management scheme for domestic securities companies.

The China Securities Regulatory Commission (CSRC) has drafted regulations on the supervision of securities companies and designed relative standards for risk control, which are now being discussed within the industry, said Li Xiaoxue, assistant chairman of CSRC, at a seminar on Friday in Beijing.

The seminar, jointly sponsored by the World Bank and the Securities Association of China, focused on the risk management mechanisms of domestic securities firms.

Li said the legislation will guide domestic securities companies to build internal risk controls and monitoring schemes, adding some of the proposals from overseas experts, such as World Bank economists, will be adopted in the process.

Risk management is the cornerstone of all steps taken to maintain the sanctity and integrity of the capital market, said Khalid A. Mirza, sector manager of the East Asia and Pacific region's Financial and Private Sector Unit at the World Bank.

Regulators have a major role to play in nurturing a risk culture via the designing of rules, strict enforcement and examinations, he said.

Securities companies, as an important securities intermediary, should adhere to the norms of risk management and prudent operations, which are essential for maintaining investor confidence and making the capital market attractive.

Presently, financial hazards are the key risks facing institutions. For example, limited access to bank loans has led to liquidity problems for Chinese securities firms.

A joint consulting project by the World Bank and PricewaterhouseCoopers into risk management in China's securities market has found that China needs to enhance internal risk management procedures and increase capital adequacy for securities companies.

The present regulatory framework and enforcement of penalties should be improved, while more incentive should be provided to market intermediaries for adopting sound risk management practices, according to Rick Heathcote, a partner in compliance risk management solutions at PricewaterhouseCoopers, who led the project.

(China Daily September 22, 2003)