China's financial authorities Monday took a further step to complete a regulatory regime under which banking, securities and insurance are separately regulated.

A memorandum on the division of supervisory responsibilities among the three sectors' regulators, which was published Monday, says that financial holding companies should be subject to supervision by the regulator of their core business sector.

That is the first time China's financial regulators have attempted to clarify the supervision of the nation's emerging financial holding companies, filling up gaps in the supervisory regime.

The memorandum states that the holding company should be supervised by the regulator overseeing the industry which its core business belongs to, while the subsidiaries of the holding company will be regulated by the regulator of their respective industry.

But the memorandum did not specify regulatory responsibility for financial holding companies invested in by non-finance companies. It only said financial regulators will "carefully study the regulatory policy, criteria and methodology, enhance coordination and strengthen supervision."

The three regulatory agencies will hold meetings on a quarterly basis to coordinate their efforts, according to the memorandum.

The three sectors of banking, securities and insurance are strictly separated in China largely because of risk concerns, while a growing number of countries have adopted a so-called "universal banking" system under which companies in the finance sector are free to enter each other's traditional business territories.

China's financial supervisory regime is also being built on a separate basis, although economists and government officials agree that universal banking will be the ultimate choice.

Some financial holding companies are already emerging in China, including China Everbright Group which is involved in banking, securities and insurance.

And industrial capital is increasingly penetrating the financial sector, with companies such as feed producer New Hope Group and home appliance maker Haier Group leading the way.

But senior government officials have insisted on public occasions that separation within the financial industry is still the most practical choice for China.

In the latest development, the China Banking Regulatory Commission (CBRC) was established last April, taking over the banking regulatory functions from the People's Bank of China, the central bank.

In similar ways, the China Securities Regulatory Commission was set up in 1992 while the China Insurance Regulatory Commission was established in 1998.

Coming after the trend that universal banking became obvious in China, the establishment of the CBRC was the most questioned, as it was supposed to take away all the remaining financial institution regulatory functions but was not given the role of supervising emerging financial holding firms.

(China Daily June 29, 2004)