Regulation Of Related-Party Transactions Of Financial Conglomerates

Under the pressure of foreign competitors, Chinese financial business is urged to increase competitiveness by transforming into certain modes of financial conglomerate, among which the financial holding company mode has been well accepted. Existing financial conglomerates and loopholes in the current regulatory regime require the enactment of a new law, under which the regulation of related-party transactions will be a great issue, because they are necessary to increase efficiency, but also may bring all the special risks companying a financial conglomerate.The article makes an endeavor to define a series of concepts regarding related parties, including related parties, corporate groups and financial conglomerates. It goes further to discuss some important issues for the regulation of related-party transactions, i.e., the categorization, the purposes, the regulation's boundaries, and a frame structure for the new regulatory regime.The most important conclusion is that related-party transactions should be divided into two types: transactions within and across the group. The intra-group transactions should receive a looser regulation than the other; a different test of"financial integrity"for a group member is also raised to replace the requirement of arm's length transactions when applying to intra-group transactions. Additionally, the"corporate groups"concept is defined based on the economic theory of resources allocation, under which the group is treated as an integrated entity, and to that extent it is similar to the"piercing the corporate veil"theory. Such phenomena may cause reconsideration of the current corporate personality theory.