Legal Regulation On Financing Guarantee Company

Banks seek for high-quality borrowers in order to guarantee debt security and thehigh-quality borrowers need to have sufficient assets to support. Meanwhile, there isgreater demand for funds for SMEs. However, they cannot get enough financingbecause their fixed asset is insufficient to meet the requirements of the high-qualityborrowers. In order to solve the financing difficulties of SMEs, a group of corporatesappear, that is, Financing Guarantee Company. However, due to the financingguarantee company’s dual functions-financial function and intermediation function, thediversity of funding sources and Particularity secured objects, financing guaranteebusiness system becomes complicated. The effective supervision is essential becauseof our lack of legislation on financing guarantee companies and the lack of legal andregulatory related aspects of the legislation.During quite a long course of rapid economic development, regulation of afinancing guarantee company has been absent. It was not until March2010whenChina issued the first regulation on the financing guarantee company’s legal documents-"financing guarantee company Interim Measures"(hereinafter referred to as the"Interim Measures") which makes this situation better. This system is not China’sinvention. In fact, studies in other countries on the security company have lasted formore than a century, especially the United States, Germany and Japan and othercountries. Role of the market is to adjust the allocation of resources. The imbalance inthe allocation of resources in the market and the illegal business operation of financingguarantee companies damages market adjustment function as well as the public interest;financial markets have a high risk of infection and vulnerability, reliance on marketself-regulation is difficult to achieve optimal resource allocation adjustment. Therefore,it is particularly important that the external forces intervene in financial market. It isessential that we further establish and improve the financing guarantee company’s legaland regulatory regime, providing a good environment for the security industry.This paper is divided into five parts to study financing guarantee company’s legaland regulatory issues.The first part discusses the basic theory about financing Guarantee Company.First, it is the connotation and characteristics about Financing Guarantee Company. Starting from the concept of the financing guarantee, financing Guarantee Company, itanalyzes the nature of the financing guarantee companies, and thus the legalcharacteristics of the financing guarantee company. Second, it introduces a financingguarantee company’s development process two from two stages of development-generation and development.The second part is the need to analyze the necessity of financing guaranteecompany law regulation. Start with the theory of public interest, financial fragilitytheory and the theory of free competition three aspects to analyze financing guaranteecompanies’ theoretical basis for the necessity of legal regulation. Through the practiceof illegal behavior financing Guarantee Company in the business activities and therisks appear, etc. Discuss Realistic basis of Necessity financing guarantee companylaw regulation. Finally, the company explained the legal significance of the financingguarantee regulation.The third part discusses the status quo of financing guarantee company lawregulation and its shortcomings. With the rapid development of the security industry,its shortcomings has become increasingly prominent such as the imperfect SME CreditGuarantee system which fits with China’s economic management system; securityagencies’ lack of experience, weak risk control and other shortcomings. The repeatedillegal acts of financing guarantee companies reflect financing guarantee company lackof legal regulation. The reasons are as follows: First, the lack of legislation.”InterimMeasures” is the only law for the terms of the financing guarantee company but itslegal position is low and the relevant provisions are not sophisticated; Second, thereis no dominant regulatory body. Various regulatory authorities in different places existand some financing guarantee companies are of low quality, leading to a low efficiency;third, many poor qualification secured financing guarantee companies to enter theindustry because of inadequate regulatory procedures and low threshold of financingguarantee company, resulting in financial disorder. Due to the lack of regulatoryprocedures in the regulatory process, regulatory authorities to guarantee the company’sregulatory is imperfect, and sometimes in the form of checks; Fourth, Legal liability isnot clear. Accountability system for financing Guarantee Company’s is not powerful,administrative liability is not sophisticated and lacks accountability system for agencyheads.The fourth part discusses the outside financing Guarantee Company’s legal andregulatory model and its inspiration, such as the US, Japan, Germany and other countries. Their financing guarantee company’s legal and regulatory regime startedearlier, and has already established a relatively sound legal regulatory system. This partsummarizes the inspiration and reference for the company’s legal regulatory regimethrough the analysis of extraterritorial financing guarantee company background andtheir regulatory legal systems.The fifth part proposes strategies about how to improve our legal and regulatorysystem. First, specify the regulatory body of financing guarantee companies, which isdominated by government regulators, assisted by non-governmental regulatoryauthorities. Second, through the establishment of a credit rating system, improve theinformation disclosure mechanism, strict market access system and the establishmentof market exit mechanism so as to improve the regulatory measures; Third, improvethe regulatory process, and this will be discussed in three ways: how to improve thestart mechanism for monitoring program, and strengthen the business regulatoryprocess and protect the rights of people to carry out this obligation; Fourth, a clearlegal responsibility which will be completed by strengthening the accountabilitysystem, improving the administrative liability and agency heads to increaseaccountability system in order to improve the legal responsibility of the financingguarantee company; Finally, through the establishment of a scientific and rationalsystem of risk control and risk diversification, the introduction of commercialinsurance system, other measures of supervision and other measures of re-guaranteefinancing, thereby purifying the security industry, to strengthen SMEs’ capabilities todevelop steadily in a market economy.