Related Party Transaction Risks And Supervision Of Financial Holding Company

With the rapid development of the financial industry and loose n regulation of government, China’s financial services have shown further diversification. Banking, securities and insurance industry has penetra ted mutually, teeming with a variety of financial holding companies which achieved great development in practice. On the group level, the financial holding company has achieved maximum consolidated profit by a large number of related party transactions to save cost. Related party transactions can not only provide loans for the holding company itself or other subsidiaries within the Group, but also provide mutual guarantees, investment and so on. Financial holding companies can not only save a lot of costs to increase profits through related party transactions, but also save time for customers. However, the financial holding companies may, for the purpose of tax avoidance or financing needs, undertake a large number of improper related party transactions along with a lot of risks. As most of the financial holding companies involve in banking, insurance and other financial services, once the risk is passed over, it will pose a threat to the stability of the whole financial markets, which affect healthy and stab ility of economy. Therefore, we must strengthen supervision of related party transactions of financial holding companies. At present, China’s "separate operation, separate supervision" regulatory system, show weakness in supervision on the related party transactions. What is worse, there is no specific related laws and regulations intended for financial holding company, so that regulators have no legal security and financial holding companies barely receive a deterrent. In this context, it is very urgent and necessary to research the related party transactions and regulatory risk countermeasure of Financial Holding Company.In this paper, the concepts of financial holding companies, and other related transactions were defined firstly, and the causes of the financial risk and the risk associated with holding companies resulting from transactions have been analyzed. This paper also noted related party transactions mainly generate double counting of capital risk, risk disclosure, transfer and spread risk, risk of conflict of interest. In addition, this paper studied the current situation of the financial holding company and related party transactions regulation problems. Finally, this paper drew lessons from the regulatory experience of developed countries in the European Union, the United States and Japan, based on the association proposes to strengthen transaction risk supervision measures for C hina’s financial holding company in order to promote healthy and sustained development of China’s financial holding company.