CSRC poised to be top PE regulator

China’s State Commission Office for Public Sector Reform (SCOPSR) is expected to make the China Securities Regulatory Commission (CSRC) the sole regulator of private equity and venture capital firms, according to several Chinese media reports. 

The CSRC, which regulates public securities, and the state economic planning body, the National Development and Reform Commission (NDRC), have been at times in competition with each other to become the chief regulator for private equity and venture capital. 

In March, the NDRC issued fund registration rules that conflicted with those released the previous month by the CSRC.

“The NDRC doesn’t seem to have a lot of capacity to regulate the PE and VC industry, so supervision and regulation has been very light compared to the US and Europe,” said Clifford Chance partner Ying White.

“The CSRC, being already a financial regulator, has more oversight capacity, so if supervisory authority is transferred to the CSRC, expect more supervision and oversight than before.”

“This [possible move to CSRC authority] is also partially coming from the fact a lot of the top tier PE firms are very interested in becoming full service asset management firms, providing a platform with multiple strategies and products beyond traditional PE,” White said. “They want to work in real estate, mezzanine, VC, mutual funds and hedge funds.”

Because some asset classes that private equity wants to move into involve public securities, the CSRC is best equipped to regulate the industry.

The CSRC froze IPO approvals in China last year after a high profile listing scandal. Since then it has been carefully vetting applications, and since January this year, more than 170 listing applications have been denied. 

“A private fund may be concerned that once supervised by CSRC, there will be more strict regulations,” added Evan Zhang, partner at Han Kun Law.