Chinese securities companies are driving growth through business transformation, technology enablement and internationalisation, embracing the tightening trend of regulations and intensifying market competition, finds KPMG’s latest survey.
It is KPMG China’s 12th annual survey of 131 securities companies in mainland China.
Bonn Liu, Head of Securities and Investment Management, ASPAC, and Head of Financial Services, Hong Kong, KPMG, says: “An increasing number of securities companies are exploring ways to transform their businesses. This includes shifting from traditional business model to providing more integrated service solutions that comprise of research, custodian and investment trading. These developments have led to a rise in international investments and leverage of local resources to expand cross-border activities. A number of them are also launching innovative products and services by technology-enabled integration of their online and offline channels.”
The report notes that intensified competition and lower transaction volumes in stock market have impacted both the commission rates and income for brokerage business – income contribution declined to 28 percent from 34 percent in 2016. A similar trend was witnessed for investment banking which income has declined by 25 percent year on year. Asset management business and financing segments saw relatively stable performance. Proprietary trading overtook brokerage business to become the largest income stream of the industry. The segment recorded RMB 101.7 billion income in 2017, an increase of 41 percent year on year. Overall, total operating income retreated by 5 percent year on year to RMB 312.8 billion, while net profits declined 9 percent to RMB 112 billion. Net assets grew 12 percent to RMB 1.8 trillion.
In 2018, the securities industry of China is facing more challenges. Recent challenges include weak stock market performance, a slowing IPO market, the increased credit risk of equity pledge, and the shrunk AUM influenced by the new regulations for asset management. In view of this, many brokers are undergoing transformation and exploration in organisational structure, customer strategy, talent strategy, performance appraisal, and IT system transformation.
Abby Wang, Head of Securities and Investment Management (China), KPMG, says: “Securities companies will need to improve quality control, accelerate transformation of the wealth management business, focus on active management capabilities, strengthen in-house research and development (R&D) capabilities and deepen cross-border collaboration to enable developments characterised with compliance, transformation, innovation and internationalisation.”
Separately, the report highlights that the increasing connection between the A-share market and global markets and the opening up of the securities sector to foreign companies provide both opportunities and challenges to existing players.
Tony Cheung, Partner-in-charge of Financial Services Advisory, KPMG China, says, “In April 2018, The CSRC released new regulations for foreign investment in securities companies, allowing foreign investors to have majority control of securities joint ventures, and gradually lift the restriction on the business scope of securities joint ventures. The new measures prompted foreign institutions to apply to the CSRC for acquiring majority stakes in local securities companies or setting up greenfield securities joint ventures, which marks a significant milestone of securities sector opening-up. Foreign investors will bring with them international management experience, investment strategies and business models, which will strengthen the overall competitiveness of Chinese securities sector in the long run.”
Wang concludes: “Against the backdrop of strengthening supervision and opening up of the securities market, securities companies should actively explore business innovation and strategic transformation to enhance their integrated financial services capabilities while maintaining sound compliance and risk management. They should also apply fintech to provide intelligent, digitalised, precise and professional services to achieve leapfrog growth. Internationalisation also provides a window for expansion. Competition is expected to further intensify and the market will become increasingly diverged. Securities companies leading in terms of capital strength, strategic focus and execution ability, innovation, technology, compliance and risk management, will stay on top.”
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KPMG China operates in 19 cities across China, with around 12,000 partners and staff in Beijing, Beijing Zhongguancun, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Wuhan, Xiamen, Xi’an, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 154 countries and territories and have 200,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.