China's brokerages told to manage reputation risk as scandals spread

SHANGHAI (Reuters) - The Securities Association of China (SAC) has told brokerages to strengthen their risk management regimes to include reputation risk, SAC said in a statement on its official website late Friday.

The changes come at a sensitive time for the brokerage industry. Sealand Securities Co Ltd has been embroiled in a $2.4 billion bond scandal that raised fears of a banking system liquidity crunch before regulators stepped in.

Brokerages now must include subsidiaries in their risk-management framework, and should prevent reputational hazards from becoming liquidity risks, the SAC said in four revised rules published late on Friday.

Previously, brokerages' risk-management systems did not need to cover their subsidiaries, and reputation risk was not included.

The purpose of the rule update, which covers areas including liquidity risk and stress tests, was to "further promote brokerages' risk-management awareness, help them improve their risk-management systems, and strengthen their ability to manage risks," SAC said in a statement on its website.

Listed brokerages were given a grace period of six months, while non-listed securities firms were required to implement the new rules by end-2017, the SAC statement said.

(Reporting by Samuel Shen and Engen Tham; Editing by Eric Meijer)