Jia Wenqin, deputy to the National People’s Congress and director of the Beijing Securities Regulatory Bureau: Speed up the special legislation on REITs and improve the credit debt default disposal mechanism
Securities Times Two Sessions Reporting Group
Issues related to the capital market are hot topics at the two sessions every year. In recent years, the reform of the registration system, the revision of the Securities Law, and the “zero tolerance” for violations of laws and regulations in the capital market have been implemented. This year’s reforms continued to deepen. How the capital market will move towards high-quality development, how to continue to deepen reform while seeking progress while maintaining stability, and which reform measures are the first movers, the voices in this year’s two sessions are worth looking forward to.
With these questions in mind, a Securities Times reporter interviewed Jia Wenqin, deputy to the National People’s Congress and director of the Beijing Securities Regulatory Bureau. Jia Wenqin’s suggestions this year include: speeding up the special legislation on real estate investment trusts (REITs), improving my country’s credit debt default disposal mechanism, improving the civil liability guarantee mechanism for accounting firms, and exploring the “three-in-one” trial of securities and futures cases in the Beijing Financial Court Pilot.
It is recommended to speed up
REITs special legislation
Securities Times reporter: How is the current development of REITs?
Jia Wenqin: Up to now, 11 infrastructure REITs have been listed on the stock exchange. The listed projects cover industrial parks, highways, warehousing and logistics, sewage treatment, biomass power generation and other asset types, raising a total of 36.4 billion yuan, focusing on scientific and technological innovation, green development and people’s livelihood. After the product was launched, the overall operation was stable, reflecting the product characteristics of medium income, medium risk and relatively strong predictability, and the demonstration effect was good.
At present, it has become a consensus of all parties to promote the development of publicly offered REITs. The “14th Five-Year Plan” and the outline of the long-term goals for 2035 clearly propose to promote the healthy development of real estate investment trust funds in the infrastructure field, effectively revitalize existing assets, and form existing assets and new growth. A virtuous cycle of assets. The governments of Beijing, Shanghai, Tianjin, Fujian, Guangzhou, Nanjing, Chengdu, Xi’an, Suzhou, Wuxi and other places have issued special policies to support the development of REITs. The China Banking and Insurance Regulatory Commission has clarified the special policies for insurance funds to invest in REITs.
As a major innovation in the field of infrastructure project investment and financing and capital market, REITs are an important driving factor to ensure their sustainable and healthy development. With the implementation of the pilot program, in order to promote the sustainable and healthy development of the business, the need for special legislation on REITs has become increasingly urgent. The 2022 legislative plan announced by the China Securities Regulatory Commission has made it clear that the “Measures for Real Estate Investment Trust Funds” will be released as soon as possible.
Securities Times reporter: What problems still need to be solved in the REITs special legislation?
Jia Wenqin: Compared with the international mainstream REITs, the “public fund + ABS” model adopted in the pilot phase is a relatively feasible solution under the current legal and regulatory framework. Coordination is difficult. REITs special legislation needs to focus on addressing the following issues:
One is the legal positioning of the product. The legal nature of securities of domestic REITs needs to be confirmed by legislation urgently. Special legislation should be promoted based on the Securities Law, and institutional arrangements for issuance, listing, trading, and information disclosure that conform to the characteristics of REITs should be systematically constructed.
The second is the problem of product structure optimization. During the pilot period, limited by the current legal environment, the product structure is relatively complex, which is not conducive to the sustainable and stable development of REITs and the protection of the legitimate rights and interests of investors. In the long run, a structural optimization-oriented legislative path is imperative to reduce a series of problems in the operation of infrastructure REITs, such as reducing multiple principal-agent relationships, reducing agency costs, clarifying the boundaries of powers and responsibilities of REITs managers, and reducing supervision. cost etc.
The third is the endogenous problem of the integration of industry and finance. As a typical “industry-financial integration” tool, REITs require managers to organically combine the professional operation capabilities of the real estate industry such as infrastructure with the capital operation capabilities of financial products. In the long run, the institutional barriers that restrict the organic integration of industrial and financial capabilities need to be removed. Referring to overseas experience, REITs managers with a complete capability system should be allowed to apply for REITs special business licenses, and original stakeholders should be encouraged to integrate financial operations and management capabilities on the basis of existing industrial advantages to establish professional REITs management companies.
Fourth, the issue of full coverage of legal liability. As the REITs market develops from a start-up to a mature stage, it is necessary to continuously improve the product-related regulatory system and promote the realization of full coverage of legal responsibilities for all business entities and processes.
Securities Times reporter: Do you have any suggestions for promoting REITs special legislation?
Jia Wenqin: The newly revised “Securities Law” clearly requires that the management measures for the issuance and trading of asset-backed securities shall be stipulated by the State Council in accordance with the principles of the “Securities Law”, which creates powerful conditions for the special legislation on REITs as real estate asset-backed securities.
It is suggested that the CSRC should take the lead, summarize the experience of pilot work, learn from international mature practices, focus on public contract REITs, formulate business management measures for real estate investment trust funds, optimize the design of infrastructure REITs products, simplify the transaction structure, improve the supervision and management system, build Consolidate the bottom line of risk prevention, systematically build a rule system that conforms to the development law of REITs, promote the continuous development and growth of the REITs market, and serve the high-quality development of the real economy.
sound credit debt
Default Resolution Mechanism
Securities Times reporter: How is the development of my country’s bond market? In the context of the gradual breaking of the just-backed bond, are bond defaults also increasing? What’s the impact?
Jia Wenqin: In recent years, my country’s bond market has developed rapidly, ranking second in the world in terms of market size, and its ability to serve the real economy and national strategy has been continuously enhanced, making it an important place for companies to raise medium and long-term funds. However, under the combined influence of multiple factors such as changes in the external situation, economic structural transformation and the new crown pneumonia epidemic, bond default events have also increased. According to statistics from relevant institutions, as of the end of 2021, more than 700 bonds in my country’s bond market have defaulted, with a total amount of about 700 billion yuan, of which more than 80% of the bonds have defaulted since 2018. Bond default disposal will still be the highlight of preventing and defusing financial risks in the next few years.
The difficulty in dealing with default not only seriously damages the rights and interests of bondholders, but also aggravates the difficulty of financing through the bond market for private enterprises and small and medium-sized enterprises, and leads to the accumulation of non-performing assets in the financial system, which affects financial stability.
Securities Times reporter: What are the main problems in the disposal of bond defaults in my country at this stage?
Jia Wenqin: First, the legal system related to bond default disposal is not perfect. The first is that the relevant provisions of the trustee system and the bondholders’ meeting system need to be refined. Although the new “Securities Law” establishes the status of the trustee as the subject of litigation, it does not clarify the legal nature of the trustee, and there are few detailed provisions on the rights and obligations of the trustee at the level of administrative regulations. The relevant guidelines are mainly in the self-discipline rules. At the same time, the legal level is not high, the effect is limited, and the entrusted administrator is not guaranteed to perform his duties. The second is that the bankruptcy legal system provides insufficient protection for bondholders. The current bankruptcy legal system is not clear on the declaration and confirmation methods of bondholders’ voting rights, the group voting mechanism cannot fully reflect the characteristics of the stakeholders in bond issuance in the open market, the implementation of bankruptcy reorganization plans lacks third-party supervision, and the execution period is often multiple times. In this process, bondholders’ rights to know, participate, supervise and claim protection are relatively low.
Second, the liquidity of the default bond market is poor, which affects the function of default disposal. The market-oriented trading mechanism of defaulted bonds in my country has just begun to be established, and the trading of defaulted bonds is extremely inactive. You can only wait passively, it is difficult to exit through secondary market transactions, and you need to face the dual pressures of credit risk and liquidity risk; on the other hand, the current bond market has a single investor structure, funds mainly come from banks and asset management institutions, and risk appetite is relatively high. Low, short holding period, lack of long-term funds and professional institutional investors with high risk appetite and counter-cyclical investment.
Third, a market ecosystem that adapts to the normalization of defaults has not yet been established. At present, most of the bond-issuing enterprises in my country are local key enterprises. After the default of bonds, the scope of the bond is wide. In some areas, in the process of default disposal, there is a situation where administrative intervention is more important than legal means, social stability maintenance is more important than market-oriented disposal, and mature and orderly marketization A legalized default disposal ecosystem has not yet been established.
Securities Times reporter: Do you have any suggestions for improving the default bond disposal mechanism?
Jia Wenqin: The construction of the default bond disposal mechanism is a systematic project. It is recommended to take multiple measures to strengthen the system supply and speed up the market construction. Under the guidance of judicial protection and supervision, a bond market ecology in which the market plays a leading role and self-solves and handles risks is gradually formed. system.
The first is to further strengthen the institutional supply of bond default disposal. It is recommended to speed up the research and formulation of corporate bond management regulations, refine and improve the entrusted management system and bondholders’ meeting system at the level of administrative regulations, improve the legal level, and give full play to its core role in the disposal of bond defaults. Further clarify the connection between the financial debt committee system, the trustee system, the holder’s meeting system and other systems, and clarify the scope of responsibilities and work requirements of various participating debt committee members. In the process of revising the “Enterprise Bankruptcy Law”, fully consider the characteristics of bond issuers and bond products, strengthen the connection with the “Securities Law” and other relevant laws, clarify relevant rules, and establish a set of rules that will help safeguard the legitimate rights and interests of all parties and improve bond defaults. Bankruptcy legal system system for resolution efficiency.
The second is to further accelerate the construction of the default bond trading market. It is recommended to enrich the bond market level, formulate a market rule system such as transaction transfer and information disclosure in line with the characteristics of defaulted bonds and risky bonds, and create a special trading market with access limited to institutional investors.
The third is to further improve the default debt disposal ecosystem. It is recommended to further clarify the relationship between the government and the market. In the process of bond default disposal, the local government should not only resolutely assume the territorial responsibility for dealing with financial risks, but also use the rule of law thinking and introduce more market-oriented methods, and focus on cultivating a market ecology that is conducive to the disposal of default risks. system, reduce improper intervention and administrative orders, and respect the legitimate rights and interests of all market players. Guide securities companies to improve their capital strength and professional level, make full use of various financial instruments in the capital market, and provide a package of solutions for defaulting companies to deal with debt problems.
Proposed improvement of accounting firm
Civil Liability Assurance Mechanism
Securities Times reporter: Consolidating the responsibilities of intermediaries is an important task in the development of the capital market. In recent years, civil compensation cases have emerged from accounting firms, and the problem of the imperfect guarantee mechanism for civil liability has become more prominent. What do you think of this?
Jia Wenqin: With the implementation of the new “Securities Law”, the “Several Provisions of the Supreme People’s Court on Trial of Civil Compensation Cases for False Statement Infringement in the Securities Market” and the “Criminal Law Amendment (Eleven)”, the administrative, civil and criminal The three-dimensional accountability system has been continuously improved, and its legal responsibility for the implementation of securities market business has been further consolidated. At the same time, with the continuous emergence of civil compensation cases by accounting firms, the problem that the guarantee mechanism of their civil liability is not perfect has become more prominent. Once a huge amount of civil compensation occurs due to audit failure, it may directly lead to the bankruptcy and dissolution of the relevant firm. On the one hand, it will affect the final compensation amount of the investor, making the investor face the embarrassing situation of winning the lawsuit but not getting the compensation; On the other hand, it may also cause professional panic among auditors, resulting in the effect of bad money driving out good money, which will adversely affect the long-term development of the audit industry.
Securities Times reporter: What are the main problems in the current civil liability assurance mechanism of accounting firms?
Jia Wenqin: In the cases of listed companies and other securities issuers making false statements about civil compensation, accounting firms are listed as co-defendants. After inquiries through public channels, since 2017, listed companies and other securities issuers have listed accounting firms as co-defendants in 35 cases of misrepresentation of civil compensation cases. At present, accounting firms mainly rely on the occupational risk funds they draw and occupational liability insurance they purchase to perform their civil compensation liabilities, but the relevant mechanisms have major problems and cannot play a corresponding role.
First, occupational risk funds lack effective management. One is insufficient provision. According to the 2020 annual filing information of accounting firms engaged in securities service business, Tianjian Certified Public Accountants has withdrawn the most occupational risk funds. The accumulated occupational risk funds withdrawn over the years are only 214 million yuan, and the average withdrawal amount of all accounting firms is only 2000 yuan. About 10,000 yuan, which is seriously inconsistent with the hundreds of millions or even billions of dollars in losses that investors claim after the audit failed. Second, the management is not standardized. Although the Measures for the Management of Occupational Risk Funds of Accounting Firms put forward relevant requirements for the extraction and use of occupational risk funds, the provisions are still limited to the management and control of accounting firms themselves, and do not require special account management, and lack due supervision. It is easy to be used for other purposes.
Second, the scope of professional liability insurance claims is limited. First, the conditions for settlement of claims are relatively high. Insurance contracts generally only pay for civil damages caused by unintentional acts. At present, most accounting firms that are subject to administrative penalties by regulatory authorities will be found by the court to have a certain degree of intentional or presumed intention. In practice, there are few cases in which compensation is awarded based on insurance contracts. Second, the cumulative compensation limit is relatively low. According to the 2020 annual filing information of accounting firms engaged in securities service business, Lixin Accounting Firm, which has the highest accumulative compensation limit of occupational insurance, has a cumulative compensation limit of only 1.25 billion yuan, which is obviously related to the practice risk of more than 600 listed companies of Lixin for auditing clients. Mismatch. Accounting firms account for about two-thirds of the cumulative indemnity limit of occupational insurance of 100 million yuan or less, which is difficult to cover audit risks. Third, the underwriting method needs to be optimized. On the one hand, the insurance contract coverage, exception clauses, and liability determination of various insurance companies are not unified, which affects the final determination of insurance liability and seriously affects the protection effect of investor compensation. On the other hand, most occupational insurance does not determine the insurance liability based on the time when the report is issued, but determines the insurance liability based on the time when the claim is filed.
Securities Times reporter: Do you have any suggestions for improving the civil liability guarantee mechanism for accounting firms?
Jia Wenqin: With the comprehensive deepening of the registration system reform, accounting firms are increasingly responsible for “gatekeepers” in the capital market, and the risks of civil compensation will also increase. It is suggested to further improve the relevant mechanisms to enhance the risk-taking and civil compensation guarantee capabilities of accounting firms.
First, improve the management of occupational risk funds. First, scientifically set extraction standards. It is recommended to comprehensively consider multiple indicators such as the business income of the accounting firm, the type of securities business engaged in, compliance and risk of being sued, and scientifically set a floating ratio of occupational risk fund withdrawal standards. The second is to strengthen standardized management and supervision. It is recommended to formulate detailed rules for the management of occupational risk funds of accounting firms, clarifying that occupational risk funds should be specially managed, stored in special accounts, and dedicated to expenditure, and require firms to set up a reasonable freezing and storage period for funds when liquidation occurs to protect potential creditors (investors) At the same time, a third-party supervision and inspection system for risk funds has been established.
Second, improve the current professional liability insurance system. The first is to strengthen institutional guarantees. It is suggested that the Ministry of Finance, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission and other relevant departments shall, in light of the actual situation of securities business, make unified regulations on important provisions of professional liability insurance, such as retrospective period, business suspension guarantee period, cumulative indemnity limit, and single-time indemnity limit, etc. On the basis of the company’s own business needs, it reflects the standardized guidance of the government department for the overall development, and guarantees the implementation effect of professional liability insurance. The second is to explore the implementation of industry-focused insurance. Designate one or several professional professional liability insurance companies to carry out the professional insurance business of accounting firms in order to improve the standardization level of professional liability insurance. The third is to improve claims standards. Distinguish the standard and limit of compensation when the accounting firm has intentional or presumed intention, gross negligence and general negligence, and improve the multi-level protection effect of professional liability insurance. Fourth, establish a reasonable premium pricing mechanism. Relying on big data, it analyzes the business types, practice scales, lawsuits and penalties carried out by accounting firms, and accurately calculates the premiums and insured amounts.
Third, improve the profit distribution mechanism of accounting firms. First, the firm should establish an assessment and salary incentive and restraint mechanism with practice quality as the core, realize the integration of income distribution, and eliminate the situation that the income of partners is directly linked to the contracted projects. The second is to refer to the practice of deferred payment of remuneration in the financial industry, strengthen the restriction of partners’ remuneration, and organically combine it with the firm’s civil compensation risk reserve.
Proposal in Beijing Financial Court
Exploring the trial “three-in-one” pilot
Securities Times reporter: Strictly cracking down on illegal securities activities in accordance with the law is of great significance to building a standardized, transparent, open, dynamic and resilient capital market, better preventing and resolving financial risks, and serving high-quality economic development. At present, financial courts have been established in Beijing and Shanghai, but financial criminal cases are not under their jurisdiction. What is your opinion on this?
Jia Wenqin: The problems in the current trial mode of the financial court are mainly reflected in the following three aspects:
First, it cannot meet the actual needs of the increase of administrative, civil and criminal securities and futures cases. In recent years, the scope and depth of the securities and futures market has continued to expand, the number of participants has continued to increase, and the legal environment has continued to be optimized. At the same time, the new “Securities Law” and “Criminal Law Amendment (Eleven)” have greatly increased the punishment for violations of laws and regulations, and the “Several Provisions of the Supreme People’s Court on Hearing Civil Compensation Cases for Misrepresentation Infringement in the Securities Market” stimulate more securities and futures cases of injured investors obtain compensation through civil lawsuits, and the intersection of civil and criminal punishment is becoming more and more normal. The current situation of decentralized jurisdiction of administrative cases and civil and criminal cases is difficult to meet the actual needs of the cross-increase of civil and criminal penalties.
Second, it is not conducive to the formation of a joint force against securities violations and crimes. At present, securities and futures criminal cases are under decentralized jurisdiction, and it is difficult for different courts to integrate their trial functions and concepts into fists. The standards and standards for case adjudication need to be further unified; criminal, administrative and civil cases based on the same criminal facts are transferred to different courts Trial, it is difficult to form a disciplinary mechanism integrating criminal, administrative and civil, which restricts the protection of investors’ legitimate rights and interests to a certain extent; Fragmentation has affected the cooperation and coordination of various agencies and the smooth connection of procedures, and the combined force of cracking down on securities and futures crimes is insufficient.
The third is to affect the effectiveness of financial risk analysis and early warning. Based on comprehensive, complete and reliable trial big data, the trial situation of securities and futures cases can be fully utilized as a “barometer” for the operation of the capital market. Securities and futures cases are under decentralized jurisdiction, case resources are scattered, and judicial data is scattered. It is difficult to use systematic judicial big data analysis and judgment to timely warn of deep-seated problems in the financial field, which is not conducive to preventing and resolving risks in the financial field.
Securities Times reporter: Do you have any suggestions for further improving the handling of securities and futures cases?
Jia Wenqin: At present, securities and futures criminal cases are increasingly characterized by multiple criminal subjects, specialized means of committing crimes, and concealed criminal behavior, which makes it difficult to handle cases. Explore the three categories of administrative litigation, civil litigation and criminal litigation in the securities and futures field by financial courts. It is necessary to establish a “three-in-one” trial mode for civil criminals to conduct centralized and unified jurisdictional trials.
As a special court established in the national financial management center, the Beijing Financial Court is sufficient to influence transactions, guide supervision and promote norms. The implementation of the “three-in-one” trial mechanism for securities and futures cases will have a good demonstration role in the field of financial justice, and relying on the unique resource gathering and policy radiation capabilities of the National Financial Management Center, it will give full play to the judicial “spillover effect” and policy “diffusion”. “Effect” and value “driving effect”, establish a “wind vane” for the legalization of the securities and futures market, lead the national securities and futures trading to be carried out in a standardized and orderly manner, and create a good financial legal environment.
It is suggested that the Standing Committee of the National People’s Congress issue a decision on the “three-in-one” pilot program of financial trials in the Beijing Financial Court, and the Beijing Financial Court should try it first, and the Shanghai Financial Court and the Chengdu-Chongqing Financial Court may follow up in due course.
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Responsible editor: Deng Jian