Economic Observer reporter Liang Ji“Declare is responsible”! The China Securities Regulatory Commission issued new regulations directly pointing to the urgent need for securities companies to perform their duties when engaging in investment banking business.
On July 9, 2021, the China Securities Regulatory Commission announced the implementation of the “Guiding Opinions on Supervising Securities Companies to Engage in Investment Banking Business under the Registration System” (hereinafter referred to as the “Guiding Opinions”) to make comprehensive arrangements and arrangements for related work.
A number of investors in the investment industry told reporters on the Economic Observation Network that the launch of the “Guiding Opinions” is based on the issues of standards and responsibilities that have always attracted much attention. They will clarify all parties for the securities industry at the node where the current registration reform is carried out in an orderly manner It is necessary to implement the core essence of the registration system of information disclosure, and to effectively clarify the responsibilities of intermediary agencies.
In the opinion of investment banks, the situation where sponsors, accounting firms, and law firms often have to shoulder the responsibilities of sponsors needs to be changed. Issuers and intermediaries such as brokerage firms, accounting firms, and law firms all need to be changed. Need to know further details.
The “Guiding Opinions” mainly include five tasks: one is to establish and improve the working mechanism to enhance the joint force of supervision; the second is to improve the system and rules, and to enhance the standardization level of supervision and practice; the third is to comprehensively strengthen the three-dimensional accountability and purify the market ecology; the fourth is to do Realize the “three lines of defense” and strengthen the internal control of institutions; the fifth is to improve the incentive and restraint mechanism to promote securities companies to take the initiative to return to their positions and fulfill their responsibilities.
In addition, the “Guiding Opinions” also clarified the basic principles for all parties involved in the market to promote the placement and due diligence of sponsors.
One is to highlight the key points. Strengthen supervision and law enforcement, focus on key tasks such as compacting the responsibilities of intermediary agencies, clarifying the boundaries of responsibilities, and promoting the establishment of an investment bank’s practice quality evaluation system, grasping key links, and implementing classification and classification step by step. Insist that substance is more important than form and pay attention to actual results.
The second is to supervise in accordance with the law. Further clarify the supervisory responsibilities of the Securities Regulatory Commission and its dispatched offices, trading venues, securities industry associations, etc., continue to promote the construction of a regulatory rule system, improve the investment banking business supervision workflow and working standards, and enhance the standardization, fairness, transparency and effectiveness of supervision Strengthen the supervision of supervision and law enforcement.
The third is to treat both symptoms and root causes. On the basis of serious investigation and handling of outstanding issues such as “infected declarations”, we will focus on stimulating the endogenous motivation of securities companies, continue to improve systems and mechanisms, give full play to the role of company autonomy and market-based incentive and restraint mechanisms, and promote securities companies to actively return to their positions and due diligence .
According to data from Times Investment Research Think Tank, there were large-scale withdrawals of applications for A-share IPO projects in the first half of 2021. The number of companies that withdrew IPO applications reached 130, of which 7 companies passed the issuance review meeting but voluntarily terminated their applications, and 123 companies The department withdrew the application during the review period.
A senior person in the securities industry told reporters that there are problems such as “reporting for illness” and “withdrawal after investigation” regarding brokerage sponsorship, which also illustrates the necessity of third-party supervision in addition to brokerage self-discipline. The reasons for the above-mentioned problems of securities firm sponsorship include weak awareness of internal control and imperfect corporate governance, as well as imperfect supervisory mechanisms and imperfect supervisory rules. Especially the concerns of brokerages for their own interests. “It’s like high school students taking the college entrance examination. If it is stipulated that Tsinghua University will reward 100,000 yuan, it does not matter if they fail to pass the test, then a large number of candidates will choose to’take the risk’ and choose to try without penalties; if it is stipulated that Tsinghua University will reward 100,000 yuan. Yuan, a fine of 100,000 yuan for failing to pass the entrance exam, then a large number of candidates who are not qualified will be discouraged and will do what they can.” The person used an analogy.
The “Guiding Opinions” also pointed out that to urge brokerages to engage in investment banking business and return to their proper positions, it is necessary to comprehensively strengthen three-dimensional accountability, purify the market ecology, and increase supervisory accountability. Further expand the scope of on-site inspection and supervision, and adhere to the principle of “declaration is responsible.” For items withdrawn after receiving on-site inspection or supervision notice, the China Securities Regulatory Commission and trading venues will organize inspections in accordance with the law, and resolutely put an end to the behavior of “passing through borders with illness”.
The “Guiding Opinions” also emphasized the establishment of a sound working mechanism to enhance the combined force of supervision. The China Securities Regulatory Commission has established a joint meeting mechanism for investment banking business supervision with the participation of commission agencies, securities regulatory bureaus, and self-regulatory organizations, strengthened the overall coordination of investment banking business supervision, and improved the coordination of institutional supervision and business supervision, administrative supervision and self-regulatory supervision, daily supervision and inspection and law enforcement Cooperate to enhance the supervisory force and efficiency of supervision.
Implement the core essentials of the “information disclosure” registration system
The aforementioned securities industry veteran told a reporter from Economic Observer that the “Guiding Opinions” were issued in response to the “Opinions on Strictly Cracking Down on Illegal Securities Activities According to Law” (hereinafter referred to as the “Opinions”) regarding “strengthening the supervision of intermediary agencies, Where there are securities violations, the institutions and their practitioners shall be held accountable strictly in accordance with the law, and the work arrangements for participating in and assisting in financial fraud and other illegal activities shall be severely punished, and guiding the market to gradually return to the core essence of the registration system of “information disclosure” on.
The Securities Regulatory Commission stated that since the pilot registration system, the internal control level of securities companies and the quality of investment banking business practice have generally improved, but it has also exposed problems such as imperfect internal control, imprudent project selection, and lax verification and control. In order to further strengthen the supervision of investment banking services such as sponsorship underwriting and financial advisory under the registration system, urge securities companies to earnestly perform their duties and fulfill their responsibilities, give better play to the role of intermediary agencies as “gatekeepers”, and actively create conditions for the steady advancement of the market-wide registration system reform, The Securities Regulatory Commission recently formulated and issued the “Guiding Opinions” to make comprehensive arrangements and arrangements for related work.
A senior sponsor representative of a Shanghai securities firm told reporters that in the process of reform of the registration system, whether it is the regulator, the issuer or the sponsor, all are faced with the need to complete the transformation from the approval system to the registration system at the conceptual level. In the current investment banking business, all parties are still in the stage of trial and exploration with each other, and there may even be differences of opinion. Therefore, at this point in time, the “Guiding Opinions” were issued, giving the regulators, issuers, sponsors and other entities a clear and directional guidance to guide all parties to truly implement the registration system with information disclosure as the core. One idea.
Wang Jiyue, a veteran investment banker, also said that the “Guiding Opinions” is a directional document. It is not a specific rule, but a direction for the formulation of future rules. The “Guiding Opinions” are aimed at the issues of standards and boundaries of responsibility that the market has always been concerned about. The comprehensive registration system reform requires that intermediary agencies with the sponsor as the core can effectively perform their duties. Under the circumstances that the current relevant standards and regulations are not yet clear, the issuance of the “Guiding Opinions” just points out the direction for the future regulations, and this is also the registration The needs of the system itself.
Clarify the responsibilities of all parties involved
The “Guiding Opinions” pointed out that the return of securities firms to their responsibilities requires all parties to improve the system and rules and enhance the standardization of supervision and practice. The contents include strengthening the construction of the regulatory standard system, improving the guidance and acceptance, on-site inspection and on-site supervision systems, improving the investment banking business practice standards, improving the issuance and underwriting system, and clarifying the responsibilities of intermediaries.
The “Guiding Opinions” stated that each intermediary agency is responsible for the special documents issued by each agency, performing special duty of care for business matters related to the profession, and performing ordinary duty of care for other business matters. Where the prospectus, restructuring report, bond prospectus, etc. quote the professional opinions or content of other intermediary agencies such as accounting firms, law firms, and appraisal agencies, the intermediary agency that issued the opinions or documents shall bear the responsibility in accordance with the law.
The “Guiding Opinions” further stated that securities companies conduct comprehensive verification and verification of registration application documents and information disclosure materials, and use “reasonable trust” as the general principle for professional opinions of other intermediaries, and that there are “major abnormalities” and “major contradictions”. Investigate and review special circumstances such as “significant differences”, and assume responsibility for the content that does not quote the professional opinions of other intermediary agencies in accordance with the law. If a securities company should review but fails to review, or the review work is not fully in place, it shall bear the responsibility in accordance with the law. In accordance with the principle of combining qualitative and quantitative, the standards and procedures for “significant matters” that need to be reviewed by securities companies are refined; the standards and procedures for securities companies to conduct “comprehensive verification and verification” of registration application documents and information disclosure materials are studied and clarified.
A number of sponsor representatives told reporters that at present, in the process of sponsoring by securities firms, many times they still need to shoulder the responsibilities of sponsors, accounting firms, and law firms. To clarify responsibilities is to clarify whose work is completed and whose responsibility is responsible.
Wang Jiyue told reporters that in a reasonable division of labor, the lawyers should express their opinions on legal issues, and the main responsibility lies with the lawyers; the accounting authenticity issues are mainly caused by the accountants’ audit opinions, and the accountants bear the main responsibility; the sponsor should review the opinions of the lawyers and accountants. Perform due diligence on matters that are particularly important but not all matters, confirm that the conclusions of lawyers and accountants are trustworthy, and take responsibility for the opinions expressed by the sponsor.
“Under the current situation where the responsibilities of all parties have not been clarified, the sponsor is responsible for everyone, and all opinions need to be verified by the sponsor. Therefore, the sponsor must verify the legality of shareholders’ previous capital contributions, verify the identity of shareholders, and verify all patents. The authenticity of trademarks and various warrants must be checked for all legal issues; all customers and suppliers must also be checked, the authenticity of all accounting items on the statement must be checked, and the accuracy of gross profit margin and cost accounting expenses must be checked. Do all the corroboration and inventory in person…” The aforementioned sponsor representative told reporters rather helplessly, so there have also been cases in which the sponsor digs out accounting firms and law firms.
A senior sponsor representative said that at present, various institutions are very clear about their own business requirements and scope of responsibilities, but there are no explicit regulations at the system level. This situation forces brokerages and sponsor representatives to be both accountants and lawyers. The unclear powers and responsibilities also make the sponsors take full responsibility at the practical level; but at the same time, accountants and lawyers are also like “a “Grasshopper on the rope”, no one can clear responsibility, so all parties have to carry out a lot of repetitive work, unable to form a standardized business process.
Another sponsor representative told reporters that from the perspective of the sponsor, completing financial due diligence is a job duty, but sometimes due diligence will exceed the scope of the broker’s authority. For example, the verification of external flow, when the Securities Regulatory Commission clarified this part of the requirements, because the brokerage is not a law enforcement agency, when it is necessary to trace the source and destination of multiple funds, many resource accounts are involved. Even under the premise that the company is very cooperative, it is very difficult to complete.
Many interviewees said that the “Guiding Opinions” was issued as a directional document, which pointed out the direction for the future formulation of rules, but the specific effects require further attention to the detailed rules.
As the “Guiding Opinions” pointed out, the placement and due diligence of intermediary agencies is an important foundation for the smooth implementation of the registration system, and an important entry point and focus for the high-quality development of the capital market. As the most important intermediary agency in the capital market, securities companies are urged to return to their positions and due diligence, which is of great significance for improving the quality of listed companies and ensuring the smooth implementation of the registration system.
The “Guiding Opinions” also pointed out that it is necessary to improve the incentive and restraint mechanism and promote securities companies to take the initiative to return to their positions and fulfill their responsibilities. Implement classified review and classified supervision of securities companies and projects with reference to the evaluation results of practice quality. For securities companies with good practice quality, we will give preferential policies in terms of institutional supervision “whitelists”, give priority to supporting them to participate in product and business innovation pilots, appropriately simplify administrative approval and filing procedures, and implement differentiated risk control systems. For securities companies with poor practice quality, focus on project review and registration, increase on-site inspection and supervision, and treat them cautiously in terms of capital increase and share expansion, product and business innovation. Adjust and optimize the business evaluation indicators of the investment bank in the classified evaluation of securities companies, improve the information disclosure mechanism of violations, strengthen reputation constraints, and fully stimulate the endogenous motivation of institutions to pay attention to the quality of practice and compliant operations, and enhance the company’s sense of autonomy and autonomy.Return to Sohu to see more
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