Original title: China Securities Regulatory Commission issued Announcement No. 1 to improve the effectiveness of law enforcement based on investor protection
Reporter Meng Ke
On January 1, 2022, the China Securities Regulatory Commission and the Ministry of Finance jointly issued the “Administrative Measures on Commitment Funds for the Administrative Enforcement of Securities and Futures” (hereinafter referred to as the “Commitment Fund Measures”). This document is also the CSRC’s No. 1 Announcement in 2022. On the same day, the China Securities Regulatory Commission issued the “Implementation Regulations on the Party Commitment System for Administrative Enforcement of Securities and Futures” (referred to as the “Implementation Regulations”), clarifying that the commitment money paid by the parties can be used to compensate investors for losses and resolve the “difficulties in investigation and handling” and market requirements faced by capital market enforcement The contradiction between “find and deal with quickly.”
Ouyang Zhenyuan, dean of the Beijing King & Wood Mallesons Law Institute and a doctor of law, said in an interview with a reporter from the Securities Daily that the above two documents signaled that while severely cracking down on securities violations, they should implement effective compensation for investor losses. It is of great significance to stabilize market expectations, increase investor confidence, and promote the development of the capital market.
“Settlement Fund” is adjusted to “Commitment Fund”
In the “Commitment Fund Measures” jointly formulated by the China Securities Regulatory Commission and the Ministry of Finance, the name of the “reconciliation fund” was adjusted to “commitment funds”. At the same time, it is also necessary to combine the actual situation with the implementation of the “Administrative Settlement Fund Management Interim Measures” ( Hereinafter referred to as the “Settlement Fund Measures”) to be further adjusted and improved.
Ouyang Zhenyuan said that the “Settlement Fund Measures” generally speaking, the number of settlement cases is small compared with the number of illegal cases investigated and dealt with, and the social effect is not outstanding enough. The reason is that the conditions for the application of administrative reconciliation procedures are relatively strict, the internal review mechanism of the administrative organs checks and balances each other, it is difficult to reach consensus and decision-making in a short time, and investors’ losses must be compensated for by the settlement money for a long time.
“The “Commitment Fund Measures” uniformly revised the expression of the “Reconciliation Fund” in the “Reconciliation Fund Measures” to the “Commitment Fund”, which is of great significance to resolving the above-mentioned contradictions.” Ouyang Zhenyuan said that since the commitment is a unilateral act, the Securities Regulatory Commission is not required. Reaching a unified agreement with the subject of investigation can be unilaterally proposed by the subject of investigation based on the possible consequences of the illegal facts, and it will be quickly established after review by relevant departments of the China Securities Regulatory Commission. While quickly repairing market damages, it also maintained the authority of the China Securities Regulatory Commission for administrative law enforcement, which greatly made up for the deficiencies of the Settlement Fund.
There are 22 articles in the “Commitment Fund Measures”. In addition to the unified revision of the expressions such as “reconciliation payment”, a total of 1 article (the definition of settlement payment) has been deleted, and 2 articles have been revised. The main amendments are as follows: On the one hand, improve the management method of commitment funds. The second paragraph of Article 7 of the “Settlement Funds Measures” stipulates that “the administrative settlement funds should be turned over to the state treasury after compensation for investors.” Judging from the two cases where settlements were reached in practice, both were due to the absence of investors. The loss or damage to the investor and the loss is difficult to determine and the investor is not compensated shall be turned over to the State Treasury in full. To this end, the “Commitment Fund Measures” refines practical practices and stipulates that “the party’s alleged illegal conduct did not cause investor losses, or the investor losses caused cannot be determined, or the commitment funds still have remaining funds after the investor has been compensated within the prescribed time limit. , The insurance fund company shall, in accordance with the non-tax revenue management measures and the relevant provisions of the non-tax revenue treasury centralized collection system, promptly turn over the commitment funds to the state treasury.”
“How to reasonably determine the amount of the commitment fee is very important.” Ouyang Zhenyuan said that the subject of the law violation may be a listed company, a securities firm or a securities intermediary institution. The principle of “equal punishments” is determined by professional institutions based on the illegal facts, the perpetrator’s subjective motives, and the causal relationship between the damage and the result. The relevant departments of the China Securities Regulatory Commission may organize relevant expert demonstration meetings on the establishment of the commitment fund, and reasonably determine the amount of the commitment fund with the participation of representatives of the China Securities Small and Medium-sized Investor Service Center, relevant industry associations, professional institutions or think tanks. The relevant establishment process can be disclosed simultaneously, and the supervision of the public can be accepted.
Another aspect of the revised content is to clarify the upper limit of the total amount of compensation and the treatment of the commitment money when the parties make compensation on their own. Clarify the upper limit of the total amount of compensation. On the basis of the stipulation that “if the insurance fund company uses the commitment fund to compensate investors, the amount of compensation shall in principle be limited to the loss suffered by the investor”, and further stipulate that “the total amount of compensation shall not exceed the commitment fund actually paid by the parties involved in the case and used for compensation. “.
Give full play to the characteristics of the party’s commitment system in administrative law enforcement
According to the China Securities Regulatory Commission, the drafting of the “Implementation Regulations” adhered to the following principles: Give full play to the characteristics of the system. Give full play to the characteristics of the party’s commitment system in administrative law enforcement, focus on solving difficult investigations and punishments, and improve the quality and efficiency of administrative law enforcement; at the same time, optimize the calculation, management, and use procedures of commitment funds, unblock investor compensation channels, and strengthen the protection of investors’ rights and interests. Through the application of administrative law enforcement party commitments, the commitment money paid by the parties can be used to compensate investors for losses, providing investors with a new way of timely and effective relief, which is more conducive to protecting the legitimate rights and interests of investors, especially small and medium investors.
Proceed steadily and prudently. As for the commitment of the parties to administrative law enforcement, this new method of law enforcement is generally still advancing in accordance with the principle of steadiness and prudence. On the basis of complying with the provisions of the upper-level law, earnestly summarize practical experience, strictly limit the scope of application, refine and improve the handling procedures, and ensure the smooth implementation of the new system.
Strengthen supervision and control. Establish a strict internal and external supervision and control system to clarify the division of responsibilities between the parties’ commitment to handle the department and the investigation, trial, insurance, and dispatch agencies to prevent moral hazards and conflicts of interest.
Encourage parties to compensate investors in advance
The “Implementation Regulations” mainly specify the handling procedures and the management and use of commitment funds. Specifically, the first is to clarify the coordination and connection mechanism between the commitment handling department and the investigation and trial department. It is required that the acceptance handling department should solicit the opinions of the investigation and trial departments on matters related to the application of the party’s commitment to the case. Cases that apply the party’s commitment must undergo necessary investigations. After the case is accepted, the investigation of the case and the trial of the case shall not be suspended.
The second is to make a clear commitment to the coordination and cooperation between the handling department and the commitment fund measurement department. The insurance fund company is responsible for measuring the loss of investors, and the investigation departments, trial departments, securities and futures trading venues, securities registration and settlement institutions, investor protection institutions and other departments provide necessary support.
The third is to provide for investor compensation mechanism arrangements. The insurance fund company is required to formulate a plan for the management and use of commitment funds and report it to the China Securities Regulatory Commission for the record. At the same time, it clarifies the procedures for the parties to compensate investors by themselves, and encourages the parties to compensate investors in advance.
The fourth is to clarify the role of the dispatched agency in the commitment of the parties involved in administrative law enforcement. On the one hand, it is clear that the dispatched agency in the jurisdiction where the parties are located is responsible for checking and accepting the parties’ fulfillment of the commitment and recognition agreement; on the other hand, it is clear that the cases investigated and handled by the dispatched agency can apply to the administrative law enforcement party’s commitment, which is handled in a unified manner by the commitment handling department at this stage.
The fifth is to strengthen supervision and control and strictly prevent moral hazards. Establish a collective decision-making mechanism and an internal supervision and control mechanism, reduce the discretionary space for the negotiated amount of commitment funds, strengthen the verification and supervision role of dispatched agencies in the process of commitment fulfillment, and require timely announcements and disclosure of relevant information.
Zhu Yiyi, a lawyer from Guoco Law Firm (Shanghai), told a reporter from the Securities Daily that the “Implementation Regulations” have improved the management method of commitment funds based on specific situations in practice, and that the client commitment funds can be used for administrative law enforcement. The mechanism of compensating investors for losses, strengthening investor protection, and encouraging parties to pay investors on their own are also conducive to allowing investors to obtain compensation more efficiently.
“The “Implementation Regulations” clarify the investor compensation mechanism and encourage the parties to compensate investors in advance.” Tian Lihui, Dean of the Institute of Financial Development of Nankai University, told a reporter from “Securities Daily” that this is based on investor protection and can give full play to the administration. The characteristics of the system promised by the law enforcement parties can compensate investors for losses in a timely manner and enhance the sense of gain and satisfaction of the investor community. Contribute to improving the effectiveness of law enforcement and stabilizing market expectations. At the same time, the document attaches importance to the division of labor between different agencies, and attempts to establish internal and external supervision and control to prevent moral hazards and conflicts of interest.
The Securities Regulatory Commission stated that the next step will be to implement the “Implementation Regulations” requirements, promptly respond to and solve new situations and new problems arising from the implementation of the securities and futures administrative law enforcement party commitment system, protect the legitimate rights and interests of investors in accordance with the law, and maintain open, fair and just capital Market order promotes the steady and healthy development of the capital market.
(Edited by Cui Man and Sun Qian)
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