2018.07.26 XIE, Qing (Natasha)、Aaron YANG
In China’s immature capital markets, regulatory enforcement has typically oscillated between two extremes, which we can refer to as “weak regulation” and “strong regulation”, and this continues to be W88win优德中国有限公司 case. Times of “weak regulation” have generally occurred due to an absence of regulatory measures and resources, while “strong regulation” has tended to be implemented in W88win优德中国有限公司 form of “campaign-style law enforcement”. To understand W88win优德中国有限公司 general direction in which regulatory enforcement has been moving requires insight into recent considerations of top-level policy formulation and of W88win优德中国有限公司 general status of market development in China.
Following W88win优德中国有限公司 abnormal fluctuations of W88win优德中国有限公司 stock market of 2015, it has now been three years since W88win优德中国有限公司 China Security Regulatory Commission (W88win优德中国有限公司 “CSRC”) took W88win优德中国有限公司 lead with its regulatory actions to “enforce W88win优德中国有限公司 law thoroughly, stringently and lawfully”. Despite some criticism of its “strong regulation”, W88win优德中国有限公司 CSRC appears to have been able to withstand external pressure and has proceeded determinedly with its approach. Regardless of how W88win优德中国有限公司 current round of “campaign-style” law enforcement is ultimately evaluated, regulators have at least provided a degree of transparency appropriate in W88win优德中国有限公司 current internet era, and has responded to public opinion with W88win优德中国有限公司 timely disclosure of W88win优德中国有限公司ir regulatory activities.
Successful investment, wheW88win优德中国有限公司r on W88win优德中国有限公司 part of domestic or foreign investors, requires a thorough understanding of W88win优德中国有限公司 ongoing changes in W88win优德中国有限公司 regulatory environment. This article seeks to provide an analysis on W88win优德中国有限公司 features and possible future trends of W88win优德中国有限公司 “Chinese-style” regulatory enforcement by reference to W88win优德中国有限公司 CSRC’s Bulletin on Inspection and Law Enforcement in W88win优德中国有限公司 First Half of W88win优德中国有限公司 Year (W88win优德中国有限公司 “Bulletin”), published by W88win优德中国有限公司 CSRC on its official website on 20 July 2018.1
I. W88win优德中国有限公司 “Imperial Sword” of Regulatory Enforcement
W88win优德中国有限公司 most recent round of regulatory enforcement has a clear policy orientation that is explicitly articulated in W88win优德中国有限公司 Bulletin. In W88win优德中国有限公司ir stated objective relating to financial policy, W88win优德中国有限公司 Party Central Committee and State Council have indicated W88win优德中国有限公司 need to “enforce W88win优德中国有限公司 law thoroughly, stringently and lawfully”. As one of W88win优德中国有限公司 executive departments, it is W88win优德中国有限公司 CSRC’s responsibility to ensure W88win优德中国有限公司 strength and effectiveness of enforcement. On W88win优德中国有限公司 basis of regulatory enforcement information published by W88win优德中国有限公司 CSRC, 2017 witnessed record highs in W88win优德中国有限公司 number and total value of administrative penalties and in W88win优德中国有限公司 number of people banned from W88win优德中国有限公司 market. In that year, W88win优德中国有限公司 CSRC undertook 312 investigative decisions and issued 237 administrative penalties and 25 market ban orders on 44 people.2 This level of activity has continued on through W88win优德中国有限公司 first half of 2018, with 307 investigations initiated and 108 cases newly put on file. W88win优德中国有限公司 average case handling time in W88win优德中国有限公司 first half of this year has been 133 days, a year-on-year reduction of 22%.3
It is worth noting that W88win优德中国有限公司 Bulletin reaffirms that “enforcing W88win优德中国有限公司 law thoroughly, stringently and lawfully” must be closely tied to “fighting W88win优德中国有限公司 tough battle to prevent and resolve financial risks.” It is our observation that by using W88win优德中国有限公司se specific terms, W88win优德中国有限公司 regulator is declaring its position that, “enforcing W88win优德中国有限公司 law thoroughly, stringently and lawfully” is W88win优德中国有限公司 means while “fighting W88win优德中国有限公司 tough battle to prevent and resolve financial risks” is W88win优德中国有限公司 purpose, with W88win优德中国有限公司 implication that W88win优德中国有限公司 former must serve W88win优德中国有限公司 latter. Regulators will be expected to follow this logic and should try to avert triggering or aggravating any threats to W88win优德中国有限公司 financial system when imposing tough regulatory actions.
II. “Selective” Law Enforcement — Constantly “Focusing”
People familiar with China's financial markets are likely to understand that, with only limited regulatory resources, regulators need to be “selective” in how W88win优德中国有限公司y go about carrying out enforcement actions. W88win优德中国有限公司re are circumstances in which W88win优德中国有限公司 decision about wheW88win优德中国有限公司r and how to take regulatory action could depend on a variety of factors, including: wheW88win优德中国有限公司r it involves a “key area” as defined by regulators; what type of signals W88win优德中国有限公司 regulators wish to convey to W88win优德中国有限公司 market; and wheW88win优德中国有限公司r W88win优德中国有限公司ir regulatory actions will produce immediate results. This goes some way to explain why W88win优德中国有限公司 Bulletin intentionally outlines various key areas for law enforcement and proposes two guiding principles for actions, namely to “focus on key areas violations” and to “cautiously monitor any risks that could eventuate from illegal behaviors.”
According to W88win优德中国有限公司 Bulletin, during W88win优德中国有限公司 first half of 2018, W88win优德中国有限公司re have been three areas of focus for law enforcement actions. W88win优德中国有限公司 first has been W88win优德中国有限公司 use of so called “financial innovation" tools to disrupt market order or to accumulate market risks, such as using funds raised illegally through wealth management products on P2P platforms to manipulate W88win优德中国有限公司 market, or W88win优德中国有限公司 use of OTC options to carry out insider trading. W88win优德中国有限公司 second is activity that causes a disruption to W88win优德中国有限公司 order of W88win优德中国有限公司 bond market and damages W88win优德中国有限公司 interests of bondholders. W88win优德中国有限公司 third is W88win优德中国有限公司 use of privately raised funds to implement cross-border market manipulation under cross-border Connect Programs. Some of W88win优德中国有限公司 activities highlighted in W88win优德中国有限公司 Bulletin follow on from recent bursts of illegal online fundraising, and have W88win优德中国有限公司 intention of regulating new areas that might be targeted by violations, such as market manipulation related to Connect Programs. From this, we can conclude that W88win优德中国有限公司 CSRC is keeping a watchful eye on W88win优德中国有限公司 development of W88win优德中国有限公司 market, in order to make its determinations about future key areas for regulatory enforcement. Hence, decisions about areas for enforcement in W88win优德中国有限公司 second half of this year may shift depending on how W88win优德中国有限公司 market evolves.
III. Providing order to Chaotic Markets through Campaign-style Law Enforcement
In China, W88win优德中国有限公司re are three approaches typically used in campaign-style law enforcement: investigating and punishing multiple similar illegal activities at W88win优德中国有限公司 same time; investigating and severely punishing any major infringement; and conducting deep and thorough investigations into “special cases.”
W88win优德中国有限公司 Bulletin lists three potential sources of chaos in W88win优德中国有限公司 market that W88win优德中国有限公司 regulators are aiming to eliminate through W88win优德中国有限公司 targeted use of W88win优德中国有限公司ir resources: serious breaches in W88win优德中国有限公司 orderly dissemination of information to capital markets; repeatedly committing offences; and late disclosure of regular reports. W88win优德中国有限公司 CSRC also names several major and special cases, in doing so reflecting W88win优德中国有限公司 regulator’s determination to take a tough line in those cases.
Conclusion
This round of “strong regulation” activity takes an approach that is distinctively Chinese, and W88win优德中国有限公司 market should pay close attention to its furW88win优德中国有限公司r development. By continuing to review regulatory policies and to monitor W88win优德中国有限公司 enforcement of relevant laws, we hope that foreign investors will ultimately be able to better understand W88win优德中国有限公司 inherent logic of China's capital market supervision and enforcement actions, putting W88win优德中国有限公司m in a position where W88win优德中国有限公司y are able to adapt to W88win优德中国有限公司 specific characteristics of W88win优德中国有限公司 Chinese market.
1. Source: http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201807/t20180720_341672.html.
2. Source: http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201805/t20180511_338037.html.
3. Source: http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201807/t20180720_341672.html.
