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Supervision Transformation as the Focus Address--by CSRC Chairman Xiao Gang on 2014 National Conference on Securities and Futures Supervision
22-01-2014

January 21, 2014

 

 

On this conference, we will focus on the implementation of the decisions of the 18th Party Congress, the Second and Third Plenary Session of the 18th CPC Central Committee and the Central Economic Work Conference and explore the plan for securities and futures supervision in 2014. I believe you have already the summary of 2013 and key objectives of 2014 at hand. So I would like to focus on supervision transformation and share with you some of my opinions on the matter.

 

I. Why do we need to facilitate the transformation

  

Changing the role of the government and furthering administrative reform is not only a major decision made by the central government and the State Council, but also a crucial step in adapting superstructure to the economic base. To change the role of the government in the market and society, we need to streamline administrative procedures and delegate authority to facilitate the decisive role of the market in resource allocation. By making better use of the role of the government, we can stimulate market entities to take more initiatives and boost the internal driving force of economic and social growth, thus creating favorable environment for development, providing quality public services and safeguarding social equality and justice. Promoting the supervision transformation is an essential step in implementing the plans set by the central government and the State Council, ensuring the reform and innovation of capital markets and promoting the overall development of the country.

  

Supervision transformation, referring to the reform and change in the notion, models and methods of supervision, is an new exploration of principles in modern securities and futures supervision within the framework of socialist market economy. The significance of the transformation lies in the following key aspects:

  

Firstly, supervision transformation is the pressing need in promoting the role of capital markets and stimulating the economy. Capital markets, as an essential platform for market-based resource allocation, mainly serve to facilitate the formation, development and circulation of capital and play an irreplaceable role in stimulating the private sector, encouraging innovation and entrepreneurship, enhancing market system and corporate governance, promoting economic reform, wealth management and social welfare. Over the past 20 odd years, China's capital markets, despite a rather late start, have enjoyed explosive growth and played a crucial role in promoting the continued rapid economic and social development. However, as an “emerging and transitioning” one China's capital market is still lacking in its role of serving economic and social development and there is a pressing need for the existing supervision to adapt to new contexts. Against this backdrop, it is imperative to facilitate the transformation, allowing more market entities to participate in the capital market in an equitable manner, boosting market efficiency and vitality as well as market order, equitableness and justice, thus driving forward social and economic growth.

  

Secondly, transformation is a must for the sustainable and sound development of capital markets. While enjoying miraculous growth rate, China's capital market has experienced its share of difficulties, hardship and paradoxes on the way, including some long-lasting challenges such as defects in market structure and function, lack of market efficiency and credibility, and a plethora of overlapping residual and new problems. As the frontier for reform, capital markets are characterized by a considerable number of participants, complex interests and a pressing need for market-based, legally-governed and transparent development. Therefore, transformation of capital market supervision can help resolve the many difficulties and problems we encounter and benefit the sustainable and sound environment for market growth.

  

Thirdly, transformation is a critical measure in boosting the overall competitiveness of securities and futures service industry. A robust securities and futures service industry and a dynamic capital market are inseparably interconnected, making it a key task in capital market development to cultivate a highly competitive securities and futures industry which performs full functions and provides quality services. Transformation of supervision requires us to further streamline administrative procedures, delegate authority, increase market access and encourage competition and innovation. We will allow more institutions to engage in securities and futures service industry and encourage them to operate in an innovative, compliant and stable manner in line with the economic and social growth. Our focus will be placed on releasing the untapped market vitality, enhancing due diligence and adopting effective supervision, in order to guide qualified firms that are engaged in securities and futures business activities in boosting their comprehensive competence and establish a group of internationally competitive modern investment banks and modern asset management institutions, meeting the need of real economy for investment, financing and risk management.

  

Fourthly, current situation requires the transformation of our supervision in order to enhance supervision efficacy and fully perform core duties. Over the years, our efforts and perseverance in supervision have paid off. However, we are still witnessing excessive, insufficient and ineffective supervision and the lack of vision, overall consideration and determination in some policies. Consequently, with overlapping supervisory roles, the absence of general regulations, a lot of time is spent on mending the loopholes in the system, resulting in the dispersion of supervisory forces and the lack of efficacy. The aforementioned problems are becoming even more exacerbated by rapid growth in market size and the number of market entities, making it impossible, with limited supervisory resources, to carry on the existing “babysitter” model in handling the increasingly demanding supervisory tasks. Faced with the new context, we have to prioritize and facilitate the transformation of supervision, forming a centralized, complementary, coordinated and efficient supervisory system featuring full functions, information sharing, focusing on priority objectives and meeting the needs of the market, society and the public.

  

The transformation focuses on “6 shifts”:

  

1. Shifting the target of supervision from financing to the balance between investment, financing and risk management and better protection of small investors. The protection of small investors is key to protecting investors in general and the capital market. The protection of lawful rights of small investors should be implemented in every aspect of our supervisory activities including rulemaking, routine supervision and enforcement.

  

2. Shifting the focus of supervision from market size development to the improvement of supervision and balanced development of enforcement, size, structure and quality of markets. Market development and supervision and enforcement will be better coordinated, striking a balance between the enhancement of speed of growth, structure and quality and reinforced supervision and enforcement to protect market equitableness and justice.

  

3. Shifting the method of supervision from ex-ante review and approval to on-going and ex-post. Reducing ex-ante review by no means refers to relaxed supervision; on the contrary, stricter on-going and ex-post supervision will be carried out, forming flexible yet effective new methods, rules and mechanism.

  

4. Shifting the model of supervision from fragmented and disconnected to more shared and functional. The existing fragmentation of supervision will be replaced by an integrated approach featuring information sharing and functional coordination which combines supervisory resources and boosts supervisory efficacy.

  

5. Shifting to diversified, consultative and transparent supervision. We must carry out proactive administrative supervision, making use of all possible instruments and methods and encouraging different forces to participate in market operation, development and maintenance, thus creating an open, diversified, orderly and interactive supervisory system in furtherance of mutual interests of different market participants.

  

6. Shifting the operation of supervision from one that lacks of transparency and stability to one that is just, transparent, prudent and efficient. While ensuring all market entities are treated equally, we will make our administrative procedures known to the public, make more logical and informed decisions and more rapid response and stabilize the forecast of supervision.

  

Over the years, Management personnel at all levels and all the staff within the CSRC system have spared no effort in reinforcing and improving supervision. Departments, administrations and regional officials in the front line of market supervision, in particular, have made substantive contribution to ensuring the rapid and sound development of capital markets, accumulating immense experience and laying solid ground work for future growth. Starting from last year, we have been encouraging all members with the CSRC system to pool their opinions and suggestions in the analysis and research of the existing circumstances in supervision. Common consensus was formed on the necessity and urgency of the transformation of supervision. In order to adapt to the new context, we need to take full advantage of favorable conditions and opportunities, stay liberal-minded and speed up reform. Due to the high level of uncertainty, it is natural that we will encounter unexpected difficulties and risks in the transformation. Considering that China's capital market is still an emerging and transitioning one with various internal inadequacies and external restraints, concerns and doubts about the transformation of supervision is to be expected. Now it is up to us to make the decision. Without reform there is no future; yet transformation brings its own risks. However, only by going through with the reform and transformation, can we find solutions and hope. Therefore, we must be fully determined in promoting the transformation, make thorough estimate of difficulties and risks and develop sophisticated coping measures in advance.

  

II. Major tasks in the transformation of supervision

  

1. Streamline administrative review and approval, registration and filing procedures

  

Since 2002, we at the CSRC have abolished the administrative review and approval procedure on 138 issues. Despite the noticeable reform, we are still burdened with an excessive amount of administrative reviews and approvals.

  

Thorough reform in this respect is the prerequisite for the transformation of supervision. At present, the Commission has decided to abolish administrative review and approval on 21 issues in the coming 3 years including 2014. In the near future, the CSRC will further abolish and delegate administrative review and approval procedures and standardize the regulation of issues subject to administrative review and approval. Regarding the approval and filing by regional offices, exchanges, associations and other affiliated departments, a list of all issues that are subject to such approval and filing will be prepared, with such issues grouped by category of business, by relevant departments of the CSRC by the end of June this year.

  

The following general principles will be applied in the preparation of the list: 1. All matters for which administrative licensing is mandatory and thus are subject to approvals by the CSRC or any regional office and that are not expressly stipulated in laws and regulation will be abolished; 2. All matters which are subject to approvals by the CSRC or any regional office, but for which administrative licensing is not mandatory, will be no longer subject to approval or will be otherwise adjusted before eventual abolishment; 3. In other administrative efforts, the CSRC and the regional offices are not allowed to implement or implement in disguise administrative approvals for any cause or in any manner whatsoever; 4. Any filing and report required by any department within the system will be canceled and, where necessary, filing will be done on an ex-post basis; 5. All departments within the system are required to identify issues that are subject to regulation other than approvals including registration, exams and check and acceptance as well as documents submitted by market entities including statistics, tables and other materials, and develop and release their opinions on the abolishment, combination and streamlining of such issues; 6. the approval standards, procedures, time limit and methods for all issues subject to approval and filing by any department within the system must be released before they can be implemented.

  

The issues for which it is determined that administrative licensing is still required will then be subject to a thorough assessment and suggestions and opinions on the possibility of “eventual abolishing, keeping, adjusting or combination”, thus providing grounds for decision-making in further reform on administrative review and approval. Each issue under administrative review and approval will be assessed by the CSRC and the regional offices and subject to public assessment organized by associations, exchanges and investor protection funds. Detailed opinions will be voiced on the maintenance, abolishment, adjustment, combination and delegation of each issue and gradually implemented based on effective plans.

  

2. Facilitating the reform of stock issuance registration.

  

The registration reform provides the opportunity for a major breakthrough in the transformation of supervision, which will certainly facilitate reforms in other aspects. Currently, a lot of different opinions and perspectives have been voiced about the registration system. There is yet to be a consensus regarding the matter among different countries and regions, which have adopted different practices in this regard. However, it is commonly agreed that the stock issuance review should be centered on information disclosure. Regulatory departments should make no judgment on the value of the stock issue and issuers and intermediaries should be responsible for the authenticity and accuracy of information disclosed, leaving the timing of stock issuance and the price of stock to be decided by the issuer and intermediaries based on market conditions.

  

At present, China is ready for the transition to the registration system. Yet it still takes some time and the revision of the Securities Law as prerequisite to implement the new system. In 2014, our task is to carry out effective stock issuance review and ensure the smooth transition into the new system.

  

The preliminary plan for the registration reform is that the CSRC will set forth and approve of the criteria for stock issuance and listing, and adopt general provisions on registration review. As the primary party responsible for information disclosure, the issuer must stay true to the information disclosed in its statements and actions. Issuers and intermediaries are legally responsible for the authenticity, accuracy, completeness and adequacy and promptness of information disclosure. Investors should make their own judgment with regards to the profitability and investment value of issuers and bear risks of their own investment. Securities regulatory administrations will supervise, in accordance with the law, the entire offering and listing process and carry out stern investigation and sanction of violations.

  

In the transitioning period, the Opinions on Further Promoting the New Stock Issue Reform will be thoroughly implemented, with more effective and efficient review within the existing legal framework. The stock issuance review procedures will be optimized, with necessary steps or preparatory procedures including the filing, registration and check and acceptance abolished. The stock issuance review will be more transparent, with the existing information disclosure requirements and review standards promptly made known to the public. In addition, the entire review procedures and the review opinions as well as the process of the review meetings will be publicly released.

  

3. Confirming information disclose as the focus of supervision.

  

The specific complexity, virtuality and trading methods of securities products result in particularly pressing information asymmetry, placing information disclosure as the center and basis for capital market operation. Authentic, accurate, complete and prompt information serves as the prerequisite for reasonable market pricing and facilitates the role of capital market in effective resource allocation; it is also essential in guiding market expectation and promoting rational investment and financing decisions and equity culture; furthermore, it proves crucial in the prompt and sufficient disclosure and assessment of market risks and the boost of market operation stability. Therefore, it is imperative to reinforce information disclosure supervision, crack down on violations including false information disclosure, fraudulent listing and price manipulation, in order to ensure the effective role of market mechanism.

  

More emphasis should be placed on the legal responsibility of market entities in information disclosure. Information disclosure is a commitment to the public. Relevant parties must perform such obligations in strict compliance with the law and ensure that their statements and actions are in accordance with information disclosed. In the case of changes in information, relevant parties should promptly carry out follow-up public disclosure in accordance with the rules. Market entities should enhance corporate governance and internal control system, develop and effectively execute regulated operation procedures, thus ensuring information disclosure quality at source. Sponsoring institutions, financial advisors, accounting firms, law firms and asset appraisal institutions should perform due diligence and ensure quality information disclosure. Stock exchanges are fully in charge of front line supervision of information disclosure including periodic reports and non-periodic announcements, thus reinforcing the supervisory authority over information disclosure and self-regulation.

  

Supervision should always be centered on needs of investors, ensuring that information disclosure could serve investors more effectively. Whether there are scientific and rational information disclosure rules has significant influence on decisions of investors and the quality of information disclosure supervision. A regulatory system of information disclosure that effectively combines various aspects including the stock offering and listing and routine supervision should be based on the meeting of investors' needs. Regarding the stock issuance, the format, wording and contents of the prospectus will be improved. Differentiated information disclosure requirements will be adopted for different industries to make information disclosure more effective. In connection with routine supervision, the existing supervisory requirements for peer competition, related party transactions, M&A and restructuring, refinancing, corporate governance and financial accounting will be included in information disclosure supervision. Based on the problems detected in routine supervision, we will enrich and adjust information disclosure requirements and improve the standard making mechanism.

  

While strengthening the information disclosure supervision over market entities, we are going to put more effort in making the Commission more transparent. Since secrets are the biggest obstacles on the path to justice, the best way is for us at the CSRC to make our administration transparent to the public, thus safeguarding the equitableness, justice and transparency of the market. All governmental information should be transparent with few exceptions, making the rules, processes and results known to the public. Meanwhile, we will put more effort in media publicity, communications and interactions, offering prompt responses to inquiries and ensuring that all market participants understand and support our supervisory efforts.

  

4. Coordinating supervision and enforcement.

  

Supervision and enforcement are closely connected yet different. Enforcement can be taken in the general sense or in a more specific sense. Enforcement in the general sense refers to the administrative actions of the CSRC and the regional offices in enforcing laws, regulations and codes and carrying out supervision. Routine supervision is included in the general sense of enforcement, making the supervision team a team of enforcers. Enforcement in a more specific sense refers to the special investigation into any suspected violations and the administrative sanctions over such violations or the referral of such violations to the police. The enforcement we talk about is often the specific sense of enforcement. In order to further the transformation of supervision, we need to better coordinate routine supervision and enforcement, the relations between the administrative supervision by the CSRC and the self-regulation management of exchanges and associations, as well as the relations among supervisory measures, administrative sanction measures and self-regulatory measures.

  

Routine supervision and enforcement will be better coordinated. Routine supervision includes the following aspects: 1. compliance and prudential supervision over market entities, mainly aiming to facilitate the compliance by and sound operation of market entities and the mitigation of risks to which individual participants or markets are exposed; 2. promptly stop any violations and inappropriate actions, or refer relevant leads to enforcement departments. It is evident that routine supervision and enforcement are inseparable. In routine supervision, the procedures, evidence standards and conditions required for the making of determinations in respect of enforcement should be observed in carrying out inspections and verification, thus improving the capability of detecting leads to violations. When the criteria for the initiation of official investigation are met, the case will be investigated or referred to the enforcement department. Corresponding supervisory measures will be adopted in effective coordination with the initiation of the investigation and administrative sanctions. Rules will be made to better coordinate routine supervision and enforcement, promoting prompt communication, orderly coordination and cooperation among the regional offices, enforcement department and routine supervision department in on-site inspection, applicability of various measures and public release of information.

  

The respective responsibilities of the CSRC and exchanges and associations will be clarified. Administrative supervision and self-regulation are key methods of market supervision. With both statutory duties and self-regulation management authority, exchanges and associations must strictly observe laws, regulations and self-regulatory rules and perform duties in a prompt and well-rounded manner, instead of being negligent, avoiding problems or referring difficult issues to higher authorities. We at the CSRC will spare no efforts in facilitating the work of exchanges and associations. For issues that require the CSRC approval in accordance with the law, clear standards, procedures and deadline will be stated to raise transparency. The Commission will explore policy measures to increase both the authority and obligations of exchanges and associations, thus giving them more active roles.

  

Relations among supervisory measures, administrative sanction measures and self-regulation management measures will be improved. The three types of measures overlap in their form yet are different in their nature and function. Supervisory measures are highly time-sensitive corrective measures implemented in connection with the compliance and prudence supervision of market entities, mainly aiming to prevent risks and their detrimental consequences from spreading. Pursuant to the CSRC rules, the 18 supervisory measures include order for rectification, issuance of the warning letter, public censure, etc. Administrative sanction measures are substantive and conclusive punitive measures imposed on violations, mainly aim to punish violators and deter other market participants. Pursuant to the Administrative Sanction Law, the 6 administrative sanction measures include warning, fine, disgorgement of illegal gains and order to suspend operation, etc. The two aforementioned measures are based on the authority granted by laws, regulations and codes, and are therefore mandatory. Self-regulatory measures are disciplinary and punitive measures implemented by self-regulatory organization on its members based on the general interests of the industry and in accordance with self-regulatory rules. These measures are self-governed in nature, based on conferring authority by members in the self-regulatory organization. When self-regulation plays its due role, administrative supervision, as a general rule, should not intervene; however, when there are conflicts between the interests of the industry and of the public and self-regulation is not effective, administrative supervision must be carried out to safeguard public interests. The CSRC and the regional offices, exchanges and associations should position themselves appropriately according to their respective nature and function and strictly regulate the implementation of the aforementioned measures. One thing to note is that these three measures have their respective applications and can complement one another without replacing one another. We at the CSRC will make full use of all existing supervisory measures and implement them where applicable; meanwhile, when the criteria for the initiation of investigation is met, we should prompt initiate investigation or refer the case to the enforcement department for further investigation; department of routine supervision should still carry out supervisory measures after the referring the case to the enforcement department. Exchanges and associations should adopt self-regulatory measures against any violations of self-regulatory rules and referring violations of laws and regulations to the CSRC, instead of using self-regulation in lieu of administrative supervision. Meanwhile, we should resolve the problem where one issue is under the supervision of multiple administrations and one violation is investigated and sanctioned by multiple departments, building consultation mechanism to enhance communication in advance. When it comes to the implementation of supervisory measures which have significant influence on the actions of market entities, we should adopt prudential assessment and reinforce review and approval procedures.

  

5. Strengthening the role of regional offices of the CSRC.

  

As the major force in ex-ante and ex-post supervision within their respective jurisdictions, the main duties of the regional offices of the CSRC lie in the front line supervision within the jurisdiction and the regulatory coordination within the system in accordance with the general planning and requirements of the CSRC. The Supervisory Duties of the Regional Offices will be revised, promptly including non-listed public companies and private placement business activities in the scope of supervision and reinforcing the role of the regional offices in investor protection and the crackdown on illegal securities and futures activities. A sound resource allocation and evaluation system of the regional offices will be developed based on the market conditions of different jurisdictions.

  

Regional offices should focus on the supervision and enforcement over listed companies, companies listed on the New Third Board, pre-IPO companies and firms that are engaged in securities- and futures-related activities within the jurisdiction, promptly investigating and preventing any violations and potential risks. Furthermore, the regional offices will build closer communication and regulatory coordination with the local government and relevant departments, bolstering coordination mechanism in the listing and delisting of companies, the construction of a multi-layered market, enforcement and relevant risk treatment. Better coordination with the police will also be built to explore convenient and effective referral methods. Regional offices are required to execute the power of supervision in accordance with the law, boost supervision and enforcement quality, promptly report to the CSRC any major incidents within the jurisdiction and contribute their own suggestions. Moreover, the regional offices should focus on the big picture and be highly responsible in protecting the uniformity, authority and credibility of the entire securities and futures regulatory system.

  

Departments affiliated with the CSRC serve as the support platform for supervision which provides public services. These departments should be keenly aware of their positions and their duties, making concrete efforts in market operation safeguard, investor education, risk surveillance and monitoring, market education and training and research and fostering service quality and operation efficiency.

  

The CSRC should build better communication and connection with the regional offices, exchanges and the affiliated departments, in order to develop plausible plans based on practical conditions. When making major decisions and supervisory rules, the CSRC should consult all the aforementioned entities, solicit their opinions and truthfully state the differences of opinions. More focus will be placed on business guidance and policy training, and procedures including review, assessment, reports and submission will be streamlined, providing favorable conditions for the aforementioned entities to perform their due duties.

  

6. Boosting the competitiveness of the securities and futures service industry.

  

The license administration system of firms that are engaged in securities- and futures-related activities will be created. To cope with the new trend of comprehensive operation, transparent and orderly administration system will be implemented on the license for securities and futures business. The CSRC will make known to the public the criteria, conditions and corresponding standards for the licensing of various types of business, welcoming qualified firms and gradually resolving the conflicts between big markets and small industries. Barriers among securities, futures and fund businesses will be broken, allowing relevant firms to apply for business license for other industries. The line between publicly-based and privately-based business will be drawn, with business license administration method developed in accordance with private placement business. With this method, we will specify the requirement for investor suitability, reinforce regulatory coordination and facilitate the innovative development of private placement business.

  

Access will be increased for firms that are engaged in securities- and futures-related business activities. We at the CSRC will further open up the industries, encouraging qualified entities to establish firms that are engaged in securities- and futures-related business activities, thus forming a market with diverse competitors including state-owned capital, private capital, domestic capital and foreign capital as well as a highly competitive mechanism in which only the best-performing ones may survive. More effort will be put into developing professional securities investment firms, facilitating the investment and operation of long-term funds at professional firms including social insurance funds, pension funds, enterprise annuity, etc., thus expanding channels for funds to enter the capital markets. Based on pre-establishment national treatment and negative list, we will revise relevant laws and regulations, gradually lowering the threshold for foreign capital to invest in securities and futures industry, abolishing the restrictions on the proportion of shares held by foreign capital in financial institutions in China, allowing foreign-invested firms that are engaged in securities- and futures-related business activities to set up subsidiaries or branches and lifting the restrictions on business licenses of joint ventures. In addition, we will encourage domestic firms that are engaged in securities- and futures-related business activities to grow and expand through cross-border M&A and cross-border business, facilitate the innovative development of intermediaries. The CSRC will gradually promote supervisory guidelines and principles, thus allowing maximum flexibility and inclusiveness of supervisory rules and minimizing the management over the specific business activities and internal affairs of firms that are engaged in securities- and futures-related business activities. These firms are encouraged to center on real economy and customer demands in carrying out business and product innovation in accordance with the law, expanding the scope of business, diversifying product offering, improving service quality and business profit. Firms that are engaged in securities- and futures-related business activities will be organized in different manners and specialize in different business and services. Meanwhile, we at the CSRC will regulate and develop OTC business of these firms and gradually foster inter-firm markets. Accounting, auditing and appraisal firms, credit rating agencies and law firms will be facilitated to bolster the quality of their practice and their credibility. We will encourage securities investment fund management firms to transform into modern asset management institutions. Moreover, securities and futures service industry will be encouraged to utilize information technology to develop innovative products and services and develop Internet-based financial business.

  

7. Reinforcing the effectiveness of enforcement.

  

We at the CSRC will further implement the Opinions on Further Strengthening Enforcement, driving forward enforcement system reform, boost enforcement effort and conducting harsher crackdowns on violations.

  

Optimized mechanism of lead processing, rapid response to cases and case referrals will be adopted. In lead processing, we will set up lead analysis and processing center, conducting rapid inspection of abnormal changes, abnormalities and lead detected, allowing exchanges to report relevant leads based on certain criteria and reward relevant whistleblowers. With regard to the initiation of investigation, rapid response mechanism will be set up to initiate immediate investigation into clear leads and shorten the verification time with other leads. More effort will be put into the information disclosure of the initiation of investigation, enforcement and sanctions of listed companies. For complex cases with long investigation period, information should be disclosed periodically, maximizing investors' fair and prompt access to essential information which might potentially affect investment decisions. Timely notification will also be released if no problems have been detected through inspection and investigation. The Enforcement Bureau will no longer check cases which will be referred. With respect to cases which will sanctioned, while referring the cases for trial, the investigation department will report to the Enforcement Bureau for filing. On principle, suspected criminal cases and leads which need to be referred to the police will be submitted to the Enforcement Bureau for further referral; if truly necessary, the regional offices, upon the approval of the Enforcement Bureau, may directly refer the cases to the police. When faced with major, sensitive and complex leads to suspected crimes, we should explore with a combined investigation and coordinated evidence collection between administrative and criminal investigation.

  

The inspection and trial process will be further separated. Instead of the existing trial which contains trial judge and collegial panel and is attended by all members of the trial committee, we aim to set up an administrative sanction mechanism where trial is held and the final verdict decided on by a trial judge and collegial panel of five committee members. By putting a chief committee member in charge and letting members of the trial committee decide on a verdict, we aim to significantly boost the efficiency, quality and authority of trials. To ensure the independence of administrative sanctions, the countersign mechanism of cases will be abolished. CSRC management personnel may suggest that sanctions or harsher sanctions should be imposed on cases in accordance with the law, but are not allowed to suggest to withhold or reduce sanctions. This reform will also apply to all the regional offices. Trial monitoring and accountability mechanism will be developed, making the trial process more transparent. Circuit court will be set up in regions with a higher number of cases. In order to reasonably allocate enforcement resources for administrative sanction within the system, the Sanction Committee will be in charge of major and serious cases, complex cases as well as certain cases proved impossible to be handled by the regional offices. The Committee will guide, facilitate, support and monitor the administrative sanctions by the regional offices. The trial process at the regional offices can be streamlined.

  

8. Developing the central supervisory information platform for capital markets.

  

A key measure in promoting the transformation of supervision is the establishment of a unified central supervisory information platform that enjoys shared information. Over the years, the information within the system is scattered among different departments and administrations, resulting in low efficiency in information processing. Setting up such a platform not only integrates the data and resources of the entire system, but also reorganizes supervisory work and process. What we at the CSRC needs to do at present is to resolve the existing problems including the lack of coordination, repetitive work, non-standard information collection and the discordance in the scope and point of time for information collection among the CSRC, the regional offices, exchanges, industry associations and affiliated administrations, thus meeting the need for information classification, integration and exploration in the era of “Big Data” and driving supervision forward into an information age.

  

Therefore, the development of the central platform is the priority objective for the entire system in 2014. The platform will consist of two modules: infrastructure and work functions. Infrastructure module includes unified data reporting system, central database, external data exchange system, feedback system for public information release, etc.; work function module serves to support the administrative permit, enforcement and case processing, routine supervision, macro-supervision and internal management. Each functional module will provide administrations and departments within the system with information support based on its level and authority.

  

We will spare no efforts in promoting logic centralization of regulatory system and ensuring the unification, well-roundedness and sharing of supervisory data. As the developmental trend of the financial industry and the internal principle of information technology development, logic centralization is not only a well-tested path widely taken by domestic and foreign counterparts, but also the necessary step in line with the current situation and the supervision transformation of the CSRC. Logic centralization refers to the unification of planning, business requirements, data standards, data collection and processing and the operation and maintenance of management information, which serves to form a set of application system that features a complete range of data and service functions and effective data information sharing.

  

Sticking to the principle of overall planning, division and coordination of labor and step-by-step implementation, the CSRC will strike a balance between the unification and differentiated demands. The central supervisory information platform is the application platform of the highest level within the CSRC, established to meet the demands of all departments and administrations within the system. After the launch of the platform, on principle, no new and separate regulatory system will be set up. Newly developed business regulatory system should be included in the general plan of the central platform, while existing regulatory system may continue to operate with all of its data included in the central database for later inclusion into the central platform during system update. The central platform will be gradually set up based on the priority principle regarding business requirements. Different demands of regulatory bodies will be taken into account in the development of the platform, allowing some administrations certain level of independence.

  

The CSRC aims to complete the information system in three years. However, more time may be granted to ensure quality of the system. Being an immense and complex task, information system development serves to reinforce infrastructure and bring long-term benefits. Head of each department and administration within the system should be closely involved in the administration of information system requirements and delegate the most competent staff members to the task. Before the end of 2014, the Commission should set forth the general planning, implementation scheme, administrative arrangements and various standards of the establishment of platform based on the survey of the business requirements of the entire system; meanwhile, basic modules including the unified data reporting system and central database and the preliminary regulatory systems including corporate supervision and enforcement and case processing system will be completed. By the end of 2015, based on priority demands for administrative licensing, risk monitoring, supervision of lawyers, administrative review and public opinion monitoring, the CSRC will establish external data exchange system, feedback system for public information release, complete the basic framework for the platform and the development of some new business regulatory systems. By the end of 2015, on principle, no notice within the system will be issued in the form of traditional correspondence. In 2016, the CSRC objectives include: further integrate business system, continue data collection and improve data modeling for the central platform; develop new business functions of different departments; assess and optimize data models and application functions; upgrade old systems, import and integrate historical data and develop big data processing and application.

  

9. Building the regulatory system by rulemaking.

  

The development of legal system of capital markets includes: firstly, the CSRC should facilitate and coordinate with the legislative and judicial authorities in improving laws, administrative regulations and judicial interpretations. Revision of the Securities Law and the making of the Futures Law, as a major task of the main system, has already been fully launched. Relevant departments of the CSRC should perform due duties in general planning and coordination and other departments within the system should increase their efficiency according to their respective responsibilities. Secondly, the CSRC will consolidate its regulations and normative documents, establishing a regulatory system for the implementation of laws consisting of 8 sub-categories covering financing and M&A, market trading, products, market and institutional entities, investor protection, supervision and enforcement, market access and prudential supervision. From now on, any new rules regarding the rights and obligations of any party involved in an administrative proceeding adopted by the CSRC will be, on principle, issued in the form of a regulation. Normative documents will only be used to stipulate interpretive, directional and practical issues. To ensure the completion of the aforementioned task, we at the CSRC will assign specific responsibilities to each department. The general consideration is to assign one functional department to the organization and integration of one sub-system based on the principle of functional supervision. The departments in charge should step up to their respective responsibilities and set forth implementation plan with specific work requirements. Other departments should spare no efforts in cooperating with the departments in charge in legislative research studies, substantiation and the drafting of rules.

  

We should also specify work procedures. In consolidating CSRC rules, while relying on higher-level laws and administrative regulations, we should also take initiative in coordinating and planning legislative work related to the sub-systems as well as drafting codes and normative documents. While providing legislative authorities with suggestions on the revision and making of laws based on the general direction and requirements of the development of the legal system, the CSRC will also form ideas and suggestions on its own codes and normative documents, paving the way for the prompt drafting of corresponding supporting rules following the said revision or making of relevant laws. For relevant fields not related to the revision of laws or included in recent policy measures of the State Council such as private funds, OTC markets, investor protection and enforcement, we will aim to complete the consolidation of relevant regulations and normative documents by the end of 2014.

  

Meanwhile, we should set clear work requirements. In consolidating the regulations and normative documents of the CSRC, we should comply with the principles and procedures of legislation and ensure the quality and results of our work through scientific methods. Faced with pressing practical obstacles, we at the Commission will come up with effective supervisory rules and guarantee strict implementation of such rules and corresponding sanctions, making sure that all regulations are stated and interpreted in an accurate and precise manner. In addition, we will solicit opinions from a wide range of market entities, especially small investors. From now on, all opinions solicited on legislation, whether they are accepted or not, will be released to the public. The drafting department for the legislation will take in useful opinions and carry out effective coordination with market entities regarding disregarded opinions. Strict review requirements for regulations and normative documents will be adopted with the focus on the discussion and decisions on the system, duties, major institutional arrangements and major disputes, thus boosting the efficiency in review decisions.

  

III. Effectiveness of the supervision transformation depends on the people who implement and facilitate it.

  

Ultimately the effectiveness of the supervision transformation depends on the people who implement and facilitate it. Faced with the challenges of such a significant objective, we at the CSRC must reinforce our management teams at all levels and take initiative in ensuring the success of the transformation.

  

1) Improve the ethics

  

Despite the overall competent management team within the securities and futures regulatory system, we have some concerns to overcome. In its effort to reach out to the public, the party committee of the CSRC set forth 8 rectification measures, which will be strictly implemented. We at the CSRC will build closer ties with the public and the market front line to get better understanding of the on-going circumstances, potential issues and public opinions. With a better decision-making mechanism, we will solicit public opinions on major policies and implement result assessment feedback mechanism, thus boosting the substantiation and transparency of our decisions. In implementing the 8 provisions of the Central Committee, we will focus on reinforcing internal management, promoting overall frugality in our administration and streamlining briefing procedures, thus allowing management personnel on all levels more time and energy to spend on supervision.

  

2) Improve the selection, appointment and assessment of management personnel

  

In compliance with the revised Regulations on the Selection and Appointment of Management Personnel in Party Committees and Governmental Administrations and the transformation of capital market supervision, we will enhance the evaluation and incentive and disciplinary mechanism of management personnel, encouraging qualified and competent individuals who would stick to the principles even in the face of obstacles to join forces and ensuring that they get the respect and opportunities they deserve, thus forming a sophisticated management team that will aid in the transformation. Previous performance and public opinions will be taken into careful consideration in selecting the management personnel. Open selection and competition and democratic recommendation and assessment will be adopted to choose competent and responsible candidates with excellent performance records. Anyone meeting the criteria, regardless of their background, will be treated equally in order to ensure that the most capable candidates are selected. All departments and administrations should observe strict principles and specify responsibilities, establishing effective mechanisms in monitoring, assessment, feedback and accountability. Strictly in accordance with the principle of “clearly defined responsibilities, departments and positions”, tenure system for the management personnel will be implemented. Management personnel, especially the head of each unit should take things into perspective and be highly responsible in their work. Any individual who is not fit, capable or responsible for the management position will be replaced.

  

3) Optimize organizational setting

  

After careful research, the Party Committee proposes to make some adjustments to certain departments of the CSRC. Detailed plans have yet to be approved by the State Commission Office for Public Sector Reform and the State Council. During the implementation upon the approval, some adjustments will be made to certain departments and individuals. We urge the management team of relevant departments to take the responsibility to ensure the implementation and all the staff members to take into account the big picture and cooperate with such adjustments. All relevant departments should also handle the shift of duties, the deployment of individuals and the handover process. Furthermore, regional offices of the CSRC should also make corresponding adjustment to their internal organization. The careful planning and execution of this organizational adjustment will ensure the stability, consistency and order of the entire team.

  

4) Boost the competence of management teams

  

Faced with new tasks and requirements, we are now more aware of the lack of competence in certain aspects. For instance, some management personnel are lagging behind in professional qualification and knowledge, resisting to change. Meanwhile, while being familiar with the ex-ante approval regime, some show a complete lack of solutions and experience in on-going and ex-post supervision. Both management personnel at all levels and the general staff should have a more prominent sense of crisis regarding the lack of competence and capability. As a result, they should focus on the requirements of the transformation, boosting their organizational, innovative and problem-solving capability. More importance should be attached with learning and practical training, with more frequent rotation of management personnel to boost the overall quality of the management team.

  

5) Adopt strict regulation on the operation of authority

  

Management team at all levels should strictly abide by democratic centralism, making decision in accordance with clear rule of procedures and preventing the situation where one person makes all the decisions. We will reinforce the decision-making procedures for major issues, appointment and removal of major management personnel, arrangement of major projects and use of major funds. Enforcement and administrative license filing system will be established, reducing and regulating the discretionary power in supervision and enforcement. Meanwhile, by strictly executing all anti-corruption rules and bolster discipline inspection, we will continue to focus on our anti-corruption campaign.

  

IV. Implementation is the key

  

The transformation of supervision takes long-term and systematical efforts. To implement the transformation, the key lies in striking the following balances:

  

1. Balance between the transformation and market development We at the CSRC should build close ties between the transformation and the facilitation of the capital market in sound development and serving real economy, making the transformation the means to an end. The transformation will be regarded a real success if it serves to protect the rights of small investors and market equitableness, justice and transparency and facilitates the sound development of capital markets.

  

2. Balance between overall transformation and key focus. While taking care of general planning and overall implementation, we also need to focus on key fields and projects and strive for breakthroughs. All relevant administrations should stay completely focused on the key projects of the reform and development of capital markets set forth by the Central Committee and the State Council. Any truly necessary new projects should only be addressed upon careful consideration, objective substantiation and thorough consultation.

  

3. Balance between the transformation and market stability. In promoting the transformation, the CSRC will take daring yet steady steps, taking into account the reform, development and market stability, preventing systemic and regional risks. Furthermore, we must stay prepared for any unexpected incidents.

  

4. Balance between the determination in transformation and the flexibility of policy measures. Being fully determined to transform our supervision, we at the CSRC will take into account market reality while keeping ourselves updated with new situations and solutions to new problems, taking strategic and stable steps in the implementation process.

  

5. Balance between the uniformity and the spirit of innovation of the transformation. While reinforcing the general planning and coordination of the transformation, we will also encourage all units within the system to take innovative steps based on practical conditions.

  

Implementation is the key to truly successful planning. Therefore, to ensure that the transformation of supervision achieves its objectives, the CSRC will be fully determined to effectively implement all tasks.

  

Firstly, there should be general consensus within the system. All administrations and departments should promote the significance of the transformation among all staff members. Management personnel in particular should be role model in changing the existing views, bolstering the awareness of opportunities and responsibilities and preparing for particularly difficult obstacles.

  

Secondly, responsibilities should be clearly assigned. In line with the requirements of the transformation, all tasks should be broken down and responsibilities assigned to relevant departments and administrations. All departments and administrations should stick to their responsibilities and work schedule, making sure all tasks are completed in time. The CSRC, regional offices, exchanges, associations and affiliated institutions will offer better coordination and make joint efforts in the transformation.

  

Thirdly, all work should be effectively coordinated. Orderly coordination should be reinforced between routine work and supervision transformation, preventing any supervision gaps. By effectively adjusting the allocation of supervisory resources, we at the CSRC will ensure the supervision of key issues, improved coordination and certain level of flexibility, shifting the supervision focus from an ex-ante approach to on-going and ex-post ones. With strengthened disciplines, we will impose stern sanctions on administrations and individuals which failed to perform their duties in the transformation.

  

Fourthly, effective monitoring and assessment should be carried out. Based on the tasks assigned, each department and unit should set up special monitoring mechanism and submit periodic reports on the progress. With more focus on the analysis and research studies of new situations and issues in the transformation, relevant departments and units should exchange experiences, make informed forecasts and comprehensive assessment of situations and foster relevant policy measures, thus ensure the sound implementation of the transformation.

  

Chinese new year is approaching. On behalf of the party committee of the CSRC, I would like to wish you all great health and success in the year of the horse.



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