The 6th Plenary Session of the 17th CPC Central Committee stressed the need to “attach priority importance to credibility.” The State Council has also pointed out that a lack of credibility would harm economic and social development, damage market and social order, destruct social justice, hurt interests of the people and impede progress in civilization of the people and the society. “As a result of development of commercial credit, the capital market is based on a relatively high level of credibility. That is a cornerstone of healthy and stable market development, and an important insurance for safeguarding interests of market participants, especially numerous investors,” it said.
In order to fulfill requirements of the Central Government about social credibility construction and establishment of credible capital markets, the China Securities Regulatory Commission (CSRC) has drafted the Provisional Measures on Securities and Futures Markets Credibility Regulation after repeated researches. Those measures are based on actual situation of China’s capital markets and a goal to build a unified credibility record system. Official rules are expected to be announced in the rest of the year, so as to establish innovative and specified credibility supervision mechanism, strengthen credit discipline over market entities and their behaviors, as well as further lift the level of market credibility.
Recently, the CSRC has been seeking public opinions on the draft measures. The CSRC welcomes relevant people and organizations to present opinions and suggestions through websites of the Legislative Affairs Office of the State Council and the SCRC.
The draft measures are intended to build a set of credibility regulation systems, enhance discipline and punishments on illegal and discreditable behaviors, increase incentives for honest and law-abiding ones. This is an important basic legal system for building capital market credibility.
First, it aims to build a credit record system. The draft ordered that the CSRC will establish a “securities and futures market credibility data bank,” and collect public credibility information about regulation implementation, self-discipline and justice regarding securities and futures markets.
Second, it launches a credibility information disclosure and inquiry system. The draft proposed to make known to the public about administrative penalties, ban on market entry, relevant regulation measures about sponsors, and disciplinary punishments in the industry. Meanwhile, it plans to disclose more information about regulation measures, including personnel and organizations engaged in illegal securities activities, financial consulting organizations and their hosts, securities and futures markets service organizations and personnel such as lawyers and accountants, as well as regulation measures of those organizations. In addition, the draft adopted an information inquiry system for the undisclosed information. Market entities could apply to inquire about credibility information about itself and other entities. Investors have been complaining about listed companies failing to fulfill public pledges of dividend distribution and asset reorganization. As a result, the draft proposed to establish a unified announcement system of listed firms’ public pledges so as to enhance supervision and discipline.
Third, the draft plans a series of credibility disciplinary measures on the basis of credit records and regulation enforcement, such as market entry approval and check scheme, punishments and restraints on discreditable behaviors, support to credible people in business innovation and trial operation, making flexible and targeted regulation arrangements according to different credibility situations of regulated people and institutions, paying close heed to market entities with discreditable records, punishing discreditable intermediary service organizations and personnel such as sponsors, lawyers and accounts and issue credibility caution letter, and taking one-vote-down system in selecting experts and members of the issuance and examination commission according to their credit records.
Fourth, the draft made it clear that the CSRC will share credibility information with other departments of the State Council, local governments, judicial organs and industry organizations, develop credibility regulation cooperation, and achieve coordinated supervision over discreditable behaviors.
In addition, while the draft punishes discreditable behaviors and pushes forward credibility information disclosure and inquiry, it also attaches great importance to protection of legal interests of the market entities. First, it set validity period for the credibility information. The validity period of general information about illegal or discreditable behaviors is five yeas, and the information about administrative penalties, market entry ban and criminal penalties imposed on securities and futures market illegal behaviors is 10 years. If the validity period expired, the information would not be available for credit records, disclosure or public inquiry. Second, the draft set up an update and correction system for the credibility information. The relevant credibility information should be canceled or revised if relevant decisions and behaviors are canceled or changed. The market entities could apply to cancel or correct relevant information, which should have been canceled or corrected, or other important and obviously false information. Third, the daft designed a complete set of inquiry procedures for credibility information. Those who apply to inquire about their own credibility information must go through check of identity card, and inquiry of others’ credibility information requires signature agreement of the person inquired. The inquiry results must not be revealed or used by others for profit or other illegal purpose. The draft also identified regulation measures and administrative responsibility. It also stipulated that credibility information is state secret, and that any information of commercial secrets of other citizens, legal persons and organizations is not available for inquiry.
The CSRC official pointed out that improving market credibility is a complex task, and it requires coordinated efforts of market entities and the entire society. “We hope the public society could extend support to the task, present opinions and advice on the draft, so as to lay a solid foundation for market credibility,” he said.