Responses to the Strong Enforcement of Financial Regulations

This article was written by Jiejiang Wu and Siyuan Liu of Jingtian & Gongcheng.

(This article was first published on China Business Law Journal column"Banking & Finance",authorised reprint)

According to statistics disclosed by the China Bank and Insurance Regulatory Commission (CBIRC), in the first quarter of 2018, CBIRC (established by merging the former China Bank Regulatory Commission and China Insurance Regulatory Commission) carried out enforcements against various violations, such as defective corporate governance, violation of macro-control policies, illegal arbitrage of intersectional financial products, infringement of rights and interests of financial consumers, and formulation or provision of false insurance materials. CBIRC strictly imposed administrative penalties on both institutions and responsible individuals violating the regulations during the law enforcement practice. During the first three months of 2018, CBIRC imposed administrative penalties on 646 banks or insurance institutions, with a total amount of confiscations and fines at RMB 1.158 billion, ordered 12 institutions to stop accepting new business, imposed administrative penalties on 798 responsible individuals, with a total amount of fines at RMB 28.6185 million, and disqualified or banned 107 individuals from the profession.

The Guiding Opinions on Regulating Asset Management Business of Financial Institutions (“New Asset Management Regulations”) was officially promulgated on 27 April 2018. Aiming at the abuse of arbitrage resulted from different standards enacted by separated supervisions, supervision concepts embodies in the New Asset Management Regulations is to strengthen supervision coordination and macro prudence management. Financial administrative authorities will strengthen their functional supervisions over the market access and their daily supervisions over asset management business. In consideration of the large scale of current asset management business, it is predictable that more compliance disputes and penalties will arise out of asset management business during the implementation of the New Asset Management Regulations.

During the administrative investigation and penalty procedure carried out by administrative authorities, the supervised institutions and individuals can exercise their rights as provided in the laws and regulations to protect their legitimate interests, such as stating their cases, defending themselves and applying for a hearin. Currently CBIRC strictly imposed administrative penalties on both institutions and responsible individuals violating the regulations, therefore further developments of both financial institutions and its practitioners would be greatly influenced no matter the violation was committed only by an institution or together by an institution and individuals. 

Take the former CBRC regulations as an example, the administrative investigation and penalty procedure can be roughly divided into four stages:

(1) Investigation. When a party is suspected of committing a violation, the supervision and inspection department would initiate an inspection and, if the conditions for filing an administrative penalty case are fulfilled, officially set up a case within five days upon the completion of the inspection. The supervision and inspection department shall complete the investigation within 90 days after setting up the case (can be extended upon approval) and later transfer the case to the administrative penalty committee office.

(2) Notification. The administrative penalty committee office shall decide whether to accept the transferred case within five days and, if accepting the case, complete the review within 60 days (can be extended upon approval and be recalculated in case of return for supplementary investigation, the time limit of which normally cannot exceed 30 days). If the administrative penalty committee, in its review conference, decides to impose administrative penalties, a notification of proposed administrative penalties shall be made and delivered to the party.

(3) Defending and hearing. After receiving the notification of proposed administrative penalties, the party shall submit written materials within ten days and an application for a hearing within five days (for potential serious administrative penalties) to the administrative authority, if it needs to state its case and defend itself. The administrative authority shall hold a hearing within thirty days after receiving the application and decide whether to finally issue a written decision of administrative penalties after hearing the party’s arguments. 

(4) Enforcement. After the administrative authority imposes administrative penalties of fines or confiscation of illegal gains, the party shall make the payment within fifteen days upon receiving the written decision of administrative penalties. If the party truly has financial difficulties, the payment may be put off for the time being or made in installments upon the administrative authority’s approval. If the party fails to pay within the time limit, the administrative authority can impose an additional fine at the rate of 3% of the amount of the fine per day or apply to a People's Court for compulsory enforcement.

Since most of supervised parties are institutions, the institutions often prefer not to defend themselves or to apply for a hearing. Based on experience, we propose a better way to respond to administrative investigations and potential penalties, which is to legally exercise rights as provided in laws and regulations, to launch sufficient and effective communication with administrative authorities, and to understand the rational of the supervision and enforcement. Our suggestions are as follows: 

 (1) Cooperate with the investigation and state truthfully. When facing an administrative investigation, the parties have the obligation to cooperate with the investigation, including arranging relevant individuals for inquiry, providing relevant materials, making factual statements and so on. During the administrative proceeding, any falsification of evidence or distortion of fact could lead to an increase of administrative penalties. 

(2) Explain sufficiently and defend legitimately. Actively cooperating with investigation does not mean to give up any legitimate rights. Administrative authorities provide the parties sufficient chances to clarify facts, to state their cases and to defend themselves during the whole procedure, from the very beginning of discovery of suspected violations to the final decision of administrative penalties, which can be found both in the administrative authorities’ design of the whole procedure and in their mindsets. For example, during the inspection and investigation stage, the party can submit written documents to adequately state facts, explain its own subjective minds and analyze objective consequences of its behaviors. After receiving the notification of proposed administrative penalties, the party can also make written statements and defenses, and communicate with or make arguments in from of members of the administrative penalty committee in person. 

(3) Learn a lesson and pay attention to compliance. No matter administrative penalties are finally imposed or not, financial institutions shall always learn a lesson from the whole process, understand the rational of supervision and enforcement through sufficient communication with the administrative authorities, improve compliance systems, enact bylaws and regulations and facilitate the implementation of such by laws and regulations in order to guarantee the normative operation of their business and to maintain the stable development of financial markets. 

作者介绍    吴杰江    

合伙人

010- 5809 1234

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吴杰江律师1997年毕业于厦门大学法律系国际经济法专业本科。

吴律师1997年8月至2000年4月期间就职于福建九州集团股份有限公司法律事务部；2000年5月至2001年4月工作于福建厦门理海律师事务所。

吴律师于2001年5月加入北京市竞天公诚律师事务所；2006年成为北京市竞天公诚律师事务所合伙人。

吴律师的主要业务领域包括：银行与融资、收购与兼并、外商投资、项目融资、融资租赁。吴杰江律师经常代表国内外客户处理项目融资事宜、跨境担保融资等项目，其在协助有关离岸特殊目的公司的融资安排方面也格外熟练。

吴律师主要文章包括《中国项目融资法律结构的最新发展》等。

吴律师于1999年获得中国律师资格。他的工作语言为中文及英文。

作者其他文章

   刘思远    

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010-5809 1385

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刘思远律师毕业于清华大学法学院，先后获得法学学士学位、法学硕士学位。

刘思远律师2017年加入北京市竞天公诚律师事务所并成为证券部合伙人。刘律师的主要执业领域为金融合规、证券诉讼。执业期间，曾办理光大证券乌龙指内幕交易、雅百特信息披露违法、恒康医疗大股东操纵市场、方正证券虚假陈述民事赔偿诉讼等六十余件证券类案件，并为中信证券、苏宁易购、毕马威、泰康资产提供证券合规服务。通过刘思远律师的专业服务，多位客户在被中国证监会行政调查后，最终免予行政处罚；多家上市公司在证券虚假陈述民事赔偿诉讼中全面胜诉；多家金融机构建立了更加完善的合规体系。

刘律师的工作语言是中文和英文。

刘思远律师其他文章

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