Internal Audits Sweep Through Securities Industry

By Huang Liming, Zhang Yong
Published: 2010-05-14

Market, page 17, issue 466, May 4
Translated by Tang Xiangyang
Original article:

The China Securities Regulatory Commission (CSRC) has announced that it will begin to audit institutions and individuals involved in securities, funds, investment, and consultancy in order to enforce their previously ignored regulation that all individuals working in the securities sector or for the CSRC itself, as well as their spouses and parents, may not own personal stocks. If they have stocks they must immediately close their accounts or report their ownings to the securities companies where they are employed and cease trading.

Self-inspection of the CSRC

Previously, He Guoqiang, Secretary of the Central Commission for Discipline Inspection (CCDI) of the Communist Party of China (CPC), has stated that people serving the financial sector, especially the securities industry, must be subject to inspection.

The CSRC is determined to impose a strict inspection on people who work for the CSRC itself as well as employees of the securities industry.

A work group has been formed within the CSRC to review the inspection, head by Li Xiaoxue, secretary of the CSRC, who will be assisted by Zhuang Xinyi, Yao Gang and Liu Xinhua, vice presidents of the CSRC and Jiang Yang, assistant to the vice-president of the CSRC.

The focus of the inspection will be to see whether the employees of the system have been abiding by the Chinese Securities Supervisory Association Staff Standard of Conduct, the Integrity Criteria of CPC Members, the Anti-unfair Competition Law and other regulations targeted at employees of securities companies.

Last month, Li Li, a female employee of the CSRC, was reported by her former mother-in-law to have been taking advantage of inside information to buy and sell stocks. Though she was cleared, her case sounded an alarm for the entire securities industry.

All of the securities companies under the CSRC have raised their level of self-inspection. Shanxi Securities has established a working team led by its president Hou Wei; their inspection is planned to last two months.

Last year, employees at some fund companies were revealed to have been involved in trading stocks based on advance insider information.

During the past few years, cases concerning unlawful behavior or corruption within the financial system, especially within the securities system, have been frequent.

Wang Yi, the former vice president of the China Development Bank, was sentenced to death for receiving a huge amount of bribes. He is also a former vice president of the CSRC.

Lei Bo, former board chairman of Guojin Securities and also the former secretary of Wang Yi while he worked at CSRC, was later sentenced.

Xiao Shiqing, former president of Galaxy Securities and previous vice director of the CSRC's Department of Listed Companies Supervision, as well as Li Kejun, former party secretary of Hongyuan Securities and Fan Xiaowei, former executive director of the Guotai Junan's Hong Kong Division, have all been found guilty of recieving bribes.

Recently, it has been revealed that Xiao Junguang, vice general manager of Xingye Securities Information Technology Department, illegally used insider information to trade stocks.

In 2009, the CSRC conducted a large scale self-inspection requiring all of its employees to either close their personal stock accounts as well as the accounts of their spouses and parents, or to report which stocks they owned and sell them within half a year. However, according to a CSRC employee, the inspection relied more on self-regulation than an enforced crackdown; it did not last long. Individuals involved in insider trading do not use their own accounts, or those of their spouse or parents.

10% of Securities Institutions to be Inspected

The Commission of Discipline Inspection of the Central Committee has set the deadline for inspection completion for the end of May.

The CSRC has set four phases of the inspection: publicizing the inspection; self-inspection and self-correction; inspection and reform and conclusion. It will randomly review its subsidiary institutions after they have conducted self-inspections.

The Securities Association of China (SAC) has issued a specific implementation guide for securities companies to conduct self-inspections. Huang Xiangping, the chairman of the SAC has led a work group to review the inspection of employees of securities companies. 10 percent of institutions under the SAC will be inspected at random.

Every institution is required to hand in a work brief summarizing their progress to the SAC at the end of every phase.

A source working for a securities company said there has never been such a severe inspection of the securities system.

The EO has learned that Shanxi Province has required no less than 20 percent of its subsidiary departments, provisionally four departments located at its headquarters and eight of its business offices, to be checked at random.

To hide their illegal actions, some people in the securities industry have already re-installed or changed computers; others have chosen to use restraint when using their official computers online.

It is reported that the CSRC is informing every institution that their self-inspections are not to be taken lightly; institutions must conduct a high-pressure self-inspection.

This article was edited by Rose Scobie