At present, there are more than 150 million investors in China’s securities market, and more than 95% of them are small and medium investors. Under the influence of subjective and objective factors, small and medium-sized investors have become the most important group whose rights and interests have been damaged.
□ In December, 2016, the China Securities Regulatory Commission issued the Measures for the Management of the Appropriateness of Securities and Futures Investors, which marked the establishment of a unified investor suitability system. However, the current investor suitability management is still not solid, and the investor protection situation is still grim.
At present, there are more than 150 million investors in China’s securities market, and more than 95% of them are small and medium investors. Under the influence of subjective and objective factors, small and medium-sized investors have become the most important group whose rights and interests have been damaged.
Recently, China Securities Regulatory Commission held a symposium on comprehensively deepening capital market reform, and put forward 12 key tasks for comprehensively deepening capital market reform. Among them, strengthening investor protection is an important content. The meeting proposed to promote the establishment of a securities class action system with China characteristics. Explore the establishment of an institutional mechanism in which administrative fines and confiscations are given priority to investor relief. Promote the revision or formulation of judicial interpretations of civil compensation related to false statements, insider trading and market manipulation.
Prior to this, the second service forum for small and medium investors (hereinafter referred to as the "forum") also focused on the protection of investors’ rights and interests.
From a series of recent meetings, it is not difficult to find that there has been a clear road map for the protection of investors’ rights and interests in China.
Perfecting the securities civil litigation system
It is the key to implement the civil liability system of securities to establish a set of litigation procedures that can facilitate investors’ litigation and rights protection.
At the above-mentioned forum, Fu Jinlian, vice president of the Second People’s Court of the Supreme People’s Court, said that we should make full use of the existing legal system and strengthen the civil liability of market participants who violate laws and regulations. "Several Opinions on Providing Judicial Guarantee for the Establishment of science and technology innovation board and the Pilot Registration System Reform" clearly states that the application of probation should be strictly controlled for securities criminals, and economic sanctions such as fines should be increased according to law. According to China’s existing legal system, the losses suffered by investors due to securities violations are mainly compensated by filing a civil lawsuit. At present, all walks of life have reached a consensus that the investigation of securities civil liability is an important part of promoting the participants in the securities market to return to their rightful place, and it is also the key to whether the law can "grow teeth".
In 2019, the CSRC set up a leading group for investor protection with Yi Huiman, Chairman of China Securities Regulatory Commission as the team leader and all relevant business departments of the CSRC as members to study and deploy key work and major policies in the insurance field from a higher level. The key point is to take the opportunity of setting up science and technology innovation board and piloting the registration system, with the focus on protecting investors’ rights and interests, to implement a series of new systems from issuance, underwriting, trading to delisting, and to study and establish a system to help investors get timely relief after their rights and interests are damaged. This is regarded as a part of the investor protection system with China characteristics.
On August 7 this year, the Shanghai High Court made a second-instance judgment on the false statement case of Founder Technology, and upheld the first-instance demonstration judgment of the Shanghai Financial Court. This is the first case of demonstration judgment on securities disputes in China, marking the implementation of "demonstration judgment+dispute mediation", an investor rights protection mechanism with China characteristics.
Huang Yong, deputy general manager of the CSI Small and Medium Investor Service Center, said that the Investment Service Center actively promoted the establishment of a securities group litigation system and mechanism in line with China’s national conditions, and promoted the establishment of relevant civil compensation judicial recognition standards. At the same time, appropriate cases will be selected in due course, securities public interest litigation will be explored, subrogation litigation and group litigation will be studied, and the litigation representative system will be connected, so as to continuously improve the securities group dispute resolution mechanism of "supporting litigation or loss verification+demonstration judgment+professional mediation".
Protect the rights and interests of investors according to law
As the basic law of China’s securities market, Securities Law occupies a core position in the legal system of protecting the rights and interests of small and medium-sized investors.
In April this year, the National People’s Congress Standing Committee (NPCSC) promulgated the Securities Law (the Third Review Draft of the Revised Draft) and publicly solicited opinions from the public. The third review draft of the revised draft has set up a separate chapter on "investor protection", which fully reflects that the highest legislature attaches great importance to the protection of investors’ legitimate rights and interests.
At the above-mentioned forum, Liu Ying, Vice Minister of Justice, said that the Ministry of Justice will continue to actively cooperate with the the National People’s Congress Standing Committee (NPCSC) Law Commission and other relevant units to do a good job in revising the Securities Law.
To protect the rights and interests of investors, we must focus on strengthening the supply of the rule of law. Yan Qingmin, vice chairman of the China Securities Regulatory Commission, said: First, further improve the basic market-oriented capital market system and raise the cost of violating laws and regulations. At the same time, the reform of stock issuance registration system is the core to promote the formation of a basic legal system that can be replicated and popularized. The second is to further build a compensation and relief system that is in line with China’s reality. Improve the diversified dispute resolution mechanism, promote the practice of "demonstration judgment+dispute mediation" mechanism, promote the establishment of a class action system with China characteristics, and study the establishment of an investor compensation fund. Third, based on the principle of focusing on key points and accurately cracking down on law enforcement, we will vigorously investigate and deal with illegal acts such as fraudulent issuance, market manipulation and insider trading, which seriously affect market stability, undermine market order and infringe on investors’ interests, and do a good job in the convergence of administrative law enforcement, criminal justice and civil compensation.
Fu Jinlian said that there are nearly 50 judicial interpretations and judicial policies specially formulated for the securities market in the Supreme People’s Court, which exceeds the total number of laws and regulations formulated for other financial markets such as banks and insurance.
Strengthen investor suitability management
Since the development of China’s capital market, the scale of investors has become larger and larger, the structure has become diversified, financial products and services have become more and more abundant, and the product structure has become more and more complicated. Different levels of markets, different types of investment products and different risk levels have different requirements for investors’ risk tolerance. Investor suitability management is a basic system of the capital market, the first line of defense for investors to enter the capital market, and it is not only a security door, but also a firewall, which is the basis for the healthy and stable development of the capital market.
In December, 2016, China Securities Regulatory Commission issued the Measures for the Management of the Suitability of Securities and Futures Investors, which marked the establishment of a unified investor suitability system. However, the current investor suitability management is still not solid, and the investor protection situation is still grim.
Chen Chunyan, secretary-general of asset management association of china, said that some fund sales models can’t help investors to form asset allocation and long-term investment that truly meet the interests of investors; Some employees lack legal awareness and compliance awareness, violate the essential requirements of "being entrusted by others to manage money on behalf of others", and face investors’ inconsistent words and deeds, fraud and deception, which damages investors’ rights and interests; Individual institutions regard "compliance" as the highest standard in the process of implementing investor appropriateness management measures, and their ideological awareness in preventing financial risks needs to be strengthened.
Li Mingzhong, deputy general manager of Shenzhen Stock Exchange, believes that although the Measures for the Administration of the Appropriateness of Securities and Futures Investors make up for the system gap of punishment measures for operating institutions violating the appropriateness obligations, it only strengthens the awareness of law-abiding of operating institutions through administrative means and lacks civil relief for investors.
Gong Haibin, general manager of China Securities Investor Protection Fund Co., Ltd. said that at present, the civil liability for violating investor appropriateness management is unclear. The law of our country lacks clear provisions on what kind of civil liability should be borne for violating the investor’s obligation of appropriateness. Judging from the judicial trial, the main way to seek civil liability protection is to claim tort liability when violating the investor’s obligation of appropriateness. However, there is no clear legal basis for determining the two elements of tort liability: "fault" and "causality". Therefore, the standard of civil liability for violating the investor’s appropriateness management needs to be clarified and unified by the judicial organs through a series of typical cases or judicial interpretations.
Gong Haibin suggested that the legal level of the investor appropriateness system should be improved from the perspective of "having laws to follow" and "supervising according to law", and the civil liability for violating the appropriateness obligation should be clearly defined at the legal level.
Recently, the Supreme People’s Court issued the Minutes of the National Court Civil and Commercial Trial Work Conference (Draft for Comment), clarifying that if the seller’s institution violates the "appropriateness obligation" and causes losses to investors, it shall be liable for compensation. It is necessary to further improve the non-litigation dispute resolution mechanisms such as consultation, mediation and arbitration, so as to improve the efficiency of solving investors’ appropriate disputes.