China gets tougher on financial market malpractice

BEIJING — Those involved in illegal financial market activities such as insider trading have reasons to be fearful, as Chinese authorities are escalating efforts to put financial markets under stricter scrutiny.

Anti-malfeasance drive

Adding to the recent slew of tough measures in the sweeping campaign against financial market malpractice, the China Banking Regulatory Commission (CBRC) Monday unveiled targeted measures to address financial risks in the banking sector.

Amid complaints about reckless speculations on financial markets, the CBRC outlined 10 detailed fields for strengthened risk control, including traditional sectors such as credit, liquidity, real estate and local government debt as well as non-traditional areas including internet finance and cross-border financial impact.

The CBRC policy guideline came on the heels of China's top anti-graft authority Sunday announcing that Xiang Junbo, chairman of the China Insurance Regulatory Commission, was being investigated for suspected serious violations of the code of conduct of the Communist Party of China.

There has been no shortage of high-profile punishments in China's financial markets in recent months. The "barbaric" behavior of some Chinese insurers that use leveraged money to buy shares in listed companies triggered sharp volatility in the market at the end of last year and sparked regulator concerns.

China's insurance regulator barred Yao Zhenhua, chairman of Foresea Life Insurance, from the insurance industry for 10 years due to irregular market operations.

Yao was only one on the long list of highly scrutinized violations.

The China Securities Regulatory Commission (CSRC) last month handed out a record high fine in the amount of 3.47 billion yuan (about $503 million) to Xian Yan, chairman of P2P Financial Information Service Co, for stock market manipulation including insider trading, a testimony to regulators' determination to crack down on risky investment activities.

"Small fines fail to pose as a deterrent to banks and investors engaged in malpractice, and regulators must take more punitive actions to strengthen their supervision," said Zeng Gang, an economist with the Chinese Academy of Social Sciences, a top Beijing-based think tank.

"Preventing financial risk will be on the front burner, and regulators will slap harsh punishments on market violators to curb frequent misbehavior," said Liu Fushou, director of legal department of the CBRC.

In the first quarter of this year alone, the CBRC imposed administrative penalties for 485 cases of irregularities in the sector with fines totaling 190 million yuan, equaling 70 percent of the total amount of fines issued last year.

Innovation in supervision

China's stock, bond, insurance, banking and other financial markets are in a nascent stage, while regulators have realized that some investors are taking advantage of loopholes in market rules and supervision for profits, analysts said.

China's financial supervision needs to keep pace with new changes and phenomena in the sector, and supervision rules must be updated in a timely manner, stressed Guo Shuqing, chairman of the CBRC.

China's financial regulators have pledged to give priority to supervision innovation including better on-site surveillance and the use of big data to improve efficiency.

"Regulators must strengthen supervision for all processes in the financial industry and learn from the experience of advanced economies, with preemptive measures to play a more prominent role," said Chen Shaoxia, chief researcher with Goldport Capital, a Shenzhen-based asset management company.