CHINA is tightening up efforts to prevent and punish financial fraud in the capital market to ensure its high-quality development, according to a government circular Friday.

The State Council published a circular on further toughening crackdown measures to prevent and punish financial fraud in the capital market, Xinhua reported. The circular was drafted by six government agencies including the China Securities Regulatory Commission (CSRC), Ministry of Public Security and the People’s Bank of China.

The government guideline, which has 17 concrete measures, pledges a strict crackdown on financial fraud by streamlining supervision, improving the efficiency of law enforcement and pushing for better governance at listed companies and securities brokers.

At a press conference Friday, a spokesperson with the CSRC, China’s securities watchdog, further elaborated on the new measures as the country wishes to punish and stem illegal behaviors in the capital market to better protect investors.

For instance, the CSRC has drastically raised the punishment cap for violations in information disclosure from 600,000 yuan (US$82,565) to 10 million yuan for companies, and from 300,000 yuan to 5 million yuan for individuals, the CSRC spokesperson said during the press conference.

Firms found with initial public offering (IPO) frauds will pay a fine up to the complete amount they have raised, instead of the previous 5%.

Those involved in fraudulent information disclosure, including both officials of the listed company and professionals who endorsed the fraudulent documents, may serve a jail term up to 10 years, according to a revised article of China’s Criminal Law.

The guideline added that China has facilitated the special representative litigation system for securities disputes, indicating that class action lawsuits would be more frequently used to compensate investors’ losses and serve as a deterrent.

In November 2021, a Chinese court entered a 2.46-billion-yuan verdict in a collective investor action against Kangmei Pharmaceuticals, certain of the company’s executives and the company’s outside auditor.

Currently, the CSRC is supporting 10 class action lawsuits being filed by investors against listed or delisted companies and 22 such cases are already in action in courts.

Using both “teeth and thorns” to punish illegal behaviors, the CSRC recently handed out a combined penalty of 68.3 million yuan to three listed firms over financial misstatement and embezzlement by major shareholders. Another two listed firms will be fined a combined 52.7 million yuan, according to CSRC.

In May, the CSRC fined Evergrande Group 4.175 billion yuan for fraudulent bond issuance and information disclosure violations, while imposing a lifetime ban on Hui Ka Yan, also known as Xu Jiayin, the founder of the real estate developer, from the securities market together with a fine of 47 million yuan.

(SD News)