CSRC Steps up Supervision of Listed Companies and Crackdown on Financial “Bathing”

On March 15, 2024, the China Securities Regulatory Commission (CSRC) issued the Opinions on Strengthening the Supervision of Listed Companies (for Trial Implementation) (the “Opinions”), setting forth 18 requirements in 5 aspects.

In the Opinions, CSRC calls for strengthening the supervision of information disclosure and severely punishing earnings fraud, establishing a comprehensive punishment and prevention system against financial fraud, and intensifying legal supply for the supervision of listed companies, to promote the introduction of administrative regulations on the supervision of listed companies. It also vows to enhance the supervision and management of corporate governance, and severely punish major shareholders for encroaching on the interests of listed companies and third-party collusion in fraud, step up crackdown on financial “bathing”, a practice is also known as financial “cleansing”. Listed companies that are engaged in financial fraud by way of supply chain finance, financing trade, “false” transactions or “fictional orders” will also be punished in accordance with the law.

The Opinions further call for consolidating the responsibilities of listed companies and intermediaries, resolutely carrying out “double investigations on cases” involving audit and evaluation institutions, meting out heavier punishments on illegal cases such as collusion and fraud, and resolutely implementing such systems as suspension or prohibition of securities service business, revocation of practicing license, and imposition of practicing ban on intermediaries with major violations.

The Opinions also set forth regulations on the round-about reduction of holdings, calling for the establishment of a “1+2” system of rules with the administrative measures for holdings reduction as the core, supplemented by special provisions on the reduction of holdings by directors, senior executives, and venture capital funds, to strictly regulate the shareholding reduction behavior of major shareholders. According to the Opinions, CSRC will formulate guidelines for market value management of listed companies, conduct research on the inclusion of corporate market value management in the internal and external assessment and evaluation systems of listed companies, and strictly crack down on “pseudo-market value management” in accordance with the law.