MOU on the Joint Punishment of Listed Companies Engaging in Misconduct or Breaches of Trust

Memorandum of Understanding on the Joint Punishment of Subjects of Liability of Listed Companies Who Engage in Misconduct or Breaches of Trust

In order to comprehensively implement the spirit of the 18th Party Congress, and of the 3rd, 4th, 5th, 6th, Plenums, to implement the requests of praising integrity and punishing breaches of trust, posed by such documents as the “State Council Opinions on Promoting Safe Competition and Safeguarding the Normal Order of the Market” (State Council Document no. 20 [2013]), the “State Council Notice Issuing the Planning Outline on the Construction of a Social Credit System (2014-2020)” (State Council Document no. 21 [2014], the “State Council General Office Notice on Further Strengthening the Protecton of the Rights and Interests of Small and Medium-Sized Investors in Capital Markets (State Council Document no. 110 [2013]), the Development and Reform Commission, the SFC, the People’s Bank, the Central Spiritual Civilization Office, the Supreme People’s Court, the Ministry of Industry and Information Technology, the Ministry of Public Security, the Ministry of Finance, the Ministry of Environmental Protection, the Ministry of Transport, the Ministry of Commerce, SASAC, the General Administration of Customs, the General Administration of Taxation, the General Administration of Industry and Commerce, AQSIQ, the China Food and Drug Administration, the Central Leading Group for Cyberspace Affairs, CBRC, the Banking and Insurance Regulatory Commission, the Foreign Exchange Bureau, the National Federation of Trade Unions, on the basis of relevant laws and regulations, rules and normative documents, have reached the following unanimous opinion on the joint punishment of listed companies and related institutions and their personnel who engage in misconduct or breaches of trust.

I. Subjects of Joint Punishment

Subjects of joint punishment are listed companies and subjects of liability such as their personnel who have received administrative sanctions (hereinafter referred to as parties who engage in misconduct or breaches of trust) by the CSRC or have been prohibited entry to the market, included:

(1) listed companies;

(2) The directors, supervisors, senior managers and other responsible personnel of listed companies;

(3) Controlling shareholders of listed companies, their actual controllers, the shareholder holding more than 5% of their shares, and their directors, supervisors, senior management and other responsible personnel;

(4) The purchaser of a listed company, the asset restructuring group of a listed company or all trading parties to asset purchase by share issuance, and its directors, supervisors, senior managers and other responsible personnel.The most important among them are majority shareholders, the actual controllers, directors, supervisors, senior managers and other responsible personnel of listed companies that have engaged in misconduct or breaches of trust.

II. Information Sharing and Enforcement of Joint Punishment

(1) Information on misconduct and breaches of trust by listed companies and relevant subjects of liability.

The CSRC and its agencies shall, in accordance with the “Securities Law”, the “Company Law”, the “Regulations Prohibiting Entry to the Securities Market”, and other relevant laws, regulations and rules, deal with misconduct and breaches of trust by listed companies, related institutions, and personnel according to the law, make a decision on the administrative punishment or prohibition of market entry, and lawfully disclose information about the administrative punishment and prohibition of market entry decision of parties who engage in misconduct or breaches of trust, and record such a decision in the securities and futures market credit dossier. After issuing the administrative punishment and prohibition of market entry decision, the CSRC shall promptly notify the above mentioned information about parties who engage in misconduct or breaches of trust to all units, through such means as the Unified National Credit Information Sharing and Exchange Platform, or transmit it through a CD-ROM, or a dedicated network line. According to the needs of law enforcement, each unit may also file a document inquiry about information on breaches of trust by specific institution or personnel to the CSRC.

Each unit shall regard information provided by the CSRC as a major factor to be considered during the fulfillment of their duties according to the law. While enforcing the administrative management of subjects of liability for breaches of trust, the circumstances and seriousness of misconduct and breaches of trust may be considered, according to the law, in enforcing punishments on parties who engage in misconduct or breaches of trust. Where parties who engage in misconduct or breaches of trust rectify their conduct, and eliminate the consequences of misconduct, each unit may take circumstances into account and use discretion, based on the provisions of relevant laws and regulations, rules and normative documents. Each units shall, after enforcing punishment, periodically report the outcome of such punishments to the CSRC and the National Development and Reform Commission.

(2) Information on Misconduct and Breaches of Trust by ubjects of Liability of Listed Companies Provided to Each Unit.

The CSRC periodically submits to signatory units of the Present MOU basic information on the identity of relevant institutions and personnel within the scope of joint punishments. Each unit shall gather information on the administrative punishments of relevant institutions and their personnel according to the above basic information, and report it to the CSRC. The CSRC may also, during administrative licensing and other supervision and regulatory enforcement work, in accordance with the needs of supervision, file document inquiries to all units about the administrative punishment decisions issued to specific institutions or personnel, and to People’s courts about information on persons subject to enforcement, and on persons subject to enforcement for breaches of trust.

The CSRC may, during the assessment of circumstances related to the audit of administrative licenses, day-to-day supervision and inspection, administrative punishment, prohibition of market entry, and based on information about breaches of trust provided by each unit, enforce punishment for breaches of trust, or major supervision. The CSRC may regularly feed back information about its use of information about breaches of trust and th result of punishment to each unit, gather such information and report it to the National Development and Reform Commission.

III. Joint Punishment Measures

(1) Limiting the issuance of corporate bonds.

The issuance of corporate bonds by parties who engage in misconduct or breaches of trust, and in particular the majority shareholders and the actual controllers of listed companies, shall be limited for a definite period of time.

(2) Limiting the issuance of bonds on the interbank bond market.

The issuance of bonds on the interbank bond market by parties who engage in misconduct or breaches of trust, and in particular the majority shareholders and the actual controllers of listed companies, shall be limited for a definite period of time. 

(3) Prohibiting participation in government procurement activities.

Participation in government procurement activities as suppliers by parties who engage in misconduct or breaches of trust, and in particular the majority shareholders and the actual controllers of listed companies, shall be prohibited for a definite period of time.

(4) Consideration during the examination and approval of the establishment of commercial banks or branches thereof, representative offices and equity participation, acquisition of commercial banks.

The credit record for misconduct and breaches of trust of parties who engage in misconduct or breaches of trust, particularly the controlling shareholders, the actual controllers of listed companies and relevant personnel responsible for each institution, shall be considered during the examination and approval of the establishment of commercial banks or branches thereof, representative offices and equity participation, acquisition of commercial banks.

(5) Consideration during the examination and approval of the establishment of securities companies, fund management companies, futures companies.

The credit record for misconduct and breaches of trust of parties who engage in misconduct or breaches of trust, particularly the controlling shareholders, the actual controllers of listed companies and relevant personnel responsible for each institution, shall be the basis of the examination and approval of the establishment of securities companies, fund management companies, futures companies, or else they shall be taken into account.

(6) Consideration during the examination and approval of the establishment of insurance companies.

The credit record for misconduct and breaches of trust of parties who engage in misconduct or breaches of trust, particularly the controlling shareholders, the actual controllers of listed companies and relevant personnel responsible for each institution, shall be the basis of the examination and approval of the establishment of insurance companies, or else they shall be taken into account.

(7) Limiting the implementation of equity incentive schemes by B shares listed companies or limiting their participation to equity incentive schemes.

The participation of B shares listed companies engaging in misconduct or breaches of trust to equity incentive schemes shall be limited. The directors, supervisors, senior managers of B shared listed companies engaging in misconduct or breaches of trust shall not become subjects of equity incentive schemes.

(8) Consideration in the approval of foreign exchange.

The circumstances of breaches of trust shall be the basis to be taken into account in the examination and approval of such quotas as qualified foreign institutional investor (QFII, RQFII) and qualified domestic institutional investor (QDII).

(9) Limiting access to government subsidized funds.

Access to government subsidized funds shall be limited for parties who engage in misconduct or breaches of trust, particularly for controlling shareholders, for actual controllers of listed companies and relevant personnel responsible for each institution.

(10) Limitation of the status as customs certified enterprise.

Where parties apply for certification as a customs certified enterprise, the customs shall deny such certification.

(11) Intensified day-to-day supervision and inspection.

Relevant units may take into account parties who engage in misconduct or breaches of trust, particularly the controlling shareholders, the actual controllers of listed companies, their directors, supervisors, senior managers, during such activities as market inspections, inspections on public services, and on-the-spot inspections.

12) Consideration during the appointment or removal of directors and supervisors of wholly state-owned enterprises and approval or removal motions as directors, supervisors of wholly state-owned enterprises or enterprises in which the state is a non-controlling shareholder.

The personnel of institutions that have committed misconduct or breaches of trust shall be the object of consideration during the appointment or removal as director, supervisor or wholly state-owned enterprises, and the approval or removal motions as directors, supervisors of wholly state-owned enterprises or enterprises in which the state is a non-controlling shareholder.

(13) Disclosure to the public of information through the ‘Credit China’ website and the Enterprise Credit Information Publicity System.

Information about misconduct and breaches of trust shall be disclosed to the public through the ‘Credit China’ website and the Enterprise Credit Information Publicity System.

(14) Disclosure to the public through major news information websites.

At the same time it shall publicize information about misconduct or breaches of trust on its web portal, the CSRC shall notify the State Internet Information Office and coordinate disclosure to the public by Internet news and information service units.

(15) Consideration in credit financing by financial institutions.

All financial institutions shall take into account the party’s integrity and credit status in credit financing.

(16) Other measures.

During compulsory product certification, relevant market supervision departments and social organizations shall take into account parties who engage in misconduct or breaches of trust, particularly the controlling shareholders, the actual controllers of listed companies and relevant responsible personnel, and enforce necessary limitations or prohibitions. They shall not be awarded the title of advanced units.

IV. Continuous management of shared information

In accordance with the relevant stipulations of the “Interim Measures for the Supervision and Administration of Integrity in the Securities and Futures Markets”, the period of validity of administrative punishment, prohibition of market entry for misconduct related to securities and futures is of 5 years, starting from the date when enforcement of the punishment ended, or the period of prohibition from market entry was completed. The period of validity of disciplinary punishments and measures, and of management supervision measures based on laws, administrative regulations, administrative rules, is of 3 years, starting from the date when a decision of disciplinary punishment or supervision measures was made. The CSRC shall, when notifying information about parties who engage in misconduct or breaches of trust to all units, specify the date and validity period of the decisions issued. Relevant departments may, based on their respective statutory duties, impose or lift punishment in accordance with the law, regulations, and relevant rules. No joint punishments shall be enforced beyond their period of validity.

Where and administrative punishment decision or a market entry prohibition decision issued by a unit signatory of the Present Memorandum is changed, revoked, by an administrative reconsideration organ, or where misconduct is confirmed, or where a verdict by a judicial organ is invalid or revoked, all units shall withdraw information about misconduct or breaches of trust within 5 working days since the decision of administrative reconsideration or the verdict became effective, and at the same time notify the matter to relevant departments.

V. Other Matters

Where a company bond issuer, a listed company, a non-listed public company, an overseas listed company, a foreign listed company, etc. violate laws, administrative regulations, and rules on securities and futures, and they receive an administrative punishment, or are prohibited market entry by the CSRC and its agencies, reference shall be made to the joint disciplinary measures for listed companies engaging in misconduct and breaches of trust, their institutions, and personnel in the Present MOU.

Supervision and management measures as stipulated by laws, administrative regulations and rules and the disciplinary measures enforced by the securities and futures exchanges, associations and other organizations are information about breaches of trust, and shall be notified by the CSRC to each unit, and provided to them for reference.

All units should cooperate closely and actively implement the Present MOU, formulate relevant detailed implementation rules and procedures on the use, management and supervision of information on breaches of trust. They shall ensure that in 2016 information on misconduct and breaches of trust by listed companies circulates, and that joint punishments are enforced on them according to the law and their authority, and they shall guaranteed the quality and effectiveness of their work.

Specific issues arising during the enforcement of the Present MOU shall be resolved separately by each deparment.

  

Signatories to the Present “Memorandum of Understanding”

Development and Reform Commission, SFC, People’s Bank, Central Spiritual Civilization Office, Central Leading Group for Cyberspace Affairs, Supreme People’s Court, Ministry of Industry and Information Technology, Ministry of Public Security, Ministry of Finance, Ministry of Environmental Protection, Ministry of Transport, Ministry of Commerce, SASAC, General Administration of Customs, General Administration of Taxation, General Administration of Industry and Commerce, AQSIQ, China Food and Drug Administration, CBRC, Banking and Insurance Regulatory Commission, Foreign Exchange Bureau, National Federation of Trade Unions.

                                       24 December 2015

Leave a Reply

Your email address will not be published. Required fields are marked *