After four years, the brokerage industry's professional reputation is undergoing revision! This situation may be exempt from being recorded as negative.

On the evening of March 27, to further improve the information management mechanism for professional reputation in the securities industry, the China Securities Association (CSAI), on the basis of broadly soliciting opinions from all parties, revised the 《Measures for the Management of Professional Reputation Information in the Securities Industry》 (hereinafter referred to as the 《Measures》). These Measures took effect upon promulgation. This is the first adjustment after the Measures have been in operation for nearly four years.

A reporter with China Securities Journal learned that this revision is intended to implement relevant regulatory requirements. It brings bribery acts that interfere with regulatory enforcement into the category of illegal and untrustworthy conduct. At the same time, it encourages securities firms to proactively compensate investors for losses caused by fraudulent offerings. It also clarifies that, for those whose related penalties can be effectively mitigated or eliminated through a prior compensation mechanism, the related penalty information may be exempted from being recorded in the professional reputation information database.

Prior compensation may exempt negative records from being entered

It is understood that since the 《Measures》 were issued and implemented in 2022, they have laid the institutional foundation for establishing a market-based reputation constraint mechanism for the industry. They have already preliminarily formed a full-process management mechanism based on the professional reputation information database, covering the collection, management, querying, application, and remediation and correction of professional reputation information, among other stages. This revision focuses on implementing relevant regulatory guidance, summarizing practices in professional reputation information management, and related matters.

The main revisions are in three areas:

First, they implement requirements to advance prior compensation work. According to the CSRC’s requirements to advance prior compensation work in accordance with the law, it is clarified that for punishments for which investors’ illegal harm is mitigated or eliminated through a prior compensation mechanism, the relevant penalty information may be exempted from being recorded in the professional reputation information database.

Second, they improve the sources of integrity information. Based on the management practices since the professional reputation information database went live and the confidentiality situation regarding information in the securities and futures market integrity records database, information originating from the CSRC’s integrity records database is adjusted so that it will be reported by members themselves, and arrangements for the transition period are converted into formal requirements.

Third, they improve the content of integrity information and clarify related circumstances involving improper interference with regulatory law enforcement. A reporter with China Securities Journal noted that the 《Measures》 state that “information determined by the disciplinary inspection or administrative supervision institutions to be illegal and untrustworthy information includes cases where, through improper means such as bribery, regulatory law enforcement work of the China Securities Regulatory Commission (CSRC) and its dispatched offices is interfered with, and administrative penalties or disciplinary sanctions are imposed, or where due to relatively minor circumstances no penalty action is taken, but the information is recognized by disciplinary inspection or administrative supervision institutions.”

All positive and negative information is recorded

As early as May 2022, the 《Measures》 were formally released. Now, nearly 4 years have passed since then. It is understood that the “Opinions on Further Strengthening the Self-Regulatory Management Responsibilities of the China Securities Association” (CSRCFA [2020] No. 77, hereinafter referred to as the 《Opinions》) proposed that CSAI should “build market-based mechanisms for self-regulatory constraints, moral constraints, integrity constraints, and reputation constraints.” To implement the 《Opinions》 and further establish and improve the professional reputation management mechanism for the securities industry, to strengthen self-regulatory and reputation constraints on industry entities, to fully leverage the role of market-based constraint mechanisms, and to better serve the reform of the registration-based system, CSAI drafted the 《Measures》. The 《Measures》 standardize the definition, collection, management, disclosure, querying, remediation, correction, and application of professional reputation information in the securities industry.

According to the latest 《Measures》, integrity information includes commendation and incentive information as well as illegal and untrustworthy information.

Commendation and incentive information includes the name of commendation and incentive, the unit that made the decision, the date the decision was made, the category of the commendation and incentive, and so on. Specifically, this includes: commendation, awards, and evaluation decision(s) made by provincial and ministerial-level or above units such as the CSRC and other departments under the State Council, as well as national securities and futures industry organizations; and other circumstances recognized by CSAI.

Illegal and untrustworthy information includes the name of illegal and untrustworthy conduct, the unit that made the decision, the date the decision was made, the type of illegal and untrustworthy conduct, and so on. Specifically, this includes: administrative penalties and market ban decisions and the supervisory and regulatory measures taken by the CSRC and its dispatched offices; disciplinary sanction measures implemented by securities and futures market industry organizations and management measures stipulated in laws, administrative regulations, and rules; failing to perform a securities and futures dispute mediation agreement that has been reached; being sentenced by a people’s court for securities and futures crimes or other crimes; information where, through improper means such as bribery, regulatory law enforcement work of the CSRC and its dispatched offices is interfered with, and administrative penalties or disciplinary sanctions are imposed, or where due to relatively minor circumstances no penalty action is taken, but the information is recognized by disciplinary inspection or administrative supervision institutions; self-regulatory management measures made by CSAI; and other circumstances recognized by CSAI.

It is understood that CSAI member firms can directly query the professional reputation information of the organization itself and its staff through the professional reputation information database, and that member employees can directly query their own professional reputation information through the professional reputation information database.

No unit or individual may use, leak, or provide other parties’ professional reputation information beyond the purpose of querying, or use it for profit-making purposes, or process or handle professional reputation information; nor may such information be used for illegal purposes.

Proofread by: Yao Yuan