CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm
4.8 Investor Protection Regulatory Mechanisms
sponding supervisory authorities. According to the PBOC’s rules in this area, participants in the interbank market engaging in derivatives trading shall also be enrolled with NAFMII as members of the interbank market. Regulators and Penalties for Non-Compliance The respective competent authorities of financial institutions shall supervise their qualifications for engaging in derivatives transactions, for exam - ple, banking financial institutions shall obtain approval from the NAFR for engaging in deriva - tives transactions. The PBOC has the power to supervise the derivatives trades in the national interbank market, while the State Administration of Foreign Exchange (SAFE), under the authori - sation of the PBOC, supervises and manages the forward exchange market. Other than that, NAFMII is authorised by the PBOC to conduct self-regulatory administration over members of the interbank market and the transactions car - ried out therein; the CFETS provides services related to transactions carried out by members of the interbank market and conducts day-to- day monitoring of transactions under the author - isation of the PBOC. Banking financial institutions engaging in deriva - tives trading activities without approval will be subject to administrative sanctions including confiscation, fine, suspension of business and revocation of business licence, by the NAFR. For banking financial institutions that have failed to effectively implement derivatives trading risk management and internal control systems, the NAFR has the power to suspend or revoke their licence to engage in derivative trading and impose monetary sanctions. Meanwhile, SROs including NAFMII and the CFETS have the power to impose sanctions, based on the seriousness of the violation.
Investor protection is provided in some basic laws, including the Securities Law, the Trust Law and the Securities Investment Fund Law, as well as various securitisation regulations. Chapter VI of the Securities Law provides general rules for the protection of securities investors, covering placement agencies’ duties in placement activi - ties, issuers’ fraudulent issue and misrepresen - tation liabilities, representative litigations, etc. Other laws and regulations cover matters such as investor qualifications and limits on the num - ber of investors (see 4.13 Entities Investing in Securitisation ), due diligence, market trading rules, as well as information disclosure (see 4.1 Specific Disclosure Laws or Regulations and 4.2 General Disclosure Laws or Regulations ), constituting parts of China’s investor protection framework. In addition, investors can make decisions on important matters pertaining to the issuing SPV through the meeting of security holders. For instance, NAFMII has promulgated the Proce - dures of the Meeting of Holders for Non-Finan - cial Enterprises Debt Financing Instruments in the CIBM, which provides the conditions for convening a meeting, the procedures of such a meeting, the voting rights of instrument hold - ers, etc. Another mechanism for investor protection is the due diligence requirements for the relevant inter - mediaries. In November 2014, the CSRC issued the Guidelines for Securities Companies and Subsidiaries of Fund Management Companies on Due Diligence for Asset Securitisation, speci - fying the plan manager as the overall responsible party for due diligence, and proposing the rel - evant due diligence requirements. In June 2019, AMAC promulgated three detailed guidelines
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