Notice from the General Office of the State Council forwarding the “Opinions on Further Strengthening Comprehensive Measures for the Prevention and Punishment of Financial Fraud in the Capital Market” issued by the China Securities Regulatory Commission and other departments.

National Office Document No. 34 [2024]

People's Governments of all provinces, autonomous regions, and municipalities directly under the central government; all ministries and commissions of the State Council and their directly affiliated institutions:

The “Opinions on Further Strengthening the Comprehensive Prevention and Punishment of Financial Fraud in the Capital Market,” jointly issued by the China Securities Regulatory Commission, the Ministry of Public Security, the Ministry of Finance, the People’s Bank of China, the State Administration of Financial Regulation, and the State-owned Assets Supervision and Administration Commission of the State Council, has been approved by the State Council. It is now forwarded to you for careful implementation.

General Office of the State Council, June 29, 2024 (This document is publicly released)

On Further Improving the Capital Market

Opinions on Comprehensive Measures for the Prevention and Punishment of Financial Fraud China Securities Regulatory Commission, Ministry of Public Security, Ministry of Finance, People's Bank of China, Financial Regulatory Administration, State-owned Assets Supervision and Administration Commission of the State Council

The capital market plays a crucial role in financial operations—its stability affects the entire financial system. Financial fraud seriously disrupts the order of the capital market and undermines investor confidence. In recent years, all relevant parties have earnestly implemented the decisions and deployments of the Party Central Committee and the State Council, continuously intensifying regulatory enforcement efforts. As a result, a number of financial fraud cases have been promptly investigated and dealt with, effectively purifying the market environment. However, financial fraud continues to evolve in increasingly sophisticated ways, making it increasingly difficult to detect and prosecute such cases. The task of effectively combating systemic, concealed, and complex financial fraud is therefore extremely challenging. We must adhere to a comprehensive approach, strengthen both short-term and long-term solutions, maintain a consistently high-pressure stance, and truly enhance collaborative efforts. To rigorously crack down on financial fraud in the capital market and safeguard a healthy market ecosystem, we now put forward the following recommendations for further strengthening the comprehensive prevention and punishment of financial fraud.

I. General Requirements: Guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, we will thoroughly implement the spirit of the 20th National Congress of the Communist Party of China and earnestly carry out General Secretary Xi Jinping’s important instructions and directives on the reform and development of the capital market. We will adhere to the general principle of seeking progress while maintaining stability, uphold the direction of marketization and rule of law, further intensify efforts to crack down on financial fraud, improve regulatory coordination mechanisms, establish long-term mechanisms for preventing and addressing financial fraud, enhance institutional supply, strengthen incentives and constraints, and provide robust support for promoting high-quality development of the capital market. — Uphold a problem-oriented approach. Strictly enforce the law against financial fraud, strengthen penetrating supervision, and enhance the quality and effectiveness of law enforcement and judicial work. Adhere to both pursuing the principal culprits and cracking down on accomplices, and intensify accountability measures against those responsible for fraud as well as those who collude in fraudulent activities. — Adhere to a systematic perspective. Pool the strengths of all parties, and enhance the systematic, holistic, and coordinated nature of comprehensive prevention and punishment efforts against financial fraud. Strengthen integration between departments and regions, foster regional collaboration, and create a working pattern in which each department and region fulfills its own responsibilities and jointly tackles the issue. — Uphold both upholding fundamentals and promoting innovation. Increase the supply of basic systems, innovate methods and approaches, and establish normalized, long-term working mechanisms. Strengthen incentives and constraints, boost endogenous motivation, and cultivate a sound market environment that values integrity and deters falsification.

II. Firmly crack down on and curb financial fraud in key areas.

(1) Strictly punish fraudulent issuance of stocks and bonds. Continuously optimize and improve the review and registration mechanisms for the issuance and listing of stocks and bonds, ensuring that the capital market’s “entry gate” is tightly controlled. Intensify on-site inspections and supervision during the stock issuance process, focusing particularly on cases involving unusually rapid growth in performance to firmly prevent companies with existing problems from passing through undetected. Pay close attention to issuers of bonds that have already defaulted or are classified as high-risk, and severely crack down on illegal and non-compliant activities such as fraudulent issuance, false disclosure of information, misappropriation of raised funds, and evasion of debt repayment.

(2) Severely crack down on systemic fraud and collusion in fraud. Closely monitor the characteristics and evolving trends of systemic, group-based financial fraud, and impose strict legal penalties on those who engage in systemic fraud by means such as forging or altering vouchers, fabricating transactions through related parties, or seeking cooperation from third parties. Fully punish not only the planners, organizers, implementers, and collaborators behind financial fraud, but also professional criminal gangs specializing in aiding and abetting fraud, and resolutely dismantle the “ecosystem” of fraud.

(3) Strengthen supervision over the abuse of accounting policies to commit fraud. Enhance financial and accounting oversight and intensify efforts to crack down on the misuse of accounting policies and accounting estimates for financial fraud. Closely monitor the implementation of accounting policies and accounting estimates, and step up efforts to combat practices such as manipulating provisions for asset impairment to adjust profits and using “financial cleansing” to conceal prior fraudulent activities.

(4) Strengthen efforts to crack down on financial fraud in specific sectors. Pursue legal sanctions against securities issuers and listed companies that engage in financial fraud through fictitious trading practices such as “empty turnover” and “single-ticket transactions.” Severely crack down on financial fraud committed via supply-chain finance, commercial factoring, and bill trading. Strictly punish financial fraud perpetrated for purposes including meeting performance commitments in mergers and acquisitions or restructuring, enabling major shareholders to extract substantial dividends, satisfying conditions for exercising equity incentives, or circumventing delisting requirements. Reinforce the duty of diligence and responsibility of private equity and venture capital fund managers, enhance due diligence on the financial integrity of projects invested in by these funds, and strengthen post-investment management to prevent fraudulent activities from occurring. III. Optimize the institutional framework and mechanisms for securities regulatory enforcement.

(5) Improve the mechanism for identifying leads. Strengthen daily supervision, intensify inspection and oversight efforts, highlight the supporting role of technology, leverage the enabling functions of the National Credit Information Sharing Platform, and conduct lawful inquiries into the National Financial Credit Information Database to identify clues of financial fraud through multiple channels. Establish a comprehensive, closed-loop management mechanism for handling leads throughout the entire process and standardize lead-handling procedures. Make lawful and compliant use of electronic bank statement queries and anti-money-laundering coordination mechanisms to enhance the efficiency of tracing funds involved in cases. Develop and maintain a roster of entities collaborating with fraudulent actors, and extend investigations to identify and analyze leads involving other related parties. Optimize the coordinated scheduling of inspections and investigations as well as cross-regional collaboration mechanisms to enhance the capacity to detect major and complex leads.

(6) Enhance the effectiveness of administrative law enforcement. Accelerate the transition toward a more refined regulatory approach, optimize the functional positioning of each business line and each stage of the regulatory process, and build a highly efficient and coordinated regulatory framework. Strengthen coordination among various business lines—including issuance review, corporate supervision, and oversight of intermediary institutions—to boost regulatory effectiveness. Improve the seamless integration among daily supervision, inspection and enforcement, and administrative penalties to enhance enforcement efficiency. Perfect the investigation and punishment mechanisms for major cases of financial fraud, thereby improving the quality and effectiveness of investigations and prosecutions. Timely summarize enforcement experiences and continuously refine regulatory workflows and mechanisms. Make good use of bilateral and multilateral memoranda of understanding on regulatory cooperation signed with overseas securities regulators, intensify cross-border investigative cooperation, and enhance the efficiency of cracking down on financial fraud committed through overseas operations.

(7) Deepen collaboration on the coordination between administrative and criminal enforcement. Promote stronger cooperation between securities enforcement agencies and judicial authorities in areas such as information sharing, case handling, and educational warnings. For major securities violations—including fraudulent issuance, improper disclosure of information, and breach of fiduciary duty that harms the interests of listed companies—where conditions are met, promptly initiate joint intelligence-led investigations. For major fraud cases involving cross-regional or systemic activities, promote the establishment and improvement of a joint supervision and oversight mechanism involving public security and procuratorial organs, thereby enhancing the efficiency of investigating and prosecuting serious and high-profile cases.

4. Strengthen the intensity of comprehensive and multi-dimensional accountability.

(8) Strengthen the deterrent effect of administrative accountability. Accelerate the promulgation of regulations on the supervision and administration of listed companies, clearly defining the legal responsibilities for violations such as third-party collusion in falsification and misappropriation of funds. Fully and effectively utilize the powers granted by law, intensify penalties for cases of financial fraud, and resolutely impose market bans on key persons bearing primary responsibility in accordance with the law. Optimize the standards for administrative penalties for financial fraud, significantly raising the costs of illegal activities. For judgment debtors who maliciously transfer assets, pursue recovery of the relevant property by filing lawsuits seeking revocation rights with the courts. Strictly enforce the mandatory delisting system for serious violations; firmly delist companies found guilty of fraudulent issuance or severe financial fraud in accordance with the law, and strengthen accountability measures against relevant institutions and individuals.

(9) Promote the strengthening of criminal accountability. Push for the issuance of a judicial interpretation on the crime of breaching trust and harming the interests of listed companies, thereby intensifying criminal accountability for controlling shareholders and actual controllers who engage in financial fraud or misappropriate company assets. Thoroughly investigate clues related to illegal and criminal activities such as embezzlement of funds, misappropriation of property in one’s official capacity, and breach of trust that harm the interests of listed companies committed by directors and senior management personnel of these companies. If third-party individuals—such as suppliers, customers, intermediaries, and financial institutions—collaborate in committing financial fraud that constitutes a crime, their criminal liability shall be firmly pursued in accordance with the law.

(10) Promote the improvement of mechanisms supporting civil liability enforcement. Explore establishing a system of public interest litigation in securities matters. Facilitate the streamlining of procedures related to registration, litigation, and enforcement, refine the mechanism for model judgments, and intensify the application of the special representative litigation system for securities disputes. Comprehensively leverage a range of investor compensation and redress mechanisms—including advance compensation, support for litigation, subrogation litigation, and administrative law enforcement commitments by parties—to further raise the cost of illegal behavior.

V. Strengthen inter-ministerial coordination and central-local collaboration.

(11) Asset owners shall strengthen supervision and management. The departments responsible for performing the duties of asset owners and the competent authorities of relevant enterprises shall continue to intensify their supervision and management over the enterprises they have invested in, promptly urging these enterprises to address, in accordance with laws and regulations, issues related to financial fraud by controlled securities issuers and listed companies, as well as any instances of cooperation in such fraud. They shall strictly hold those responsible accountable and promptly provide feedback on the outcomes of their actions to the fiscal and securities regulatory authorities. They shall also urge the enterprises they have invested in to actively fulfill their shareholder oversight responsibilities regarding the financial integrity of securities issuers and listed companies in which they hold equity stakes. Furthermore, they shall enhance law enforcement collaboration and, upon discovering any leads involving financial fraud by other securities issuers or listed companies, promptly forward such leads to the fiscal and securities regulatory authorities.

(12) Financial regulatory authorities will enhance their coordinated efforts to crack down on financial misconduct. Financial regulatory authorities will promptly address issues such as financial fraud, complicity in fraud, and providing assistance for illegal use of guarantees by enterprises under their jurisdiction and those they oversee, and will report such cases to the fiscal and securities regulatory authorities. They will also urge banks and other financial institutions to strengthen their scrutiny and verification of the financial integrity of borrowers, including securities issuers and listed companies. Building on the centralization of confirmation letters, we will accelerate the digitalization of confirmation letter processing, encourage and guide intermediaries and other relevant entities to conduct confirmation letter business through digital platforms, and intensify supervision and inspection of the compliance of financial institutions’ confirmation letter practices. We will reinforce the division of labor and collaboration between securities enforcement and fiscal enforcement to avoid regulatory vacuums and regulatory duplication. Furthermore, we will step up unified enforcement efforts in the bond market and improve enforcement efficiency.

(13) Strengthen the responsibilities of local governments. In providing policy support, local governments at all levels shall regard the financial integrity of securities issuers and listed companies as a key basis for promoting the strong and restricting the weak, and shall issue, in accordance with the law and in compliance with regulations, certificates related to taxation, compliance, and other relevant matters. They shall also provide support to relevant departments in their investigations and evidence collection in areas such as market regulation, taxation, energy consumption, social security contributions, litigation and arbitration, and property rights registration. Furthermore, local governments should enhance coordination with relevant departments and earnestly fulfill their local responsibility for addressing risks arising from financial fraud.

VI. Establish a regular and long-term mechanism for preventing and combating financial fraud.

(14) Strengthen the endogenous constraints of corporate governance. Guide securities issuers and listed companies to enhance their internal control systems, with a particular focus on strengthening oversight and checks on key areas and links prone to fraud. Implement the requirements of the independent director reform, effectively leveraging the supervisory role of independent directors and reinforcing the anti-fraud responsibilities of audit committees. Promote listed companies to establish internal accountability mechanisms, such as performance-based compensation clawback provisions, and urge directors and senior management personnel to fulfill their duties conscientiously. Tighten performance assessment and accountability measures by including financial fraud as a deduction item in the performance evaluations of officials at all levels of state-owned enterprises. Step up publicity and education efforts targeting the “key few,” making integrity and compliance awareness central components of training programs in the capital market.

(15) Strengthen the “gatekeeper” responsibilities of intermediary agencies. Promote a mechanism for evaluating the quality of practice by intermediary agencies that is oriented toward the quality of listed companies and bond issuers. Urge sponsoring institutions, accounting firms, asset valuation agencies, law firms, and other intermediary agencies to enhance their quality control over professional practice. Intensify supervision and inspection of intermediary agencies; if an intermediary agency discovers financial fraud involving securities issuers or listed companies, it shall promptly report such findings to the financial and securities regulatory authorities. If an intermediary agency proactively reports fraudulent activities upon discovery, it shall be subject to lighter or reduced penalties in accordance with the law. Improve the credit records of intermediary agencies and their practitioners, and urge relevant institutions and personnel to perform their duties diligently and responsibly. For intermediary agencies found to have engaged in serious illegal or non-compliant activities, their securities service business shall be suspended or prohibited in accordance with the law, and systems such as revocation of practice licenses and bans on practitioners from entering the industry shall be strictly enforced.

(16) Improve systems related to financial information. Refine regulatory rules for accounting, auditing, and valuation in the capital market; release application cases or implementation FAQs for key areas; and strengthen guidance on the implementation of accounting standards. Enhance the construction of financial and accounting supervision systems, promote the application of electronic voucher accounting data standards, and elevate the standardization level of corporate financial accounting. Improve the regulatory system for exemptions from information disclosure requirements, strictly define exemption conditions and procedures, and prevent securities issuers and listed companies from abusing exemptions to conceal fraudulent activities.

(17) Strengthen joint punishment and social oversight. Include entities that engage in serious illegal and untrustworthy behaviors—such as financial fraud, misappropriation of funds, and collusion in fraudulent activities—on the list of seriously untrustworthy entities in the financial sector, and submit this information to the National Credit Information Sharing Platform. Also, publicly disclose relevant information on the “Credit China” website and the National Enterprise Credit Information Publicity System, and impose joint punishments in accordance with laws and regulations to reinforce constraints against untrustworthiness. Improve the reward mechanism for internal whistleblowers who report major illegal and non-compliant activities such as financial fraud, increase reward amounts, and protect the legitimate rights and interests of “whistleblowers.” Publish details of investigations into typical cases of violations and intensify warning and publicity efforts. VII. Implement guarantee measures.

(18) Strengthen organization and implementation. We must earnestly align our thinking and actions with the decisions and deployments of the Party Central Committee and the State Council, enhance policy coordination and work synergy, and strengthen supervision and accountability. For cases in which inadequate performance of management or regulatory duties leads to serious consequences, we must rigorously pursue accountability. Fully leverage the role of mechanisms such as the Coordination Group for Combating Illegal Activities in the Capital Market in areas including coordinating major cases, formulating important rules, and consulting on significant issues.

(19) Strengthen public opinion guidance. Intensify publicity and interpretation of comprehensive measures to prevent and punish financial fraud in the capital market, emphasizing proactive guidance, innovating communication methods, and building consensus among all parties. Timely summarize and promote best practices to foster a market environment characterized by honest business conduct and respect for the rule of law and trustworthiness.

(20) Strengthen risk prevention and control. Intensify risk assessments in key areas, and resolutely eliminate financial fraud that poses significant risks—whether industry-wide, systemic, or regional in nature. Effectively coordinate efforts to combat financial fraud with risk prevention and resolution, safeguard the stable operation of the capital market, and support high-quality economic and social development.