On August 31, Cailian News Agency (Reporter Lin Jian) disclosed the latest development of the Zijin storage case on the evening of August 30, which is the first case to apply the administrative law enforcement commitment system after the amendment of the Securities Law in 2019, and has attracted widespread attention. According to the final results, Csc, Zhitong Certified Public Accountants (special general partnership), Rongcheng Certified Public Accountants (special general partnership), Guangdong Hengyi Law Firm and other four intermediary institutions have paid the commitment fees to the insurance funds, totaling 1.275 billion yuan, and have conducted self-inspection and rectification, which were verified on-site by the China Securities Regulatory Commission.

During the case handling process, the China Securities Regulatory Commission stated that it will seriously hold relevant personnel accountable. Cailian News Agency reporters noticed that the corresponding penalties have been successively issued, and the compensation and punishment have been completed and closed. On the same day, the Guangdong Securities Regulatory Bureau publicly disclosed the relevant penalty decisions, totaling 8. After sorting, the specific situation is as follows:

1. Under the practice of conducting the audit projects, Lixin Certified Public Accountants (special general partnership) had three major violations, and have been subjected to the administrative supervision measures of issuing a warning letter.

2. Lixin Certified Public Accountants (special general partnership) had problems in the practice of auditing projects, and Xiao Chang, as the signing registered accountant for the 2020 audit report of Zijin Storage, was mainly responsible for the relevant violations, and was subjected to the administrative supervision measures of issuing a warning letter.

3. Lixin Certified Public Accountants (special general partnership) had problems in the practice of auditing projects, and Guo Xiaoqing, as the signing registered accountant for the 2020 audit report of Zijin Storage, was mainly responsible for the relevant violations, and was subjected to the administrative supervision measures of issuing a warning letter.

4. As the project sponsor representative, Liu Nengqing is the directly responsible manager, recognized as an inappropriate candidate, and within 3 years from the date of the decision on the administrative supervision measures, is not allowed to hold positions related to the business of sponsoring the issuance and listing of securities in a securities company.

5. As the project sponsor representative, Qiu Ronghui is the directly responsible manager, recognized as an inappropriate candidate, and within 3 years from the date of the decision on the administrative supervision measures, is not allowed to hold positions related to the business of sponsoring the issuance and listing of securities in a securities company.

As the director in charge of the investment banking committee and the head of the Shenzhen branch of the investment banking department at csi all share investment banking & securities, Li Bo is another direct person responsible for the irregularities of the sponsoring institution and has been subject to administrative regulatory measures of regulatory talks.

As one of the project quality control personnel, Zhang Hua is another direct person responsible for the irregularities of the sponsoring institution and has been subject to administrative regulatory measures of regulatory talks.

As one of the project quality control personnel, Dong Guixin is another direct person responsible for the irregularities of the sponsoring institution and has been subject to administrative regulatory measures of regulatory talks.

On April 18, 2023, Zijin Storage was fined and delisted by the China Securities Regulatory Commission for fraudulent issuance and illegal disclosure of information. Zijin Storage, its controlling shareholder, and related directors and general managers were heavily fined. The chairman was subject to a lifetime ban from the market, while several other directors and senior executives were subject to market bans ranging from 5 to 10 years. The controlling shareholder and concerted action parties were arrested.Overall, the long-term tracked penalties in the market have been implemented.

It's worth noting that not all the intermediary institutions involved appeared in this wave of penalties that has drawn attention from the market and the industry. According to interviews with journalists and public regulations, it was found that this decision was made in accordance with the 'Measures for the Implementation of the Commitment System for Administrative Law Enforcement of Securities and Futures' and is in compliance with the current regulations. The 'Measures' indicate:

Administrative law enforcement commitments refer to the administrative law enforcement method of the China Securities Regulatory Commission to terminate the investigation of the case after the parties under investigation promise to correct the alleged illegal acts, compensate for the losses of relevant investors, eliminate the harm or adverse effects, and have been approved by the China Securities Regulatory Commission upon the parties' fulfillment of the commitment.

On August 30, the CSRC also stated that, in view of the fact that four intermediary institutions have fulfilled their commitments and been approved, the CSRC, in accordance with Article 171 of the Securities Law, Article 15 of the Implementation Measures for the Administrative Law Enforcement Commitment System of the Securities and Futures, has lawfully terminated the investigation of the above-mentioned matters concerning the four intermediary institutions.

The penalties have been imposed, but the compensation is still ongoing. The relevant departments of the CSRC stated that in the future, the fund management companies will also, in accordance with the regulations, release relevant announcements, and eligible investors who have not claimed the compensation in the previous phase of advance payment can continue to apply to the fund management companies for the corresponding commitment compensation. The department heads also stated that,The Zijin Storage case effectively protected the legitimate rights and interests of investors, fully reflecting the comprehensive role of the administrative law enforcement commitment system in relief, punishment, education, and resolution of market conflicts and disputes.

Next, the CSRC will continue to increase the crackdown on illegal and irregular behaviors in the capital markets, strengthen the responsibility of intermediary institutions for gatekeeping, practice the concept of finance for the people, prudently and effectively carry out the administrative law enforcement commitment work in accordance with the law and regulations, better protect the legitimate rights and interests of investors, especially small and medium-sized investors, and promote the high-quality development of the capital markets.

It is noted that, in order to truly protect investors, make the offenders feel the "pain," and make the investors feel the "benefit," the data shows that the CSRC has imposed a total of 638.9 billion yuan in fines in 2023, a year-on-year increase of 140%.

Moreover, data statistics show that in the first half of this year, as many as 74 fines were imposed for violations related to investment banking, with as many as 31 brokerages being fined, and a total of up to 67 underwriters being included in the classification list of representatives of sponsors C (punishment classification).

Investor losses in the Zijin Storage case have been timely and efficiently compensated.

The ZhiJing storage case can be called a milestone case in the history of securities regulation in China. The case is listed as one of the ten typical cases of investor protection by the CSRC in 2024, which mainly reflects that this case is the first case to apply the administrative enforcement commitment system after the amendment of the Securities Law in 2019.

In May 2023, CSC and other intermediaries jointly invested to establish the ZhiJing Storage incident advance compensation special fund. The China Securities Investor Protection Fund Limited was entrusted as a third-party neutral institution to act as the special fund manager, responsible for the management and operation of the fund. From a timeline perspective, the key point at which the administrative enforcement commitment system proved effective was the end of 2023.

At that time, on December 29, the CSRC and Guangdong ZhiJing Information Storage Technology Co., Ltd., suspected of dereliction of duty in the fraudulent issuance and illegal disclosure of information by CSC, Zhitogether Accounting Firm (Special General Partnership), Rongcheng Accounting Firm (Special General Partnership), and Guangdong Hengyi Law Firm, among other four intermediaries, signed commitment acceptance agreements. Currently, the CSRC's official website has also centralized the disclosure of the commitment acceptance agreements signed by the four intermediaries.

According to the agreement, the four intermediaries jointly paid approximately 1.275 billion yuan in commitment deposits. In addition to the approximately 1.086 billion yuan of investor losses paid in advance, they also need to pay approximately 0.189 billion yuan in commitment deposits to the commitment fund management institution, which includes the approximately 11.79 million yuan of unpaid investor losses, and carry out self-examination and rectification as required, and hold relevant individuals accountable, and submit written rectification reports.

In terms of speed, the advance compensation work was completed efficiently within three months, with a total declared effective compensation amount of approximately 1.086 billion yuan, accounting for 98.93% of the total compensation amount, and a total declared effective compensation of approximately 16,986 persons, accounting for 97.22% of the total compensation persons. The CSRC pointed out that the number of applicants, the amount of compensation, and the settlement rate of investors were the highest in the history of advance compensation work, and various work was smoothly completed, achieving good results.

Overall, the ZhiJing storage advance compensation case achieved an effective combination of administrative enforcement and civil compensation, saving judicial resources and improving law enforcement efficiency. By promptly compensating for investor losses and timely resolving related civil disputes at the front end, it achieved the unity of legal and social effects.

The impact remains, and negative information about the practice of insurance agents will be disclosed.

The subsequent impact of the penalty is still there. Reporters recently reported that the China Securities Association is improving the mechanism for publicizing negative evaluations of sponsoring representatives. The classification list of sponsoring representatives will be further strengthened with the addition of a new category D (suspension of business) on the basis of the existing A, B, and C lists, to further enhance the reputation constraint of sponsoring representatives.

In the future, the list will include those who have been subject to administrative penalties by the China Securities Regulatory Commission in the last three years, as well as those who have been determined by the China Securities Regulatory Commission as unsuitable candidates or temporarily not accepted for documents related to administrative permits and other administrative supervision measures, disciplined by industry self-regulatory organizations as unsuitable for related businesses, or temporarily not accepted for signing or handling relevant business documents, and the list of sponsoring representatives during the execution period.

It can be seen that two insurance agents have been identified as unsuitable candidates and are not allowed to hold positions related to the securities underwriting business of securities companies within three years from the date of the decision on the administrative supervision measures, or to actually perform the above-mentioned duties.

For the subsequent public disclosure of individual information about insurance agents, the responsibility of the investment bank's 'gatekeepers' will be further strengthened, and the reputation constraint on sponsoring representatives will be reinforced, implementing the 'declaration equals responsibility' requirement.