Actively enhance the effectiveness of handling investor inquiries and continuously improve the level of investor services.
Release date:2017-09-30
In recent years, the Guangdong Securities Regulatory Bureau (hereinafter referred to as the Guangdong Bureau) has regarded handling investor appeals as a key measure in its investor protection efforts. Adhering to the guiding principle of “diligently and responsibly safeguarding investors’ rights and providing warm, meticulous services,” the Bureau has actively fulfilled its investor protection mandate by enhancing the standardization of appeal-handling procedures, establishing diversified channels for resolving securities and futures disputes, strengthening the service functions of appeal-handling windows, and intensifying investor education and publicity. In doing so, it has served as a vigilant guardian and protector of investors’ legitimate rights and interests.
Strive for continuous improvement and rigorously ensure the quality of complaint handling.
Handling investor complaints is directly related to investors’ vital interests. The Guangdong Bureau consistently prioritizes the quality of complaint handling, striving for continuous improvement to ensure that the outcomes stand the test of time and meet public expectations.
To enhance the standardization and sophistication of complaint handling, the Guangdong Bureau has researched and developed an electronic petition-handling system equipped with query, statistical, analytical, and audit-trail functions, ensuring that every complaint and inquiry is processed in strict accordance with prescribed procedures and time limits.
The Guangdong Bureau has implemented a “dual-review, dual-approval” mechanism for addressing investor inquiries: responses to investors are subject to cross-review by the Legal Affairs Division and the relevant business divisions, and must be approved by the bureau leader in charge and the bureau’s top leader, thereby ensuring that such responses are lawful, compliant, reasonable, and easy for investors to understand and accept.
The Guangdong Bureau’s lead department for handling public appeals prepares a daily “Complaint and Report Daily Report,” which communicates to the relevant business divisions the concerns raised by investors on that day and requests that these matters be given due attention in routine regulatory oversight. For significant and complex appeal cases, the reports are submitted directly to bureau leadership for personal review, supervision, and quality control; over the past three years alone, the principal officials of the Guangdong Bureau have issued more than 100 instructions, requiring the relevant divisions to conduct thorough investigations and ensure that such matters are handled appropriately in accordance with the law.
In light of common complaints and inquiries, the Guangdong Bureau has, on the basis of continuous experience accumulation, formulated standardized response guidelines covering 17 types of business and more than 60 categories of issues. Each guideline has been thoroughly discussed and meticulously refined to ensure accurate interpretation of policies and clear, unambiguous guidance, thereby providing meaningful assistance to investors.
Enthusiastic service, proactively addressing the concerns and challenges of small and medium-sized investors.
“Lying in the official quarters, I listen to the rustling bamboo—could it be the plaintive cries of the people’s hardships?” The head of the Guangdong Securities Regulatory Bureau frequently stresses that, to effectively implement the Party’s mass line in securities regulation, it is imperative to thoroughly reform work styles, strengthen the sense of public service, and truly treat investors as family and regard their difficulties as matters of the household. In daily visitor receptions, the bureau requires its staff to adhere to the standard of “a warm smile, a friendly greeting, a cup of hot tea, and a comfortable stool” when engaging with investors, so that investors can genuinely feel the warmth and care of the regulatory authorities.
In its daily reception of public inquiries, the Guangdong Bureau has adopted a “zero-rejection” working principle: no investor complaint, inquiry, or request for assistance may be simply dismissed. For legitimate requests that fall within the Bureau’s remit, it mandates thorough handling, clear explanations, and effective support; for matters outside its jurisdiction, it is equally obligated to provide investors with explicit guidance. To this end, the Guangdong Bureau has compiled and maintained a list of nearly 70 complaint and reporting hotlines across relevant departments, making them readily accessible for investors’ reference.
Currently, the Guangdong jurisdiction is home to 14 million investors, accounting for approximately one-tenth of the national total. Given the high level of trading activity among these investors, a corresponding number of issues and disputes arise in the course of their transactions. The Guangdong Securities Regulatory Bureau deeply empathizes with the various challenges faced by small and medium-sized investors and has been proactively extending a helping hand.
For example, an investor named Bi deposited a securities certificate worth several thousand yuan with an institution in Jinzhou, Liaoning Province, 20 years ago. He is now requesting coordination with a local securities firm that has taken over the institution to verify the details of the account and process the redemption. Despite numerous challenges, including the passage of time and incomplete historical records, the bureau has nonetheless actively coordinated with the relevant securities firm to thoroughly verify the account information and ultimately complete the redemption.
For example, investor Mr. Hu reported that he opened an account many years ago at a securities branch in Guangzhou, but has since returned to his hometown in Ningxia and now has limited mobility, making it difficult for him to close the account. Upon learning of the situation, the Guangdong Securities Regulatory Bureau promptly coordinated with the Ningxia branch of the relevant securities firm to assist the investor in smoothly closing his account.
The working principle of “stepping in to help those in need and serving the public” has been seamlessly integrated into the Guangdong Bureau’s daily operations and has become a conscious practice for every regulatory official. Sincere dedication has bridged the gap between investors and the Guangdong Bureau; in 2014 alone, the Bureau received over a hundred thank-you calls from investors, with some even presenting honorary banners as a token of their appreciation.
Innovate mechanisms and establish diversified dispute-resolution mechanisms.
In today’s capital markets, where the landscape of interests is complex and investor demands are increasingly diverse, it is difficult to effectively address the sheer volume of investor grievances with limited administrative resources. In response, the Guangdong Securities Regulatory Bureau has adopted a proactive approach by channeling pressure onto market participants and leveraging the strengths of industry associations, arbitration institutions, and judicial authorities to build a diversified mechanism for resolving securities and futures disputes.
According to incomplete statistics, in 2014, under the supervision of the Guangdong Securities Regulatory Bureau, securities, fund, and futures operating institutions within its jurisdiction alone compensated over 900 investors for losses totaling nearly RMB 5 million through negotiation and mediation, while litigation and arbitration resulted in compensation exceeding RMB 16 million.
As early as the beginning of 2014, the Guangdong Securities Regulatory Bureau issued a notice to listed companies and securities, fund, and futures operating institutions within its jurisdiction, requiring them to further refine their complaint-handling mechanisms in accordance with the spirit of Document No. 110 [2013] issued by the General Office of the State Council, earnestly assume primary responsibility for handling complaints, address potential sources of conflict at the earliest stage, and resolve complaint-related disputes at the grassroots level.
The Guangdong Securities Regulatory Bureau has guided the Guangdong Securities and Futures Industry Association in establishing the Guangdong CSRC Investor Services and Dispute Mediation Center, which has appointed 45 mediators well-versed in securities and futures business and relevant laws. The Center employs a combined approach of summary mediation and standard mediation to resolve various types of disputes, successfully mediating a total of 293 securities and futures disputes throughout the year. In addition, the Center has launched an investor dispute hotline—a dedicated line for receiving investor inquiries and handling dispute mediation—and has assigned dedicated staff to answer calls, record details, and provide responses. Furthermore, the Guangdong Securities Regulatory Bureau has signed a memorandum of understanding on the linkage between litigation and mediation with the Guangzhou Intermediate People’s Court, making arrangements for matters such as judicial confirmation of mediation agreements to ensure their effective enforcement.
In the first half of 2013, the Guangdong Securities Regulatory Bureau’s complaint-handling window suddenly received a surge of calls from investors seeking information on civil compensation claims arising from false statements by Foshan Lighting. Upon learning of this situation, the Bureau promptly assembled a team to develop relevant guidelines for protecting investors’ rights, answered questions from more than a hundred investors, and advised them to either retain lawyers or file lawsuits directly with the courts to seek compensation. During the course of the litigation, the Bureau leveraged its professional expertise by submitting to the court a proposed methodology for calculating damages for its consideration, while also holding meetings with Foshan Lighting’s senior management and urging the company to proactively cooperate with the judicial process to facilitate the smooth conclusion of the case. With the Bureau’s vigorous advocacy, in November 2014 the competent court issued a first-instance judgment in the case, ordering Foshan Lighting to compensate the initial group of 930 investors a total of RMB 59.31 million. Thus, what had been the largest civil compensation claim in the A-share market over the preceding seven years was finally settled at the first instance.
Proactive Risk Prevention: Linking Complaint Handling with Investor Education
Information asymmetry, particularly the insufficient knowledge and information available to small and medium-sized investors, is a major root cause of the high incidence of illegal securities and futures activities. Since 2013, the Guangdong Securities Regulatory Bureau has established a regular mechanism for analyzing investor complaints, systematically reviewing risk-related issues collected in the course of complaint handling on a monthly basis, and compiling public-service advisories. These advisories are then disseminated simultaneously to a broad base of investors via text messages, WeChat, and trading software platforms of more than 800 securities and futures firms operating within the jurisdiction.
According to statistics, in 2014 alone, the Guangdong Securities Regulatory Bureau issued a total of nine public-service announcements on risks associated with illegal securities activities and six on significant risks in market operations, reaching a cumulative audience of 75 million investor engagements.
Based on this information, the Guangdong Securities Regulatory Bureau has outlined the manifestations and harmful consequences of illegal activities such as unauthorized securities consulting and securities professionals engaging in discretionary trading on behalf of clients. It has also cautioned investors about the legal risks associated with purchasing private equity funds and wealth management products, while simultaneously making public the most recently identified list of illegal consulting firms. This proactive approach enables investors to promptly identify and stay informed about significant market risks, thereby fostering a widespread public backlash against illegal securities activities—akin to “a rat crossing the street, met with cries of ‘catch it!’ from everyone.”
To align with the reading habits of investors in the information age, the Guangdong Securities Regulatory Bureau has limited public-service text messages sent to mobile phones to no more than 80 characters and public-service messages displayed on trading terminals to no more than 150 characters, aiming to ensure that investors can “read them in ten seconds and retain a lasting impression within one minute,” thereby enhancing their receptiveness. According to random interviews with investors, as many as 90% reported that they “remembered” or had “paid attention to” such public-service information.
The “complaint handling–investor education coordination” working mechanism has yielded positive results. For instance, in cases involving illegal activities, the Guangdong Securities Regulatory Bureau saw an 84.7% year-on-year decline in the number of related complaints and reports in 2014, while investors’ ability to identify illegal securities activities and protect themselves has significantly improved.
(Contributed by the Guangdong Securities Regulatory Bureau)
Case 1:
Multiple demands converge; challenges are tackled one by one.
A listed company in Guangdong Province plans to extend entrusted loans totaling several hundred million yuan to its equity-participated subsidiary, with interest rates no lower than 115% of the prevailing benchmark rate. On May 24, 2014, the company issued a relevant announcement and scheduled an extraordinary general meeting for June 10, at which the proposed resolution will be considered and voted on through an in-person meeting.
Following the announcement, small and medium-sized investors generally believed that the transaction offered an excessively low rate of return and raised suspicions of benefit transfer. At the same time, Company A still had outstanding bank loans with higher interest rates, which would adversely affect the listed company’s earnings. Consequently, numerous investors urged Company A to enable online voting to facilitate the exercise of voting rights by the broad base of small and medium-sized shareholders; however, Company A refused, citing the absence of explicit regulatory requirements in this regard. Subsequently, several investors repeatedly called the Guangdong Securities Regulatory Bureau to make the same request.
The Bureau promptly urged Company A to assume primary responsibility for handling the complaint and pointed out that, although regulatory provisions do not explicitly mandate the use of online voting for such matters, the General Office’s “Opinions on Further Strengthening the Protection of the Legitimate Rights and Interests of Small and Medium-Sized Investors in the Capital Market” expressly encourages listed companies to adopt online voting as the standard method for convening shareholders’ meetings. The Bureau expressed the hope that the company would re-examine this issue. Under the Bureau’s guidance, Company A issued a supplementary announcement on May 29, adding online voting as an option for shareholder resolutions, thereby addressing the concerns of small and medium-sized investors.
No sooner had one wave subsided than another arose: investors once again contacted the regulatory authorities, voicing two requests—first, that Company A provide a detailed disclosure of the borrower information contained in the current proposal; and second, that the company’s controlling shareholder recuse itself from voting on the proposal. In response to the regulators’ requirements, Company A issued an announcement on June 6, supplementing its earlier, less-than-fully-disclosed disclosures with additional information on the borrower’s financial condition and equity structure.
To foster harmonious shareholder relations, on the day of the shareholders’ meeting vote, the company’s largest shareholder voluntarily recused itself from voting, despite no statutory or regulatory requirement mandating such action. As a result, the relevant proposal was not adopted, with 93.68% of votes cast against it, despite active opposition from minority and small shareholders.
As a result, small and medium-sized investors have effectively participated in the company’s major investment decisions, fully playing an active role in modern corporate governance; all their concerns have been addressed, and tensions with the controlling shareholder have been eased.
This case offers at least two key lessons: (1) Small and medium-sized investors are increasingly attentive to the exercise of their rights, including voting rights, participation rights, and oversight rights. As public companies, listed firms should patiently listen to the concerns of small and medium-sized investors and respect their right to express their views when making major decisions. (2) Practice has demonstrated that facilitating online voting channels helps ensure that small and medium-sized investors can lawfully exercise their rights. Subsequently, the China Securities Regulatory Commission issued the Rules for General Meetings of Listed Companies, which explicitly stipulate that such meetings shall, in accordance with the law, employ online voting and other methods to enable small and medium-sized investors to conveniently and efficiently exercise their shareholder rights. Investors, for their part, should actively participate in voting, express their views in a rational and orderly manner, and make their voices heard, all while safeguarding their own interests in a lawful and compliant way.
(Contributed by the Guangdong Securities Regulatory Bureau)
Case 2:
Risk misalignment should not be tolerated; proactive accountability should be commended.
In June 2014, the Guangdong Securities Regulatory Bureau received an anonymous complaint from an investor alleging that a branch of a securities company within its jurisdiction had engaged in violations during the sale of the “A Bond-Type Securities Investment Fund,” including exaggerating returns, concealing risks, and promoting and selling the fund to investors who lacked the requisite risk tolerance, ultimately resulting in substantial losses for a large number of investors.
Upon receiving the complaint, the bureau immediately dispatched personnel to the securities branch for on-site verification and, during the verification process, briefed the securities firm’s headquarters on the relevant details. The firm took the matter very seriously and acted promptly: on the one hand, it reassured investors and urgently allocated risk compensation funds to the relevant branch; on the other hand, it conducted a comprehensive self-examination of the suitability of the product’s sales, with particular focus on product rating, marketing materials and messaging, and customer risk matching.
Self-inspection revealed that the fund product was assigned a “low-risk” rating in the company’s internal risk assessment, meaning it should only be sold to clients with a risk tolerance of “conservative” or higher. However, in actual sales practice, hundreds of clients with a risk tolerance below “conservative” were sold the product without undergoing the required risk confirmation process, and the subscription amounts involved were substantial.
The Company further analyzed that the root causes of this severe suitability mismatch are as follows: First, when the Wealth Management Headquarters issued the sales notice for the fund, it failed to clearly communicate the fund’s risk rating to each branch. Second, there are deficiencies in the information system: although the Company offers both over-the-counter and on-exchange subscription channels for the fund, the on-exchange subscription client does not automatically match investors with the appropriate risk profile or prompt them to confirm their risk tolerance. As a result, investors who subscribe through the on-exchange channel must rely on manual suitability matching and confirmation at the branch level; moreover, due to incomplete information and inadequate adherence to established procedures, some branches have failed to conduct prudent product–investor alignment or to fulfill their obligations to provide adequate risk disclosures and obtain explicit investor confirmation. Third, certain branches have violated Company policies by hiring unqualified personnel to engage in fund product sales, thereby undermining the compliance and professionalism of sales activities.
Based on the foregoing factors, the Company believes that deficiencies in the control of each process and stage within its own suitability assessment system collectively resulted in the occurrence of suitability mismatches, and therefore the Company should bear primary responsibility.
Based on the findings of the self-inspection, the company issued risk warnings and downgraded the performance ratings of the internal departments responsible, and imposed disciplinary measures on the individuals held accountable, including public censure and deduction of bonuses.
Meanwhile, in order to compensate investors for their losses and safeguard their legitimate rights and interests, the company has proactively offered a range of remedial measures for investors to choose from, including the successive launch of three tranches of pooled asset management plans to facilitate product alignment with the original funds. For clients who are unwilling to accept the product-alignment arrangement, the company provides direct financial compensation based on the extent of their losses; to date, it has compensated a total of 120 clients, with aggregate payouts reaching RMB 1.05 million. The company further stated that any subsequent complaints arising from similar circumstances will be settled according to the same compensation standards, ensuring that investors whose rights have been infringed receive full and appropriate redress.
Although the company did have certain shortcomings in its suitability management, its proactive acceptance of responsibility after the fact nonetheless deserves recognition. At the same time, this case underscores the following points: (1) Securities firms and their employees must treat “selling appropriate products to suitable investors” as an inherent obligation, resist the temptation of improper gains, and strengthen employee performance evaluation mechanisms to prevent a situation in which business priorities are prioritized at the expense of compliance with suitability obligations. (2) Securities firms should reinforce the development of suitability-management systems and processes, particularly by enhancing the digitalization of investor risk assessments and product–investor matching, so as to eliminate human error that could lead to misalignment between risk and investment objectives. (3) Investors should cultivate a rational investment mindset: when purchasing mutual funds or wealth-management products, they should not rely solely on sales personnel’s one-sided claims, but instead thoroughly and carefully review key information such as the product’s risk–return profile and subscription/redemption terms, and make informed, rational choices of financial products that align with their own financial goals and risk tolerance.
(Contributed by the Guangdong Securities Regulatory Bureau)
Case 3:
Errant Stock Recommendations Lead to Disputes; Apology and Compensation Follow
In August 2014, Mr. Tan, a client of a securities branch within the jurisdiction, filed a complaint with the Guangdong Securities and Futures Association (hereinafter referred to as the “Association”), alleging that, under the persuasion of Mr. Zhang, an employee of the branch, he opened a securities account and, at Mr. Zhang’s vigorous recommendation, purchased a certain stock, resulting in losses. Subsequently, Mr. Zhang recommended futures hedging products to Mr. Tan, claiming they would generate returns to offset the earlier stock losses, and even promised to compensate for the losses. However, after losses also occurred in the futures account, Mr. Zhang failed to honor his promise to provide compensation, and negotiations between Mr. Tan and the branch where Mr. Zhang was employed proved unsuccessful.
With the consent of both parties, this case shall be mediated by a mediator appointed by the Association. Upon investigation, Mr. Zhang acknowledged that he does not hold the qualification of a securities investment advisor; he had, based on a research report issued by a certain company, recommended stocks to Mr. Tan and, relying on his own judgment, provided advice on futures investment products and trading directions. However, he denied ever making any guarantees regarding investment returns or undertaking any obligation to compensate for losses.
Meanwhile, the branch also submitted relevant evidence demonstrating that its day-to-day management of employees and marketing personnel was compliant and diligent, and that it had provided clients with adequate risk disclosures and reminders regarding restrictions on employee professional conduct.
Furthermore, Tan and Zhang were once very close personal friends, which is why Tan placed great trust in Zhang’s investment advice. Zhang, in turn, believes that, as a friend, Tan may have been somewhat informal in his communication when offering investment recommendations and did not fully adhere to the professional language standards expected of a securities industry practitioner, thereby giving rise to Tan’s misunderstanding.
Under the mediator’s analysis and persuasion, both parties made certain concessions and reached the following consensus: First, Zhang shall apologize to Tan for the losses incurred as a result of the relevant investment advice. Second, Zhang agrees to pay Tan a specified amount of financial compensation. Ultimately, the two parties signed a mediation agreement under the mediator’s auspices.
This case teaches us the following lessons: (1) Securities firms must strengthen their oversight of investment advisory services and strictly prohibit unauthorized securities trading recommendations from non-securities investment advisors. (2) Securities professionals must clearly distinguish between personal relationships and their professional duties, properly manage relationships with relatives and friends who become clients, and maintain adherence to professional standards and ethical conduct. (3) Investors should cultivate a rational investment mindset, refrain from blindly following others’ advice when buying or selling stocks or futures, and instead make well-considered investment decisions only after thoroughly and meticulously reviewing all relevant information.
(Contributed by the Guangdong Securities and Futures Association)
Case 4:
Failure to provide notice prior to forced liquidation entails liability for any resulting losses.
The Guangdong Securities and Futures Association (hereinafter referred to as “the Association”) received a complaint from Mr. Zhang, a client of a certain futures brokerage branch, alleging that at 9:07 on December 1, 2014, the branch forcibly liquidated his position of 24 contracts of soybean oil Y1501 without prior notice, thereby causing him losses. Mr. Zhang contends that the branch engaged in unauthorized trading practices and requests the Association to intervene and resolve the matter.
The Association promptly notified the branch of Mr. Zhang’s complaint and instructed the branch to contact the investor without delay, provide a thorough explanation, and handle the matter appropriately. Upon investigation, it was found that on November 28 of that year, overseas market prices plummeted, causing domestic soybean oil futures contracts to approach the daily limit-down upon the opening on December 1. As a result, Mr. Zhang’s risk ratio surged, and his margin ratio fell below the exchange’s required level. To effectively manage the risk, the company’s risk-control personnel immediately executed a forced liquidation. Following an internal review, the company acknowledged that it had borne some responsibility and accordingly apologized to Mr. Zhang, provided compensation for his losses, and offered preferential commission rates. Mr. Zhang expressed satisfaction with the outcome.
This case teaches us the following: (1) Before initiating a forced liquidation, futures business entities must first notify clients through reasonable and effective means, giving them a specified period under the contract to either deposit additional margin or close out their positions on their own. Article 35, Paragraph 2 of the Regulations on the Administration of Futures Trading stipulates: “When a client’s margin is insufficient, the client shall promptly deposit additional margin or close out the position on their own. If the client fails to deposit additional margin or close out the position within the time limit prescribed by the futures company, the futures company shall forcibly liquidate the client’s contracts, and the client shall bear all related costs and losses arising from such forced liquidation.” Moreover, the futures brokerage agreement entered into by both parties explicitly provides that the futures company must notify the client prior to carrying out a forced liquidation. Therefore, if a futures company fails to fulfill its notification obligation, it shall bear the corresponding civil liability. (2) Futures trading is a quintessential form of margin trading, and forced liquidation is a risk-mitigation and risk-management measure unique to futures trading. In light of this, futures business entities must provide adequate investor education and risk warnings to clients to ensure that appropriate suitability measures are effectively implemented.
(Contributed by the Guangdong Securities and Futures Association)
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