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China Securities Regulatory Commission
Opinions of the China Securities Regulatory Commission about Tightening Several Internal Control Measures for the Business Departments
of Securities Companies
ZhengJianJiGouZi [2003] No. 261
December 15th, 2003
All securities companies:
With a view to regulating the brokerage of securities companies, strengthening the management of the securities business departments,
preventing risks effectively and protecting the legitimate rights and interests of the investors, in accordance with the relevant
provisions in the Securities Law of the People’s Republic of China and the Guide to the Internal Control of Securities Companies,
it is hereby to put forward the opinions about tightening the internal control of the securities business departments as the following:
I.
To strengthen the personnel management of the securities business department
1.
The responsible persons of the securities business department, the computer section of the securities business department and the
section of finance shall be directly appointed and administered by the head office, and a direct and effective channel shall be established
between the head office and the aforesaid persons.
2.
The responsible persons of the finance section and the computer section of a securities business department shall be liable for supervising
and controlling the legal operations of the securities business department. A securities company shall intensify the annual evaluations
of the responsible persons of the securities business departments, the computer sections and the section of finance of the securities
business departments, and shall report the results to the institutions dispatched by the China Securities Regulatory Commission (hereinafter
referred to as CSRC) where the securities business departments are located for archival purposes before the end of April of the next
year.
3.
The posts of the responsible persons of the securities business departments, the computer sections of the securities business departments
and the sections of finance shall be regularly shifted within the range of a securities company, and the shift period shall not exceed
3 years at most. As for a securities business department that has already adopted the way of centralized transactions, the shift
period may be appropriately extended to 5 years upon the approval of the institution dispatched by the CSRC where the securities
department is located. The other important posts of the securities business department shall, according to the specific circumstances,
be shifted within the range of the securities business department in a planned way. The first to-be-shifted posts shall be taken
by the persons who have already been on the aforesaid posts for more than 3 years.
For a securities company that really has difficulties to shift the posts among the trans-province and trans-district securities business
departments, it may refrain from shifting the posts, but it shall conduct on-the-spot audit on each of the relevant securities business
departments every year, and shall submit an audit report for archival purpose to the head office and the institution dispatched by
the CBRC where the securities business departments is located.
4.
Where the responsible person of a securities business department or the responsible person of the finance section of the securities
business department leaves his (her) post, the head office of the securities company shall conduct audit on him (her). The audited
person shall not leave his (her) post, before the audit is completed. The audit shall include, but not be limited to, the information
about whether the securities business department has ever misappropriated the bonds of its clients or not, whether it has illegal
financing or not, whether it has operations beyond its business scope or not, the complaints of its clients and the treatments, and
the responsibilities of the to-be-audited person in these regards.
5.
A securities company shall adopt the mandatory holiday system to the responsible persons of the securities business departments, the
computer sections of the securities business departments, the finance sections and the sections of clients. During the period of
mandatory holidays, the supervision and inspection department of the securities company may conduct on-the-spot audit on the work
they are liable for. For the securities business departments under no post shift system, they shall combine the mandatory holiday
system with the on-the-spot audit.
6.
A securities company shall strengthen the management of the foreign affairs archives involving the persons who take the key posts
of the responsible persons of the securities business departments. The copies of the passports and identity cards held by the responsible
persons of the securities business departments, the computer sections of the securities business departments, the finance sections
and the sections of clients shall be submitted to the institution dispatched by the CSRC where the securities business department
is located for archival purposes. Their contact information (including but not limited to the mobile phone numbers, fixed telephone
numbers and e-mails), family address and other information shall be submitted to the institution dispatched by the CSRC where the
securities business department is located for archival purposes as well.
II.
To specify the setup of posts and the responsibilities of the securities business departments
1.
A securities company shall establish perfect the post responsibility system and normative business operation procedures for the securities
business departments. It shall specify the tasks, grant each post with corresponding responsibilities and functions and build a working
relationship of cooperating with one another, supervising one another and restricting one another.
2.
A securities company shall actively develop the mode of centralized transactions to control the internal risks of the securities business
departments and decrease the posts that need direct human intermediaries. The key posts of a securities business department shall
establish two-person responsibility system. The posts directly involving the fund, portfolio, important blank vouchers, seals and
safety technologies of information system shall establish two-person responsibility system. The posts involving the clients’ depositing
and drawing money, the transfer of the clients’ transaction settlement fund, depository trust and cancellation of designated transactions
shall establish the two-person responsibility system, that is to say, one shall be liable for the handling of the aforesaid operations
and the other for re-examination.
3.
The securities business department shall adopt a reasonable system of separate responsibilities. The keeping of cash and portfolios
shall be separate from the record keeping of accounts.
(a)
The preservation of important blank vouchers, blank contracts, blank letters of authorization and significant seals shall be separated
from the register and use of them. No seal may be affixed to any blank voucher, contract or letter of authorization in advance, the
head office of a securities company shall regularly check the securities business department about its using, registering and managing
of documents. The securities company shall specify the power and procedures for the use of various kinds of seals, and shall perfect
the responsibility system for the preservation, use and register of seals.
(b)
A securities business department’s front office transactions shall be separated from its back office settlements;
(c)
The confirmation of faults and losses shall be separated from that of cancellation after verification;
(d)
The duties of the computer personnel, the accounting personnel and other operating personnel shall not be overlapped.
III.
Strengthening the centralized management of the clients’ transaction settlement funds
1.
Each securities business department may only open not more than 5 special savings accounts for clients’ transaction funds;
2.
A securities business department shall transfer to the head office of the securities company at least 70% of the clients’ transaction
settlement funds;
3.
The head office of the securities company shall regularly and irregularly check the clients” transaction settlement funds of a securities
business department, and shall make pressure tests by transferring the total amount of the clients’ transaction settlement funds
of a securities business department to the head office of the securities for the time being. For the securities business departments
without adopting the post-shifting system, the securities company shall conduct at least one pressure test every month.
IV.
To establish perfect securities business department audit system and to tighten the audit
1.
A securities company shall establish a real-time monitoring system and a risk pre-warning system, which shall be able to monitor the
activities involving large sums of money and the transactions, and be able to give warnings in the event of abnormal fund flow and
transactions.
2.
The audit section of a securities company shall in principle conduct one on-the-spot audit to the operations of the securities business
department every year (or every two years at most, but shall conduct at least one to the securities business departments without
adopting the post-shifting system). The institutions dispatched by the CSRC may require the securities companies to increase the
number of audits according to their legal operations.
3.
A securities company shall submit the issues discovered in auditing securities business departments to the institution dispatched
by the CSRC where the securities business department is located, shall submit the audit reports on all business departments to the
head office of the securities company for archival purposes, and shall, by the end of April of each year, submit the overall audit
information about the securities business departments in the previous year and the main issues found by it to the institution dispatched
by the CSRC where the securities company is located.
4.
The securities company shall combine the audit results with personnel evaluations to establish a corresponding punishment system,
and shall severely punish various illegal acts in violation of the laws and regulations.
V.
Other requirements
1.
A securities company shall establish a fast response mechanism to the serious emergencies arising in a securities business department.
In the case of a serious accident, if a securities business department is unable to do normal transactions because of technological
failure, natural disaster, difficulties to honor the fund or any other reasons, it shall immediately report to the head office of
securities company and the institution dispatched by the CSRC where the securities business department is located and shall report
to the relevant department of the local government. After the accident is completely handled, a report on the handling of the accident
shall be submitted to the aforesaid departments.
2.
The head office of a securities company shall establish a special department to pay regular return visits to the important clients.
3.
A securities business department shall hang its Securities Operating Institution Operation License and Business License in an eye-catching
place. It shall clearly express in the risk disclosure statement and the contract texts given to the investors that it has no right
to sign any business contract with an investor beyond the operation scope of the Securities Operating Institution Operation License,
and the investor shall sign its name for confirmation.
4.
A securities business department shall put the complaint telephone number, fax, e-mail of the head office of the securities company
and other relevant information in an eye-catching place of its business office so that the complaints of the investors can be reflected
and handled in time.
5.
A securities company shall set down specific securities business department internal control system according to its own actual circumstances,
which shall be submitted to the institutions dispatched by the CSRC where the securities company is registered and where the securities
business department is located.
6.
Where the securities operating institutions fail to complete the business separation, they shall carry out by referring to the requirements
of the present Opinions.
7.
With regard to the requirements for the internal control of the securities business departments subordinated to a securities company
with an overall centralized transaction system, the CSRC shall formulate separately.
Before February 29th, 2004, each securities company shall, in light of the present Opinions, make a post-shifting plan and submit
the plan to the institution dispatched by the CSRC where the registration place is located. In case the institution dispatched by
the CSRC where the registration place is located raises no objection upon examination and approves the plan, the securities company
shall, before March 31st, 2004, submit its post-shifting system and plan to the supervision department of the CSRC for archival purposes,
and shall send a copy to the institution dispatched by the CSRC where each of its securities business departments is located. The
Securities companies shall earnestly carry out the post-shifting system and plan.
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