China to Increase Governance Scrutiny of Fund Managers

Securities regulator to revise rulesets and establish a new system to assess quality of corporate governance.

The China Securities Regulatory Commission (CSRC) is planning to improve corporate governance at fund management companies, including an update of various rulesets.

“Good corporate governance is the foundation for ensuring the long-term and healthy development of the industry,” the CSRC said in a notice. The regulator acknowledges improvements in the areas of risk management, compliance and internal controls at fund management firms in recent years.

“A modern corporate governance structure has been established and improved with effective operations of shareholders, board of directors, board of supervisors, and management, and supervision and checks and balances.”

To facilitate further improvements in institutional supervision, the CSRC said it will revise or formulate more specific rules for equity management, internal controls, public fund management, and senior managers.

A key objective for the CSRC is to improve the administration and “effectiveness” of institutional supervision, which it says should be scientific, professional, and continuous.

The CSRC will encourage fund management firms to strengthen the integration of party leadership in their corporate governance systems, improve shareholder management, enhance accountability, and bolster risk management and compliance practices.

In addition, the regulator will seek to improve information disclosures and transparency, including through the establishment of a new evaluation system for assessing the quality of corporate governance practices used at individual firms.

The CSRC already has a similar evaluation system in place for securities firms, which it uses to assess their governance structure, internal control, compliance management and risk management each year.

As part of its work plan for improving governance at fund management firms, the CSRC will ask firms to undertake self-assessments, which will be supplemented by its own on-site inspections.

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