The Methodology Of Private Placement Supervision To "Improve The Quality And Limit The Bad": Implement The Two Way Pave Of Inspection And Construction Of Credit

Regulators around the private sector governance action continues to advance.

According to the twenty-first Century economic report reporter, some district financial work bureaus in the area of private institutions comprehensive investigation, require private institutions to fill in the questionnaire and report, this has become a private industry recently intensive to meet regulatory standards of a cross cutting.

On the one hand, the SFC recently announced the special inspection of private equity funds in 2019, saying that it will continue to strengthen the supervision of private equity funds in the future, constantly enhance the risk monitoring and early warning capabilities, and severely punish illegal behaviors and effectively protect the legitimate rights and interests of investors. On the other hand, the China Securities Investment Fund Association (hereinafter referred to as the China based association) has launched more work on the construction of the private credit system, and some local governments have also formed corresponding solutions around the issue of "problem private placement".

In November 21st, people close to the regulators pointed out that the continuous promotion of the strong supervision of private institutions will help promote the healthy development of the private sector in the context of preventing and defusing financial risks and help to optimize the structure of the capital market and foster long-term capital market.

The protracted war of inspection

For private sector regulatory inspections, it is like a protracted war.

According to the notice issued by the SFC on the special inspection conducted by the SFC in 2019, the SFC organized the SFC's transaction compliance, liquidity risk and illegal fund-raising risks to the 497 private sector organizations this year. The effectiveness of the cross regional private sector business and capital transactions, product nesting, business isolation, risk isolation and other systems, and self financing and conflict of interest were examined.

"These are all areas where private equity companies are prone to problems, especially those packaged into private equity businesses and promise investors to expect returns." A private company close to the regulatory level in Shanghai revealed that "there are relatively many private equity agencies in terms of investment operation and product form."

Some private agencies have also shown signs of inspection. For example, some private institutions are suspected of illegal fund-raising and misappropriation of fund assets; some institutions carry out the old and mismatched "capital pool" business, deviating from the source of private equity funds; and some institutions have publicizing and publicizing public offerings, Xiang Fei qualified investors raising, undertaking guaranteed capital preservation, and other illegal collection activities.

"After several years of guidance and development, the overall standard operation level of the industry has been improved." The SFC said, "through inspection, the SFC urged private management institutions to further improve and optimize the organizational structure, compliance risk control, financial management and other systems, publicize the related support policies of venture capital funds, guide institutions to better serve the real economy, and give full play to the positive role of private equity funds in multi-level capital markets."

According to people close to the regulatory authorities, the above inspections cover only 497 private placement agencies. In the future, they will conduct routine inspections and special inspections for more private institutions, and manage the problems identified.

"The special inspection of private placement in 2019 does not exclude that it will continue to develop in the future. This is also a necessary regulatory action to continuously regulate the operation of private institutions and curb the problem of private equity." A private organization close to the regulatory authorities said, "private institutions should not be lucky enough to fail to check on special inspections, and the private sector inspection will be a protracted war."

In fact, the risk investigation around private institutions will also take place in a number of dimensions. For example, the reporter was informed that the Shanghai securities regulatory bureau and Shanghai Pudong Financial Bureau recently launched a comprehensive investigation of the risks of the private sector in Pudong.

"For private sector compliance, different levels of regulatory authorities will also take different checks from different angles. Both the association, the association and the Securities Regulatory Commission attach great importance to the inspection and regulation of private placement." Those who are close to the regulators' private sector said, "some private placement sites may also enter the unregulated institutions because of past policy dividends. Therefore, we should sort out the key risk information from the aspects of geographical distribution, types of private placement and information of real controllers, and lay stress on the regulatory power."

How to encourage "regular army"

At the same time, through the inspection and punishment of regulators to promote the industry's clearing, the risk settlement and credit construction work around the industry is also being carried out.

For example, in September this year, the Shenzhen investment fund trade association formed a reference on the exit operation of Shenzhen private equity investment fund (CAS), focusing on the withdrawal of private equity funds, and advocated that the participants of private equity funds should form an exit plan for private equity funds on the basis of equal consultation, raising the rate of liquidation, reducing asset derogation and effectively resolving disputes.

"Sometimes there is a lack of effective and organized exit mechanism for some existing problems, which leads different holders to push the matter to the judicial process, thus causing the parties to fall into the tragedy of the commons, instead inducing and aggravating the financial risks brought about by private equity products." A private equity agency in Shenzhen said, "some voluntary organizations to put forward standardized risk mitigation solutions for industry problems, obviously help to deal with the problem of information asymmetry and interests can not be balanced when private equity products have problems."

"Some of the private managers who have problems with products are regular, and their own businesses may not be a problem, but the risks of products and underlying assets, and for this type of manager, business is stagnant because of the risk of some products, which is also a great pity for itself." The private sector in Shenzhen said.

In addition, the construction of credit information around the private sector is being further improved.

In November 12th, the China Foundation announced the notice on the work rules of private equity and venture capital fund managers' credit information reporting (Trial Implementation). This means that following the beginning of 2018, private equity firms and venture capital funds, which represent private equity firms, have opened the era of "physical examination" of credit information reports.

In the industry view, the credit information report, as an important part of the private sector infrastructure construction which lacks transparency, will further promote the healthy development of the large private sector, and further promote the industry standard to "improve the quality and limit the bad".

"At present, the credit information reporting mechanism of securities and equity private equity funds has been launched, which will enable private investors to further grasp the relevant information of private managers, and will clearly play a role in clearing up some private equity organizations with problems or compliance problems." Those who are close to the regulators' private sector said, "but for the excellent regular army in the industry, the improvement of credit information can help investors find the managers who are needed and fit more easily, and it can further promote the capital formation of the private sector, and provide more efficient long-term funds for the development of the capital market."