The China Securities Regulatory Commission makes a major announcement: China's first administrative regulation on listed company supervision is here!

On December 5, the China Securities Regulatory Commission (CSRC) released the "Regulations on the Supervision and Administration of Listed Companies (Draft for Public Comments)" (hereinafter referred to as the "Regulations"), marking the arrival of China's first administrative regulation specifically for the supervision of listed companies. The Regulations consist of eight chapters and 74 articles, focusing on improving corporate governance, strengthening information disclosure, standardizing mergers and acquisitions and restructuring, protecting investors' rights, and building a full-chain supervision system, aiming to further improve the regulatory legal framework for listed companies.

The Regulations have dedicated chapters on corporate governance and investor protection, strengthening constraints on key minority stakeholders such as controlling shareholders, actual controllers, directors, and senior executives. In response to illegal actions like financial fraud, the Regulations build a "source prevention + process monitoring + post-event accountability" full-chain mechanism, prohibiting third-party involvement in fraud and setting dedicated penalties.

The Regulations further enhance regulatory support for mergers and acquisitions and restructuring, clarifying key elements such as the definition of acquisition and qualifications of acquirers, and improving the regulatory system for financial advisors. In terms of investor protection, the Regulations require companies applying for voluntary delisting to provide cash options and other protective measures, urging listed companies to shift from "financing" toward "return."

Previously, the regulatory field for listed companies lacked an administrative regulation linking basic laws like the Securities Law and Company Law with the CSRC and exchange regulations. The Regulations fill this gap by systematically integrating requirements scattered throughout various laws, setting norms and boundaries for listed companies. The Regulations further detail and clarify the legal systems of company governance and information disclosure based on the relevant provisions of the Company Law and Securities Law.

According to the CSRC, the drafting of the Regulations is guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, closely adhering to the main themes of risk prevention, strong supervision, and promoting high-quality development, with the goal of improving the quality of listed companies and solidifying the foundation of regulatory enforcement and investor protection.

Comprehensive Governance Upgrade: "Key Minority" Wearing a "Tightening Curse"

The Regulations cover the "entire lifecycle" of listed companies, strengthening full-chain supervision. Regarding corporate governance, a dedicated chapter focuses on regulating listed company governance, emphasizing basic governance structures while placing special focus on "key minorities" by directly regulating the behavior of controlling shareholders, actual controllers, directors, and senior executives.

Specific provisions include: regulating company charters and basic governance structures; regulating the behavior of controlling shareholders and actual controllers; reinforcing directors' and senior executives' duties of loyalty and diligence and improving incentive and restraint mechanisms; clarifying the roles and responsibilities of independent directors and board secretaries, utilizing internal organizational oversight; regulating behaviors such as shareholders pledging shares, proxy voting rights, and holding shares on behalf of others.

The Regulations clearly require listed company boards of directors to establish an audit committee, whose members must not serve as senior management, with a majority being independent directors, and the convener must be an independent director with an accounting background. The audit committee will fully assume the supervisory functions specified in the Company Law, as well as be responsible for reviewing financial information disclosure, overseeing internal and external audits, and internal controls.

Regarding the independent director system, the Regulations mandate that independent directors must account for no less than one-third of the board of directors, including at least one accounting expert. Independent directors are required to focus on supervising significant interest conflicts between listed companies and controlling shareholders or senior executives, and protecting the interests of minority shareholders.

According to Securities Times, industry insiders noted that many governance requirements for listed companies are concentrated in CSRC and exchange-level rules, which have relatively low authority; the Regulations supplement and detail relevant requirements of the Company Law and Securities Law, standardize the provisions of company charters, enhance self-governance and accountability of directors, independent directors, and board secretaries, and promote proper performance by all parties.

Full-Chain Crackdown on Financial Fraud: Heavy Penalties for Third-Party Complicity

In response to the widely condemned financial fraud in the capital market, the Regulations prioritize the prevention and crackdown on financial fraud, creating a "source prevention + process monitoring + post-event accountability" full-chain mechanism to break the fraud chain from a systemic level.

Regarding information disclosure supervision, the Regulations strictly prohibit listed companies from creating false financial statements through fabricated transactions or abuse of accounting policies, requiring periodic reports to be reviewed by a majority of audit committee members before submission to the board, and reports that are not approved cannot be disclosed, creating multiple layers of scrutiny.

To prevent third-party complicity in fraud, the Regulations clearly stipulate that affiliates, customers, suppliers, and service agencies of listed companies must not participate in creating false financial statements and set dedicated penalties. Violators will face fines ranging from 1 million to 10 million RMB, disrupting the "ecosystem" of fraud.

The Regulations also innovatively establish a fraudulent gain clawback system. If a listed company distributes profits or pays compensation based on false financial statements, the board must recover excessive profits from responsible shareholders and excessive compensation or equity from directors and senior executives. Additionally, the Regulations strengthen oversight of related-party transactions, emphasizing their fairness, necessity, and compliance to prevent listed companies from manipulating profits or engaging in systematic fraud via such transactions.

For securities service institutions failing to fulfill diligence obligations, the maximum penalty is five times the business income; for no income or income below 500,000 RMB, penalties range from 500,000 to 2.5 million RMB. In serious cases, institutions may be suspended or banned from engaging in securities service business.

Supporting M&A and Restructuring, Improving Financial Advisor Regulation

The Regulations further strengthen regulatory support for mergers, acquisitions, and restructuring. This revision clarifies definitions of acquisition, acquirer qualifications, equity-change disclosure standards, and refines requirements, procedures, and regulatory mechanisms for major asset restructuring.

The Regulations improve the financial advisor regulatory system, detailing requirements for appointment, duties, and independence of financial advisors, clearly defining their responsibilities and independence, encouraging them to better play a "gatekeeper" role in mergers, acquisitions, and bankruptcy restructuring of listed companies, and support industrial integration and business transformation.

According to Securities Times, Tian Lihui, Dean of the Institute of Financial Development at Nankai University, pointed out that the M&A market is undergoing a profound change from "quantity" to "quality," becoming a "catalyst" for industrial upgrading. While strengthening key regulations and clarifying basic requirements for M&A and restructuring, the Regulations maintain institutional inclusiveness and adaptability, effectively supporting the main channel role of the capital market for M&As and restructuring.

Further Enhanced Investor Protection; More Comprehensive Delisting Mechanism

The Regulations dedicate a chapter to investor protection. In terms of investor returns, the Regulations specify that listed companies have the duty to focus on investment value and take measures to improve profitability and return levels, strictly prohibiting market manipulation and other illegal actions to promote enhanced investment value. Simultaneously, the Regulations further improve mechanisms for cash dividends and share buybacks, guiding listed companies to strengthen their awareness of rewarding investors.

Regarding effective regulatory measures currently practiced, such as market capitalization management, dividends, and buybacks, the Regulations extract and summarize these, embedding them at the administrative regulation level to reinforce the awareness of actively rewarding investors among listed companies and stakeholders, urging companies to internalize the legal requirement to enhance investment value within their systems and take positive action.

For the delisting process, the Regulations stipulate that when listed companies voluntarily apply for delisting, they must provide cash options or other legal protective measures for dissenting shareholders and arrange the transfer of shares after delisting. If shareholders oppose the delisting resolution, they may require the company to purchase their shares.

The Regulations make institutional arrangements to firmly prevent delisted companies from harming investor interests by "fake restructuring" and maliciously avoiding mandatory delisting. The Regulations prohibit any interference with delisting decisions, intensify supervision of illegal delisting avoidance, and utilize the communication and coordination mechanism between the CSRC and the Supreme People’s Court to prevent listed companies with no restructuring value from using restructuring procedures to harm creditors and investors.

The Regulations strengthen the management of listed companies' investment value, require directors and executives to communicate with investors through results briefings and other means, and promote the shift of listed companies from "financing" to "return."

Expert Interpretation: Regulation Enters a New Stage of Rule of Law

According to CCTV News, Tian Lihui stated that this is China's first administrative regulation specifically for listed company regulation, systematically integrating requirements scattered across the Company Law and Securities Law, setting norms and boundaries for listed companies, and primarily focusing on the three keywords of "risk prevention, strong supervision, and promoting development," marking a new, more systematic, rule-of-law stage for listed company regulation.

Securities Times mentioned that Tian Lihui also pointed out that the timing for releasing the Regulations is mature; the revision aligns with the needs of high-quality development for listed companies, providing normative encouragement in areas such as mergers and acquisitions, market capitalization management, and investor returns, as well as reinforcing the strict, law-based tone, clarifying regulatory bottom lines, and promoting listed companies toward high-quality development in a regulated manner.

According to Securities Times, industry insiders said the Regulations, based on regulatory practical experience, focus on improving the precision and effectiveness of supervision to better promote the high-quality development of listed companies. The Regulations are part of implementing the new "Nine National Rules" and the "1+N" policy framework for the capital market. The next steps include gathering public input and other procedures, with the formal release when the time is right.

The CSRC stated it welcomes valuable opinions from all sectors and will carefully study feedback and further revise and improve relevant provisions, adhering to the principles of scientific, democratic, and legal legislation.

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