The number of penalties for securities private placement businesses has visibly increased, industry insiders say many of the penalties are related to on-site inspections.

Securities private equity penalties started the year. On January 17, the Anhui Securities Regulatory Bureau disclosed a penalty for Huaan and the head of the custody business headquarters, Liu Jiale. Both the company and the individual were issued warning letters and recorded in the integrity files of the securities and futures market. The penalty clearly pointed out that there were deficiencies in the management of Huaan's private equity fund custody business. Regarding the decision to issue a warning letter to Huaan Co., Ltd. The regulatory requirements stipulate that Huaan should diligently identify and rectify issues, strengthen the study of relevant laws and regulations, enhance internal controls and compliance management in various business areas, hold relevant responsible persons accountable according to the internal accountability system, and submit a written rectification and accountability report to prevent similar incidents from happening again. Specifically, the penalized items are as follows: First, in terms of private equity fund custody business, some system provisions lack viability, some products have lax contract review and access control, inadequate disclosure review, failure to issue custodian reports in regular fund reports, untimely reporting of major events, violating Articles 15, 20, 26 (1), (2), 38 of the Measures for the Administration of Securities Investment Fund Custody Business. Second, in terms of employee management, failure to effectively regulate the behavior of individual employees reflects inadequate compliance management by the company, violating Article 3 of the Measures for Compliance Management of Securities Companies and Securities Investment Fund Management Companies (CSRC Order No. 166). It is worth noting that Huaan also issued a related announcement that evening. Huaan stated that the company would conduct a comprehensive inspection and rectification of the private equity fund custody business in accordance with the regulatory measures, continuously improve business systems, optimize operational processes, standardize business operations, strengthen custody business access review and risk response measures, and improve the standardization and timeliness of custody business information submission. In addition, the company will further enhance internal control capabilities, strengthen compliance culture construction, and promote high-quality development with higher compliance control and professionalism. Financial news reporters combined with Yi Dong and regulatory websites found that there have been more visible penalties for businesses related to private equity since 2024, involving multiple lines such as proprietary trading and asset management, especially private equity asset management business, with a total of more than ten "individual + institution" cases. Reporters found that on the one hand, they were related to on-site inspections, with penalties concentrated on brokerage-related businesses; on the other hand, many private equity asset management business penalties, with some regulatory measures mainly involving products established before the new asset management regulations. In the era of "big asset management," brokerage asset management business is at a critical period of transformation. The core penalties fall into two categories: Irregularities in private equity asset management business: Some securities firms have issues such as irregular investment management in private asset management business, inadequate implementation of stock inventory management systems, imperfect net asset management, insufficient information disclosure, and untimely adjustment of investment target inventories, such as Huajin Securities, Guosen, etc. Incomplete internal control mechanisms: The subsidiary of a private equity investment fund has incomplete standardized rectification, some individual private equity funds invested by the alternative investment subsidiary have investment targets beyond the business scope, and the information isolation wall system is not well implemented, such as Changcheng Guorui Securities, Haitong, Guosen, etc. Among them, the number of penalties related to private equity fund custody business has not been high since 2024, in addition to the newly penalized Huaan, there is also Zhongtai. In February 2024, Zhongtai's Hunan branch and former head Yang Wenming had the following issues while conducting business: providing investment advice conflicting with the interests of private equity fund custody business, directly recommending private funds that are not issued or sold by Zhongtai, obtaining commissions directly by introducing clients or relatives to other institutions, providing undisclosed information about the company's custody products, lack of WeChat group management, incomplete mobile phone registration information, and improper management of fixed assets. Based on the relevant violations, administrative supervisory measures were taken to issue warning letters. Industry insiders believe that Huaan's penalty issue may have stemmed from the custody of a private equity fund at Huaan, and the CSRC discovered a series of issues through its investigation, rather than just scrutinizing the custody process. Financial news comprehensively compiled penalties related to private equity-related businesses since 2024, including asset management and proprietary trading as follows: Category one: At least 11 securities firms have violations in private equity asset management. These regulatory measures mainly involve products established before the new asset management regulations. In the era of "big asset management," brokerage asset management business is at a critical period of transformation. Overall, after the issuance of penalties, securities firms have conducted self-inspections on related businesses, will further strengthen management work, comprehensively enhance the standardized professional awareness of practitioners, and vigorously promote the rectification of the issues involved. In the long run, it is still a long way to go to establish and improve relevant internal control mechanisms. On January 10, 2024, First Capital Securities was issued a warning letter as an administrative supervisory measure. Issues in the conduct of private equity asset management business included inadequate net asset management of some asset management plans, insufficient information disclosure of some asset management plans, untimely adjustment of investment target inventories, and inadequate deferral of payment of compensation for some key employees. On January 8, 2024, China Post Securities was issued a warning letter as an administrative supervisory measure, and one of the violations was that the criteria for FOF product managers and fund pool entry standards for private equity asset management business were not clear; some stocks entered the pool did not meet the company's criteria for entry into the pool; forced redemption was carried out for several clients on non-redemption days; investment consulting services provided without informing consultants of their qualifications; imperfect verification mechanism for related parties; and imperfect continuous tracking evaluation mechanism for selling financial products. On December 20, 2024, Huajin Securities was ordered to correct its actions as an administrative supervisory measure, and the then vice president in charge of asset management business, Jin Kuihua, was issued a warning letter as an administrative supervisory measure. Among the violations were: (1) irregular investment management in private asset management business, insufficient active management in some single asset management plans; (2) inadequate implementation of share inventory management system in private asset management business. On July 5, 2024, Guosen was ordered to correct its actions and suspend the filing of new private equity asset management products for three months.Excluding products newly issued for the investment of existing products, in the administrative supervision measures (excluding additional investments), the company has the following problems in its private equity asset management business: First, some products have characteristics of channel business, lacking active management; Second, the rectification of the new asset management regulations is not implemented, and there are still large-scale asset management plans that are essentially non-net worth channel products; Third, some products provide convenience for other financial institutions to operate funds pool-type wealth management businesses illegally; Fourth, there are problems such as careless authorization of product investment limits, insufficient objectivity of bond rating methods, and inadequate investor suitability management.Meanwhile, Guosen's executive in charge of private equity asset management business, Yuan Chao, was subject to regulatory talks, and product managers Ma Qian and Ling Ling were issued warning letters. On May 11, 2024, Huatai's subsidiary Huatai Fund Management was issued a warning letter. Company violations: first, the funds that were supposed to support private enterprises' asset management plans for relief purposes did not reach the required ratio, reflecting the company's lack of cautious and diligent operation; second, due diligence on counterparties was not sufficient. In the process of handling stock pledge repurchase transactions for individual clients, the company failed to conduct careful due diligence on the counterparties. At the same time, Zhu Qian, an executive in charge of related businesses at Huatai Fund Management, was subject to administrative regulatory measures involving issuing warning letters. On May 11, 2024, Haitong's subsidiary Haitong Fund Management was issued a warning letter. Company violations: first, the funds allocated to support private enterprises' asset management plans for relief purposes did not reach the required ratio, and the relief management plan collected fees in violation of regulations, which did not comply with the operating guidelines for supporting private enterprises' asset management plans in the securities industry. This reflected the company's lack of cautious and diligent operation and failure to adhere to the principle of honesty and credit. Second, the relief management plan was not managed properly, leading to imprudent investments and failure to effectively prevent and control risks. At the same time, Xu Yi, an executive in charge of business at Haitong Fund Management, and Yu Jian, an investment manager at the time, were subject to supervisory measures involving issuing warning letters. On May 6, 2024, Kaiyuan Securities was subject to corrective administrative regulatory measures. The company's then Deputy General Manager Wu Huailiang and the related fund investment manager Chen Lu were issued warning letters. In April 2022, as the manager of a related single asset management plan, Kaiyuan Securities failed to fulfill its active management responsibilities sufficiently and did not effectively prevent the issuer from subscribing to bonds issued through the asset management plan. On February 9, 2024, Zhongshan Securities was subject to corrective administrative regulatory measures. The company's private equity asset management business had inadequate control mechanisms for related-party transactions, internal controls were not strict in establishing and maintaining investment pools, investment decisions, and trade execution, and there were deficiencies in compliance management of product promotion, management fee rate setting, and information disclosure. The deferred payment mechanism for compensation and related systems for private equity asset management business were either incomplete or not timely updated and effectively implemented. At the same time, Zhao Bo, the Vice President and head of the asset management department at Zhongshan Securities, who was responsible for the asset management business at the time, was subject to regulatory talks, and Yuan Ling, the compliance director at the time, was issued a warning letter. Category Two: Violations in private investment business On December 26, 2024, Great Wall Guorui Securities was subject to corrective supervisory measures. One of the violations was that individual projects of the private investment fund subsidiary were not rectified properly, indicating weak compliance awareness and imperfect internal control mechanisms. On April 29, 2024, Haitong was subject to corrective measures. Violations included that the actual investment targets of individual private equity funds invested by the alternative investment subsidiary exceeded the business scope of the alternative investment subsidiary, which did not comply with the regulations for managing alternative investment subsidiaries of securities companies. Shi Jianlong, as the Chairman of the alternative investment subsidiary at the time, and Yu Jiting, as the General Manager of the alternative investment subsidiary at the time, were also issued warning letters. On April 19, 2024, Guosen was subject to corrective measures involving issuing warning letters. One of the violations was the inadequate management of the private subsidiary company, where some products were not filed for operations, and some investment funds were misappropriated by partners. There were also issues such as providing convenience for financial institutions and their managed products to evade regulation, providing outsourced services for unregistered private equity products, and inadequate implementation of information barriers. On March 1, 2024, Central China was subject to corrective administrative regulatory measures, including incomplete rectification of the private subsidiary company. This article is from "Cailian She", GMTEight editor: Liu Xuan.