Dozens of China-based insurers under investigation by sector regulator as securities watchdog's crackdown draws first blood

16 May 2017. By Toh Han Shih.

China's insurance regulator is set to launch a comprehensive crackdown on misconduct in the sector, kicking off investigations of 46 insurers alongside probes of more than half a dozen banks and agents. Meanwhile, the China Securities Regulatory Commission has announced the first penalties in its first special enforcement campaign of 2017, imposing fines and other sanctions on two listed companies.

The China Insurance Regulatory Commission's so-called "sword-flashing campaign" begins this month. It follows the dismissal of chairman Xiang Junbo over suspected corruption in April, as MLex reported earlier, and a meeting on April 27 at which the CIRC vowed to clean up Xiang's "malignant" legacy.

The CIRC will investigate 26 life insurance firms and 20 property insurance firms, it announced on its website today. It has also widened the scope of its investigative activities to the banking sector with probes of seven banks and agents, bringing the number of companies involved in investigations within and outside China's insurance sector to a total of 53. The regulator's campaign will target insurance firms that mislead consumers and disseminate false information, the CIRC said.

The preparatory stage of the campaign will begin this month, with the implementation stage following from June to October. CIRC investigators will report their findings by Oct. 31, and punishments will be decided by the end of November.

Last December, MLex quoted Steve Vickers, chief executive of Hong Kong risk consultancy Steve Vickers and Associates, predicting that the Chinese government could crack down on life insurance products.

When offences that hurt consumers' interests are discovered, punishment must be strictly administered according to the CIRC's guidelines, the regulator said. "Repeat offenders that refuse to change their ways must be given especially severe penalties," it said.

Not only will those found directly responsible for wrongdoing be punished, but insurance companies and their senior management personnel may also be liable, the CIRC warned. The regulator said it would publicize cases from its campaign to shock insurance companies into toeing the line. The CIRC will also tighten supervision of new business models in the insurance sector and insurance businesses that have overlaps.

Separately, China's securities watchdog recently announced the first set of penalties arising from its first special enforcement campaign of the year, which began on March 24 with nine cases. One penalty was imposed on Shenzhen-listed Jiangsu Zhonglian Electric, which the CSRC alleged had fabricated an overseas project and faked international and domestic trade. Zhonglian Electric's fraud had inflated its revenues by 580 million yuan ($84 million) and profits by 260 million yuan, the watchdog alleged.

The CSRC fined Zhonglian Electric 600,000 yuan and banned some of its executives from Chinese securities markets for three years, some for five years, and some permanently. It also fined some executives, the company disclosed in an announcement on the website of the Shenzhen Stock Exchange on May 13.

In an announcement on the Shenzhen Stock Exchange's website today, Zhonglian Electric said it intended to contest the CSRC's allegations in court. The company also disclosed that it had received queries from the Shenzhen Stock Exchange regarding a project in Pakistan.

Shandong Molong Petroleum Machinery, a company listed in Shenzhen and Hong Kong, was also punished by the CSRC, which alleged that the firm had claimed profits in 2015 and the first three quarters of 2016, when it should have reported losses. Molong's chairman and controlling shareholder, Zhang En Rong, and his son, Molong General Manager Zhang Yun San, sold their shares in the company for 277.5 million yuan and 82.3 million yuan, respectively, during periods when sensitive information was circulating among company insiders, avoiding losses of 20.3 million yuan and 17.9 million yuan, respectively, the CSRC said. The regulator said it had fined Molong 600,000 yuan.

The CSRC fined Zhang En Rong 61.27 million yuan and confiscated 20.32 million yuan from him, Molong said in an announcement posted on the website of the Hong Kong Stock Exchange yesterday. In the same announcement, the firm said the regulator had fined Zhang Yun San 53.79 million yuan and confiscated 17.93 million yuan from him. The CSRC also fined other Molong executives, the company said, adding that it and its executives had the right to defend themselves against the CSRC's allegations.

	Eliot Gao