Zhang Ye, member of the National Committee of the Chinese People's Political Consultative Conference and deputy director of the Science and Technology Supervision Committee of the China Securities Regulatory Commission: Build a civil compensation liability distribution mechanism in the securities market

Zhang Ye, member of the National Committee of the Chinese People's Political Consultative Conference and deputy director of the Science and Technology Supervision Committee of the China Securities Regulatory Commission, said in an interview with China Securities News on March 2 that it is recommended to build a mechanism for the allocation of civil compensation liabilities in the securities market.

Zhang Ye believes that the new securities law has been implemented on March 1, 2020. The new Securities Law improves the civil compensation liability for securities tort, especially the joint and several civil compensation liability of controlling shareholders, actual controllers, intermediaries and relevant personnel in fraudulent issuance and misrepresentation, which significantly increases the cost of securities violations. However, the new Securities Law does not directly stipulate how to specifically distribute civil compensation liability between issuers, controlling shareholders, actual controllers and intermediaries. The relevant judicial interpretations of the Supreme People's Court have not yet made clear, specific and consistent provisions on this. The civil adjudications of local people's courts on securities compensation liability have not yet formed a relatively clear and unified standard and position, and there are differences between civil adjudication and administrative punishment in terms of the scope of the subject of responsibility, the size of the liability of intermediary institutions, and the logic of accountability, which may affect the implementation effect of the new Securities Law, and is not conducive to the formation of a capital market ecology in which rights and responsibilities are equal, excessive penalties are equal, and all parties perform their duties.

He said that in order to further implement the "zero tolerance" law enforcement concept, promote the strengthening of the responsibility of intermediary institutions, accelerate the improvement of supporting system rules, and actively create conditions for steadily promoting the reform of the whole-market registration system, it is recommended that the Legislative Affairs Commission of the Standing Committee of the National People's Congress coordinate and promote the Supreme People's Court, together with the China Securities Regulatory Commission and other relevant departments, to thoroughly study and accelerate the establishment of an implementation mechanism for the distribution of civil compensation liabilities in the securities market, and to revise and improve the "Several Provisions on the Trial of Civil Compensation Cases Arising from False Statements in the Securities Market." Judicial interpretation documents such as the Minutes of the Symposium on the Trial of Bond Dispute Cases by Courts Across the Country have effectively implemented the provisions of the new Securities Law, accurately punished securities violations, and safeguarded the legitimate rights and interests of securities investors.

Zhang Ye suggested that the order of civil compensation liability for pursuing the "first evil" should be established. The new Securities Law stipulates that controlling shareholders, controllers, directors, supervisors, securities companies and service institutions shall bear joint and several liability liability, but the causal force and degree of liability caused by the acts of each entity are not the same. The issuer is the first responsible person for information disclosure, and the controlling shareholder, the actual controller, and the director and supervisor are the "insiders" and have the "first evil" responsibility for fraudulent issuance and information disclosure fraud. If the order of joint and several liability is not distinguished, it will lead to a mixture of responsibilities, which is not conducive to dividing the priority and secondary responsibilities and forming a clear logic of accountability. In practice, the injured investor actively exercises its right of claim against "large households" such as intermediaries based on the different civil compensation capabilities of each entity, which will lead to a mismatch between actual liability and behavior and the degree of fault. It is suggested that in the relevant judicial interpretations, the liability shall be determined in accordance with the order of the issuer, the controlling shareholder, the actual controller, the director, the supervisor, the securities company, and the service agency.

Improve mechanisms for determining defendants in securities civil litigation. Judging from many cases of false statements such as Wuyang Construction, there are differences between the scope of the subjects of false statement liability determined by administrative penalties and judicial judgments, and some intermediary institutions that have not been subject to administrative penalties have been identified as civil compensation liability subjects based on the joint and several liability mechanism. This will lead to some intermediaries bearing uneven administrative and civil liability based on the same behavior. In order to maintain the consistency and fairness of the logic of accountability, it is recommended to establish a defendant determination mechanism in judicial interpretations that is consistent with the logic and scope of responsibility of administrative punishment. The people's courts are allowed to follow the above-mentioned order of responsibility, listing the responsible subjects who have not been prosecuted as defendants, and truly pursuing the main responsible persons.

Clarify the specific principle of proportional liability of the parties. The civil liability for compensation such as fraudulent issuance and misrepresentation established by the new Securities Law does not further clarify the specific principles for the distribution of compensation liability of various parties. According to the principle of equal rights and responsibilities and equal penalties, the compensation liability borne by different responsible entities (including each intermediary institution) should match the degree of their tortious acts and subjective fault. It is suggested that the judicial interpretation should make it clear that the people's court shall clearly determine the proportion of compensation liability of each subject based on the circumstances of each subject's illegal conduct, the degree of subjective fault, and the size of the causal relationship with the loss caused by the false statement.

Clarify the requirements for determining the presumption of fault in joint and several liability. The new Securities Law stipulates the principle of presumption of liability for fault of controllers, directors, supervisors, securities companies and service institutions. However, in a small number of judicial judgments, the people's courts have a general presumption, that is, starting from the fact that the issuer has misrepresented the fact that the intermediary is itself, directly infers that the intermediary is at fault, and does not identify and respond to the evidence that the intermediary is not at fault. Under the trend of securities civil compensation litigation with administrative punishment as a precursor procedure, it is suggested that the judicial interpretation stipulates that the people's court shall fully justify the civil liability of all parties in the judgment document in combination with the facts of the case, especially to fully determine and respond to the evidence that the parties are not at fault.