Caifinance News, November 28th (Reporter Chen Junlan) Ningbo Securities Regulatory Bureau recently disclosed two penalties. As the main sponsor brokerage of National Equities Exchange and Quotations-listed company Youlian Shengye, Swhy underwriting sponsorship and its continuous supervision officer Sun Bingyan received a regulatory warning letter for failing to diligently fulfill their continuous supervision duties. At the same time, Youlian Shengye and 7 senior executives of the company were fined for violating information disclosure regulations.

In recent years, the China Securities Regulatory Commission has emphasized the responsibility of intermediary institutions as 'gatekeepers,' and has strengthened the supervision of investment banking businesses. Due to violations, multiple brokerage investment banking businesses have been issued fines. According to Caifinance News reporters' incomplete statistics, within the year, Sinolink, Csc, Sealand, Guosen, Huaxi, Northeast Securities, Sinolink, Central China, and Minsheng Securities, among others, have received fines for failing to diligently fulfill their duties during the continuous supervision stage.

Faced with frequent fines on brokerage investment banking businesses, in order to further strengthen self-regulation of underwriting institutions' continuous supervision behavior, refine and improve the internal control mechanisms and behavioral standards of continuous supervision practice, recently, under the guidance of the CSRC, the Securities Association of China has drafted the 'Guidelines for Brokerage Firms' Continuous Supervision of Underwriting Business' and initiated soliciting opinions within the industry.

Swhy underwriting sponsorship by Swhy was fined for not diligently fulfilling its duties

Ningbo Securities Regulatory Bureau's penalty on Swhy underwriting sponsorship indicates that upon investigation, there were issues with Youlian Shengye under the supervision of Swhy underwriting sponsorship, such as failure to fulfill the duty of disclosing acquisition information by the listed company, existence of false records in disclosure documents, and improper re-election of the board of directors during the acquisition transition period. Swhy underwriting sponsorship, as the main sponsor brokerage of Youlian Shengye, and Sun Bingyan as the continuous supervision officer failed to diligently fulfill their continuous supervision duties. The Ningbo Securities Regulatory Bureau, in accordance with relevant provisions of the 'Regulations on Supervision and Administration of Non-Listed Public Companies,' took administrative regulatory measures by issuing a warning letter to Swhy underwriting sponsorship and Sun Bingyan, and recorded them in the integrity file of the securities and futures market.

On the same day, Youlian Shengye also received a penalty from the Ningbo Securities Regulatory Bureau. The penalty shows that upon investigation, Youlian Shengye's shareholders Zhang Meisheng, Lu Maoying, Wen Chuanming, Ha Zhihui, Lin Zhiming, Jin Mengyan, Jin Yongguang, and Shanghai Beishi Property Development Co., Ltd. signed the 'Acquisition Framework Agreement' no later than January 25, 2022, with the company seal affixed. The agreement stipulated that Beishi Property would purchase all 5 million shares of the company with cash, which the company did not disclose.

As of now, the aforementioned acquisition transaction has delivered 1.325 million shares through bulk trading and competitive bidding, with the remaining 3.675 million shares yet to be delivered. During the acquisition transition period, Youlian Shengye re-elected the board of directors, with Zhang Meisheng, Lu Maoying, and Wen Chuanming resigning from director positions, and 3 new directors from the acquirer were appointed, exceeding one-third of the total number of board members. During the acquisition period, Youlian Shengye issued multiple 'Abnormal Stock Trading Fluctuation Announcements,' but did not truthfully disclose matters related to the acquisition and equity transfer.

Chairman Zhang Meisheng, directors Lu Maoying and Wen Chuanming, director Jin Yongguang, director and secretary of the board of directors Ha Zhihui, supervisor Lin Zhiming, and Jin Mengyan did not faithfully and diligently fulfill their duties as directors and supervisors of the company, violating the 'Interim Measures for the Supervision and Administration of Non-Listed Public Companies' and bear primary responsibility for the above-mentioned violations by the company. The Ningbo Securities Regulatory Bureau decided to take administrative supervision measures by issuing warnings to Youlian Shengye and 7 senior executives, and to record them in the integrity file of the securities and futures market.

New regulations on continuous supervision of underwriting business are about to be introduced.

Looking at the penalty situation of brokerage investment banks since the beginning of this year, according to an incomplete statistics by Caixin reporter, regulators have issued more than 80 fines, with 19 of them related to the failure to diligently fulfill duties during the continuous supervision phase. Against the backdrop of tighter regulation in the capital market, as an important market participant, brokerages' continuous supervision of underwriting business has received more attention and regulatory requirements.

China Securities Association stated that in the actual practice, some underwriting institutions still have a tendency to "emphasize underwriting and neglect continuous supervision", lack sufficient support for the continuous supervision of listed companies, are superficial in continuous supervision, fail to diligently fulfill duties, and there are issues such as unclear boundaries of continuous supervision responsibilities and lack of uniform daily continuous supervision practice standards that require regulation. Recently, under the guidance of the relevant departments of the China Securities Regulatory Commission, the China Securities Association has organized the formulation of the 'Guidelines for Continuous Supervision of Securities Company Underwriting Business', solicited opinions from brokerages, and requested feedback by December 3, 2024.

The 'Guidelines' provide clear and specific regulations on the daily practice standards of continuous supervision. It details the five aspects that underwriters should verify in fulfilling their responsibilities for continuous supervision, including the use and deposit of raised funds, significant operational changes, the presence of actions that harm company interests, corporate governance and regular operations, and other important matters. It further clarifies the underwriter's obligation to fulfill advisory opinions, conduct regular on-site inspections or special on-site inspections according to the requirements of various stock exchange sectors during the continuous supervision process.

The guidelines also mention two requirements for reporting suspicious activities: underwriters should urge listed companies to provide verification materials, issue explanations, and rectify within a limited period if there are sufficient reasons to believe or suspect that the listed company may be involved in illegal activities or other improper behavior; for serious cases, they should report to the China Securities Regulatory Commission and stock exchanges.

In addition, the 'Guidelines' require underwriters to properly keep drafts of continuous supervision work for at least 20 years; and perform on-site inspections of fundraising and usage by listed companies at least every six months. Industry insiders generally believe that with the implementation of the 'Guidelines', future underwriting business will focus more on quality, strive for quality supremacy, and promote the healthy development of the industry.