Two securities firms recently received prior notices of administrative penalties and administrative regulatory measures from local securities regulatory bureaus due to major deficiencies in brokerage business controls, significant faults in implementing the real-name account system, and serious violations of information security regulations.
In addition to fines and orders to rectify, regulators also plan to suspend the two securities firms from opening new securities accounts for three months.
The real-name account system is a critical component of the healthy operation of the capital market. Behind the lending or borrowing of securities accounts, illegal activities such as market manipulation, insider trading, money laundering, over-the-counter margin financing, and discretionary account management often lurk.
The new Securities Law strengthened the real-name account requirements, making it clear that no entity or individual may lend their securities account or borrow another person's securities account in violation of regulations to engage in securities trading.
Securities firms serve as the gatekeepers for account opening and account management. In recent years, multiple securities firms have received warning letters from regulators for inadequate real-name account management. This time, regulators plan to impose administrative penalties on the involved securities firms and responsible individuals, along with administrative regulatory measures suspending new account openings, directly cutting off their channel for acquiring new clients.
This demonstrates that regulatory enforcement of the real-name account system is being upgraded. To further implement the real-name account system, efforts are mainly needed in the following three areas.
First, solidify securities firms' responsibility for full-process account management. Securities firms are the first line of defense for implementing the real-name account system. In the past, some securities firms lowered standards in account opening and customer identity verification to grab market share, even directly linking marketing incentives to the number of accounts opened, planting hidden compliance risks.
In 2023, the China Securities Regulatory Commission issued the Administrative Measures for Securities Brokerage Business, extending securities firms' real-name account responsibilities from the account opening stage to the entire process of account existence, use, and management. One of the reasons the two securities firms were penalized this time was that they failed to effectively fulfill their responsibilities for real-name account use and abnormal transaction management during the verification of abnormal transactions, indicating that their verification processes were merely formalistic.
The suspension of new account openings is a wake-up call from regulators to the industry: compliance is the bottom line for the survival and development of securities firms. Securities firms need to establish a sound mechanism for continuous and dynamic account management, effectively carry out ongoing customer identity verification, historical transaction compliance reviews, and abnormal transaction monitoring, and implement real-name management in every aspect of account opening, use, and management.
At the same time, in internal assessments, incentives should not be simply linked to the number of accounts opened and trading volume. Indicators such as the detection rate of abnormal accounts and the reporting of risk clues can be incorporated into assessment metrics.
Second, strengthen regulatory enforcement and continuously increase the cost of violations. Raising the cost of violations is a key component of implementing the real-name account system. Currently, penalties for lending or borrowing securities accounts are mostly administrative. However, administrative penalties do not exempt civil liability.
According to relevant regulations, if the account borrower engages in insider trading, market manipulation, or illegal margin financing that causes losses to investors, they shall bear civil compensation liability. If the lender knowingly provides the account to a borrower engaged in the above illegal activities, or even participates in profit-sharing, they may bear joint and several compensation liability with the borrower. There have already been relevant judicial precedents in practice.
Notably, the Supreme People's Court is studying the introduction of judicial interpretations on civil compensation for insider trading and market manipulation. In the future, with the implementation of judicial interpretations and the increase in such civil compensation cases, account lenders and borrowers will face not only administrative fines but also civil claims from investors. If criminal law is implicated, they will also face criminal liability.
Once the three-pronged accountability system of administrative, civil, and criminal liability takes shape, the comprehensive cost of illegally lending or borrowing securities accounts for illegal activities will rise significantly, further fostering a market ecosystem where people dare not lend, cannot lend, and are unwilling to lend.
Third, deepen technological empowerment to squeeze the space for illegal activities. Solidifying securities firms' responsibilities and strengthening regulatory enforcement address the issues of responsibility implementation and violation accountability, respectively, while technological empowerment is an important lever for solving the pain points of difficult identification and detection in account supervision.
Currently, there are over 250 million investors in the securities market. Relying solely on manual verification and institutional constraints makes full coverage difficult. It is necessary to rely on cross-departmental coordinated supervision and give full play to the effectiveness of technological supervision.
On the basis of the one-code-pass account system, relevant departments need to strengthen cross-departmental data coordination and use big data analysis, knowledge graphs, AI monitoring, and other means to build a technological matrix for real-name account supervision. By analyzing account IP usage, trading behavior, capital flow paths, and social relationship networks, they can identify account owners and actual users, extending real-name account supervision from after-the-fact accountability to before-the-fact prevention and during-the-fact monitoring, achieving full-cycle dynamic control.
The real-name account system is not only a compliance requirement but also the foundation of fairness and transparency in the capital market. Solidifying securities firms' full-process management responsibilities calibrates the yardstick for institutional performance. Upgrading regulatory enforcement gives the system teeth. Strengthening technological supervision empowerment sharpens the eyes for identifying risks. Only through coordinated efforts in these three areas can the real-name account system be truly implemented and the foundation for the stable and healthy operation of the capital market be consolidated.