China`s new financial information rules: what risks is looking to address

The goal

The broad goal of the Cyberspace Administration of China’s Financial Information Services Regulation appears to be to regulate the content of financial information published by professional financial information providers in China. Article 1 of the Regulation stipulates that the new regulation is developed for the purposes of strengthening the content management of financial information services, improving the quality of financial information services, promoting the sound and orderly development of financial information services, protecting the lawful rights and interests of natural persons, legal persons and unincorporated organizations, and safeguarding national security and public interest. We note that there is no new permit or approval requirement created under the regulations. Rather, the emphasis is on ensuring that information published will meet certain requirements and will not contain prohibited content.

In essence, financial information providers under the Regulation are required to implement measures for information content verification, information and data storage, information security and protection, personal information and intellectual property protection. Furthermore, they are required to be transparent on the source of information, verify that the information they provide is valid, objective and legal. For example, there is a broad prohibition against publication of false financial information, or false financial market events or news, which may have an adverse impact on national financial security or social stability.

The CAC said in a statement on its website that service providers being targeted include those involved in financial analysis, financial transactions and strategy, but do not include foreign wire services. This broad scope is likely to affect and cover various types of entities and individuals, such as financial information publishers and professional research and consultancy firms. Moreover, the new regulation demonstrates the governments continued effort in tightening oversight of online content of financial information providers in recent years in order to control market volatility, as it extends the scope of the governments regulation on market-sensitive financial data. It also brings domestic financial information providers in line with regulations that have governed foreign institutes such as Bloomberg and Reuters under the Administrative Regulations on the Provision of Financial Information Services by Foreign Institutions in China issued in 2009.

The new regulation also comes hand-in-hand with a set of new standards in relation to financial information service security issued by the State Standardisation Committee in September 2018, which sets out nine key principles that financial information providers should comply with. The new regulation and the new standards together add a new layer of requirements on the security protection of financial information and set out basic principles governing the use and dissemination of financial information by financial information service providers.

The risks to solve in the online environment

Chinas online services, including online financial services, has witnessed tremendous growth in the past decade. The ease of obtaining information online unfortunately also attracts unscrupulous service providers that publish financial analysis or information without the vigorous verification adopted by traditional financial information service providers. There were many incidents in the past two years whereby false or inaccurate financial information was published online by some institutions that were not stringent on supervising content, speculating on financial market risks and publishing sensitive market information. Such activities have distorted financial regulatory policies and brought an impact on the economic and financial stability, resulting in unnecessary panic in the market and eventually leading to the release of the new regulation. An example of false financial market information which occurred in December 2018 was when rumours circulated online that policymakers at the Central Economic Work Conference, which is responsible for setting its economic policy direction, would be reluctant to cut taxes or fees for next year. This was in sharp contrast to the high expectations that it would propose pro-growth measures. The release of such false financial market information subsequently led to a slump in the stock markets before the Financial Stability and Development Committee has publicly issued a denial on the veracity of the rumour.

The new regulations, which are intended to control market volatility and thus promote social stability, now provide a legal basis for CAC to pursue administrative and enforcement sanctions against such malpractices. For example, violations of the new regulation could be subject to a number of consequences and penalties, from public reprimand, order to remediate and being added to the watchdogs blacklist, to administrative penalties and possible criminal sanctions.

About Michelle Chan

Michelle has more than 20 years of experience in working on corporate, commercial and regulatory matters relating to the technology, media and telecom sectors in the Asian region and is one of the leading lawyers in the region. She also has considerable experience advising clients on data protection issues and non-contentious IP projects. Her data protection experience includes supporting clients on data protection-related investigation matters, working in conjunction with the firms investigation and dispute practice. Recent projects she has advised on cover a range of disruptive technologies, including legal issues surrounding Big Data, Fintech, including online payment services and Internet of Things.

About Bird & Bird

With more than 1,350 lawyers and legal practitioners across a worldwide network of 29 offices, Bird & Bird specialises in delivering expertise across a full range of legal services. Our specialisms include advising on commercial, corporate, EU and competition, intellectual property, dispute resolution, employment, finance and real estate matters. The key to our success is our constantly evolving sector-focused approach. Our clients build their businesses on technology and intangible assets, and operate in regulated markets. To better meet their needs we have developed deep industry understanding of key sectors, including automotive, aviation & defence, energy & utilities, financial services, life sciences & healthcare, retail & consumer, media, entertainment & sport and tech & comms.