On January 17, the China Securities Regulatory Commission issued the "Basic Rules for the Discretion of Administrative Penalties of the China Securities Regulatory Commission" (hereinafter referred to as the "Discretionary Rules"), which clarified the echelon of administrative penalties and unified the discretionary standards of various law enforcement agencies, which were used to guide and standardize the discretionary work of administrative penalties of the China Securities Regulatory Commission and its dispatched agencies, and provide institutional guarantees for the fair development of administrative law enforcement. The Discretionary Rules will come into force on 1 March 2025.

Standardize the discretion of administrative punishments and ensure the fairness of law enforcement

There are a total of 25 articles in the Discretionary Rules, which provide clear guidance for the CSRC and its dispatched agencies when exercising their discretion in administrative penalties. The rules mainly cover three aspects to ensure the legality and reasonableness of administrative penalties.

I. Clarify the basic requirements for the discretion of administrative punishments

The Discretionary Rules first clarify the purpose and legal basis for their enactment, define the concept of discretion in administrative punishment, and stipulate the guiding principles and policies to be followed in the exercise of discretionary power. These basic principles ensure that administrative penalties are both flexible and consistent, so as to maintain market order and protect the rights and interests of investors.

2. Refine the order of discretion and applicable circumstances

The rules divide in detail into six discretionary orders: no punishment, exemption from punishment, mitigated punishment, lighter punishment, ordinary punishment and heavier punishment, and define the specific meaning of each order. In the case where the parties have multiple circumstances at the same time (e.g., mitigating, mitigating or aggravating), the Discretionary Rules emphasize that the decision should be made after comprehensively considering the specific circumstances of the case. This arrangement helps to avoid mechanical enforcement and ensures that every case is dealt with fairly.

3. Put forward specific requirements in combination with actual operation needs

Based on the law enforcement practices of the CSRC and its dispatched agencies, the Discretionary Rules also put forward specific requirements in the following aspects:

1. Confiscation of illegal gains: It clarifies how to calculate and confiscate illegal gains.

2. Punishment of joint offenders: It stipulates the punishment standards for each responsible person in the joint violation.

3. Punishment of the directly responsible personnel of the unit: The principle of punishing the directly responsible person within the unit is determined.

4. Number of acts and number of punishments: The concept of "cumulative punishment for multiple independent illegal acts" is introduced to prevent illegal acts from evading due legal responsibility.

5. The application of the old and new laws: The principles of "treating the old with light" and "applying the new law when the illegal act crosses the old and new laws" have been established to ensure the consistency and fairness of the application of the law.

6. Circumstances of approval or collective discussion by the principal responsible person: It clarifies the requirement that major administrative punishments need to be approved or passed by collective discussion by the principal responsible person.

7. Promote 'three-dimensional accountability' and 'execution linkage': It emphasizes strengthening the connection and cooperation between administrative law enforcement and criminal justice, and forming an all-round accountability mechanism.

8. Supervision and guidance: It is stipulated that the China Securities Regulatory Commission will supervise and guide the exercise of the penalty power by the dispatched agencies to ensure that the law enforcement behavior meets the requirements of laws, regulations and policy documents.

How to deal with joint violations

For two or more parties jointly committing illegal acts such as market manipulation and insider trading, the Discretionary Rules establish the principle of "first determining the whole and then punishing them separately". This means that the entire violation needs to be assessed and characterized as a whole, and then the corresponding penalties are imposed according to the specific actions and responsibilities of each party. However, if laws, administrative rules or regulations already provide for independent penalties for joint violations, they are dealt with directly on the basis of these specific penalties.

Three-dimensional accountability and comprehensive punishment and prevention

In order to build a comprehensive legal liability system, the Discretionary Rules emphasize the importance of three-dimensional accountability and comprehensive punishment and prevention. Specific measures include:

1. Investigation of criminal responsibility: Once it is found that the illegal act is suspected of being a crime, it will be transferred to the judicial authorities in a timely manner in accordance with the provisions to ensure that the criminal acts are severely punished in accordance with the law.

2. Civil liability cooperation: For illegal acts that constitute civil infringement at the same time, the Discretionary Rules require that relevant departments be actively cooperated to do a good job in the investigation of civil liability and protect the legitimate rights and interests of victims.

3. Administrative supervision measures: Even if administrative penalties are not imposed in accordance with the law in certain circumstances, appropriate administrative supervision measures can still be taken according to the circumstances, such as recording them in the integrity file of the securities and futures market, notifying relevant self-regulatory organizations to take disciplinary actions, etc., so as to strengthen the binding force of the market.

Further clarify the mechanism of "execution linkage".

The specific circumstances of the connection between executions

The Discretionary Rules provide detailed provisions on the connection between administrative punishment and criminal punishment (hereinafter referred to as the "connection between execution") and clarify the handling methods under different circumstances:

Punishment before punishment: When the illegal act is suspected of being a crime and administrative penalties such as confiscation of unlawful gains and fines have been given, the confiscation of unlawful gains and the payment of fines should be clearly stated in the documents transferred to the judicial organs. This ensures transparency and consistency of information between administrative and criminal procedures.

Punishment before execution: If the illegal act constitutes a crime and is sentenced to a fine, a fine will not be imposed when an administrative penalty is required in the future, so as to avoid repeated punishment and reflect the principle of proportionality of punishment.

Criminal reversal: For cases that are suspected of committing a crime and have been transferred to the judicial organs, but ultimately do not need to be investigated for criminal responsibility or exempted from criminal punishment in accordance with the law, if administrative punishment is still required, corresponding punishment will be imposed in accordance with the law to ensure that the illegal acts are properly handled.

Precise and transparent discretionary criteria

The head of the relevant department of the China Securities Regulatory Commission pointed out that the "Discretion Rules" make the discretion of administrative penalties more precise and transparent. By clarifying the order of discretion and the circumstances of discretion, the phenomenon of simply imposing a higher or lower punishment is avoided, and the occurrence of situations where the punishment is not commensurate with excesses, such as heavy responsibility and light punishment or light responsibility and heavy punishment. This improvement not only allows the people to clearly understand the basis of punishment and feel fairness and justice, but also reflects the policy orientation of strict supervision, and severely punishes major cases of violations in accordance with the principle of proportionality of punishment.

Educational guidance and cooperative supervision

In addition, the Discretionary Rules also give full play to the function of education and guidance on administrative punishments, aiming to promote citizens, legal persons and other organizations to consciously abide by the law and cooperate with supervision:

Punishment may not be given to conduct that violates the law for the first time and the harmful consequences are minor and is promptly corrected, and self-correction is encouraged.

"Whistleblowers" who take the initiative to report the illegal acts of the unit before the case and actively cooperate with the investigation and punishment will be punished in accordance with the law and internal supervision will be incentivized.

Parties who have no objection to the facts of the violation and who sign a plea affidavit may be given a lighter punishment, prompting the parties to actively confront and correct their mistakes.

To sum up, the Discretionary Rules not only enhance the accuracy and transparency of administrative penalties, but also enhance the public's trust in the law through reasonable discretionary standards and humane treatment, and at the same time promote the self-discipline awareness of market participants, providing a solid institutional guarantee for maintaining the healthy and stable development of the capital market.