Following the case of Hualin Securities,two more securities firms have been subjected to "qualification penalties" for violations in private equity asset management business.Guoxin Securities and the wholly-owned subsidiary of China Galaxy Securities,Galaxy Jinhui,have been penalized for irregularities in their private equity asset management business,while Everbright Securities and Guorong Securities have been ordered to rectify and issue warning letters due to violations in their business departments.

On July 5th,the penalty notices disclosed by the Shenzhen Securities Regulatory Bureau revealed that Guoxin Securities and Galaxy Jinhui were ordered to rectify and suspended from filing new product records for three months due to multiple issues in their private equity asset management business.Five related employees were either subjected to regulatory talks or issued warning letters.

Prior to this,Guoxin Securities and China Galaxy Securities had both received penalty notices for violations in their private equity asset management business.This year,Zhongshan Securities and Hualin Securities have also been penalized for multiple issues in their private equity asset management business,with Hualin Securities being ordered to rectify and suspended from filing new product records for six months.

Looking at the several securities firms that have been penalized,each has had four or more compliance issues.Guoxin Securities and Galaxy Jinhui both had issues with the rectification of asset management new regulations,and many firms were involved in quasi-channel business,improper use of funds,and insufficient internal control management.

Guoxin Securities and China Galaxy have been penalized twice this year.According to the penalty notices,the main reasons for Guoxin Securities' penalty this time are fourfold: first,some products have characteristics of channel business with insufficient active management; second,the rectification of asset management new regulations is not genuine,with a large-scale asset management plan still essentially being a non-net value channel product; third,some products facilitate other financial institutions' illegal operation of fund pool type wealth management business; and fourth,there are issues such as imprudent product investment limit authorization,insufficient objectivity in bond rating methods,and insufficient investor appropriateness management.

China Galaxy Securities' wholly-owned subsidiary,Galaxy Jinhui,also has four issues: first,some individual directed asset management accounts have illegally transacted with other securities asset management accounts of the company and operated with high leverage and concentration; second,there are instances of rigid payment,using proprietary funds for padding or payment; third,the rectification of asset management new regulations is not genuine,with a large-scale asset management plan still essentially being a non-net value channel product; and fourth,there are issues such as incomplete internal systems,insufficient investor appropriateness management,and non-standard management of investment targets.

Before being suspended from filing new private equity asset management product records,Guoxin Securities and China Galaxy Securities had already exposed compliance issues in their private equity asset management business.In April of this year,Guoxin Securities was issued a warning letter by the Shenzhen Securities Regulatory Bureau for issues with the company's compliance and internal control,including inadequate management of private subsidiaries,some products conducting business without filing,and some funds having part of their investment funds misappropriated by partners.In January,China Galaxy Securities was issued a warning letter by the Beijing Securities Regulatory Bureau for imprudent sales access,flaws in the custodian's performance of duties,and inadequate management of branch institutions.

In response to the penalty of suspending the record-filing qualification,on the evening of July 6th,Guoxin Securities stated that the company has conducted a comprehensive self-examination of the relevant business and will further strengthen various management works,comprehensively improve the standardized practice awareness of practitioners,continuously establish and improve relevant internal control systems,and make every effort to promote rectification of the issues involved.China Galaxy Securities also stated that Galaxy Jinhui will carry out comprehensive and in-depth rectification in accordance with the requirements of the regulatory authorities.

Before the "qualification penalty," the asset management income of the three securities firms had all increased.This year,Hualian Securities also faced a "qualification penalty," and for an even longer period,lasting 6 months.According to the penalty notice disclosed by the Tibet Securities Regulatory Bureau in January,Hualian Securities had seven issues: first,some asset management products invested in bonds related to the ultimate investors,exhibiting characteristics of channel business; second,the management of investment targets and the selection pool of trading counterparts was not comprehensive; third,there were flaws in the risk control indicators set in the trading system; fourth,there were deficiencies in the management of non-standard investment during the existence period; fifth,there were omissions in information disclosure; sixth,the control mechanism for related party transactions was not robust; and seventh,the personnel and compensation management mechanisms were not sound.

Additionally,Zhongshan Securities was ordered by regulators in February to make corrections and also had four violations: first,the control mechanism for related party transactions was not robust,with incomplete mechanisms for identifying related parties,monitoring the trading system,and assessing the approval of related party transactions; second,there was a lack of strict internal control in the establishment and maintenance of investment product pools,investment decision-making,and trade execution; third,there was insufficient compliance management in the promotion of asset management products,the setting of management fee rates,and the public disclosure of information; and fourth,the deferred payment mechanism for compensation and the relevant business systems for private asset management were either incomplete or not updated in a timely manner,or not effectively implemented.

Looking at the several securities firms that were penalized,the violations involved characteristics of channel business in products,insincere rectification of asset management new regulations,illegal operation of funds,existence of rigid redemption,improper internal control management,defects in risk control,and an unsound compensation mechanism,with each firm having four or more compliance issues.

Among the four penalized securities firms,except for Zhongshan Securities,whose net income from asset management business fees had declined for two consecutive years,the other three firms that faced the "qualification penalty" saw an increase in this income before being penalized.As of the end of the first quarter,Guoxin Securities achieved a net income of 164 million yuan from asset management fees,a year-on-year increase of 68.93%; China Galaxy Securities had an income of 109 million yuan,a year-on-year increase of 7.32%; Hualian Securities,affected by the suspension of its filing qualification,only had an income of 8 million yuan in the first quarter of this year,a year-on-year decrease of 42.22%,while last year it was 50 million yuan,with a year-on-year increase of 26.75%.