China’s securities regulator and its industry self-regulatory body have proposed new rules aimed at tightening oversight of brokerage firms, with a particular focus on closing compensation loopholes and extending anti-corruption measures to offshore operations. The revised draft guidelines, distributed recently for industry feedback, represent a significant expansion of Beijing’s regulatory reach into the overseas activities of Chinese financial institutions.
The Securities Association of China, operating under the China Securities Regulatory Commission (CSRC), circulated the draft rules on “clean practices” to brokerages, setting a deadline of September 29 for comments. For the first time, the rules explicitly subject offshore operations to integrity supervision, addressing a previously under-regulated area vulnerable to illicit transfers and kickbacks.
Under the proposed framework, brokerages will be mandated to implement clawback mechanisms allowing the recovery of bonuses and other performance-related pay from employees found violating ethical standards or regulatory rules. Firms will also need to produce an annual integrity management report for board review, reinforcing internal accountability.
Alongside these compliance measures, the draft also introduces positive incentives. Employees who reject improper benefit transfers or report significant risks will be rewarded with priority in promotions and honors, signaling a shift toward fostering a more transparent industry culture.
This regulatory intensification follows a series of earlier crackdowns this year, during which the CSRC sanctioned three brokerages for regulatory infractions and illicit cross-border activities. The regulator has emphasized these actions as necessary to maintain order and stability within China’s capital markets.
Beyond the expansion into offshore oversight, the draft rules address emerging risks related to innovation and digital operations. Brokerages will be required to conduct comprehensive integrity risk assessments prior to launching new innovative products. Additionally, the use of algorithmic design or system access to derive improper advantages in digital trading activities will be prohibited.
The revisions also call for more rigorous internal inspections across key areas, including investment banking, bond trading, brokerage services, and marketing activities. Protection measures for whistle-blowers reporting violations are encouraged, reflecting an effort to strengthen internal enforcement mechanisms.
These regulatory developments are part of a broader effort by Beijing to enhance the global competitiveness of Chinese brokerages. At a State Council briefing on September 10, CSRC vice-chairman Li Chao emphasized the need to accelerate the establishment of “first-class investment banks and institutions” characterized by stronger governance frameworks and professional capabilities. Li also highlighted the importance of cultivating a sound industry culture and supporting brokerages in expanding their presence both domestically and abroad as part of China’s ongoing financial market opening initiatives.