CSRC regulates securities law practices of lawyers

CSRC regulates securities law practices of lawyers, 证监会规范律师证券法律业务

In 20 October 2010 the China Securities Regulatory Commission (CSRC) and the Ministry of Justice jointly published the Securities Law Business Practices of Law Firms Provisions (Trial Implementation) and the Legal Business Practices of Law Firms in Securities Investment Funds Rules (Trial Implementation). Both the Practice Provisions and the Fund Rules became effective on 1 January 2011 and form an integral part of the regime governing the securities-related business of law firms which the CSRC is building. Under the regime, the Law Firms Engaged in the Business of Securities Law Administrative Measures is the general framework; the Practice Provisions are the basic business rules focusing on regulating practice methods and procedures; and the Fund Rules and other business rules yet to be promulgated focus on regulating substantive issues. This regime also includes CSRC’s guidelines on the particulars and format of legal opinions.

The Practice Provisions

The Practice Provisions require law firms to establish and improve an internal mechanism to ensure quality and control risk, setting out specific quality control requirements in the following three areas.

Inspection rules

Lawyers must prepare an inspection plan and make a written record of the verification and certification of the matters on which they act for their clients. Permissible inspection methods include investigations, interviews, document reviews, field investigations, inquiries, external confirmations and other reasonable means.

Lawyers must inspect the original documents relating to matters such as the capacity, real property and intellectual property of a company and its branches. If they are unable to obtain the original certificates, they must make enquiries, conduct a review and take other necessary steps to obtain confirmation.

If the evidence obtained from different sources or through different inspection methods is inconsistent with the conclusions drawn in relation to the same matter, lawyers must carry out additional procedures necessary for further investigation.

Legal opinion

The particulars and format of a legal opinion such as the title, recipient, legal basis and declaration must be uniformly standardized.

The body of a legal opinion must contain items such as relevant factual material, inspection principles, inspection methods, particulars of inspection, inspection process, inspection findings, relevant Chinese regulations, concluding observations and the necessary documents involved.

All concluding observations expressed in a legal opinion must provide a clear explanation as to whether the matter has been handled in a lawful, compliant, real and effective way, and the concluding observations must be fully discussed and analysed.

Legal opinions are generally not allowed to be amended by law firms after they have been submitted to the CSRC together with the relevant application documents.

Working manuscripts

(1) Law firms must keep complete records of the work they have undertaken during the preparation of their legal opinions, as well as all the documents and data acquired from their work, and must promptly prepare working manuscripts.

(2) The particulars of a working manuscript must be true, complete, clearly recorded, indicate the directory index and page numbers, and be signed by lawyers assigned by law firms and affixed with the official seals of law firms.

(3) Working manuscripts are important evidence used to determine whether a lawyer has worked diligently and responsibly. CSRC and its agencies can have access to and check working manuscripts in line with their regulatory requirements.

The Fund Rules

The Fund Rules govern the legal services of law firms and their assigned lawyers in verifying and certifying whether the administrative licensing of fund management companies, funds and fund sales agencies is in compliance with laws or regulations and the rules of CRSC, as well as in preparing and issuing legal opinions. Reference must be made to the Fund Rules for legal services involving non-administrative licensing.

The Fund Rules contain detailed provisions on the inspection of particulars concerning the formation of and alterations to fund management companies and their branches, the qualifications of senior management staff of fund management companies, the raising of funds, qualifications for conducting fund sales, resolutions made at fund shareholders meetings and other matters.

The two sets of rules not only help regulate the securities law business practices of lawyers, but also serve as a benchmark to regularize the standards of legal practices and regulate the industry.

Business Law Digest is compiled with the assistance of Haiwen & Partners. The authors can be emailed at baochen@haiwen-law.com. Readers should not act on this information without seeking professional legal advice.