Following in the footsteps of Hong Kong, whose Securities and Futures Commission (SFC) recently published a consultation paper proposing a new basis for investor compensation, China is now said to be considering new regulations which will require investors to be compensated for losses due to misconduct by fund managers.
The existing law governing securities provides for fining and punishing brokers and fund managers who violate the law, but does not provide any kind of compensation for investors who lose out as a result of their misconduct. The situation could soon change, however, since laws are currently being drafted to cover mutual funds and could be passed at the beginning of 2002.
Li Yining, head of the panel drafting the law, said the new measures will increase the pressure on fund managers to act professionally. The local fund management industry has been tarnished by allegations of price manipulation and insider trading and now China is out to sort the wheat from the chaff.
Moreover, after China's anticipated entry this year into the World Trade Organization, foreign firms are expected to be given the green light to set up joint-venture fund management companies in China.
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