Oct 13, 2018 03:17 AM

Regulator Finds Violations in Private Equity Industry

China Securities Regulatory Commission launched inspections of 453 private equity firms. Photo: VCG
China Securities Regulatory Commission launched inspections of 453 private equity firms. Photo: VCG

China’s top securities regulator found that more than 30% of private equity firms were in violation of laws and regulations in a recent inspection of the industry.

Among 453 private equity firms that were inspected, 139 were found to have violations, according Gao Li, spokeswoman for the China Securities Regulatory Commission (CSRC), at a routine press conference Friday.

The inspections covered more than 4,000 private equity funds with 2.08 trillion yuan ($300 billion) of assets under management, making up about 17% of the total private equity industry in China.

Inspectors found a broad range of violations including illegal fundraising, misappropriation of fund assets, raising funds from unqualified investors and illegal commitments of guaranteed returns, among other failures to properly control risk and comply with regulations.

More than 200 private equity firms were found to lack sound internal control systems or to conduct business unrelated to private equity investment.

The inspections also focused on possible “fund pool” business, commitment of guaranteed returns, use of leverage and shadow banking risks in private equity firms that manage non-standard credit assets.

The CSRC launched formal investigations into certain private equity firms with serious violations and took administrative measures against some firms. The CSRC didn’t identify the firms at the press conference but said the violations and regulatory measures are recorded in the capital market integrity database.

Gao said the inspections will effectively transmit regulatory pressures to the private equity industry and help prod firms to improve their compliance and risk awareness.

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