Opinion: Promoting Healthy Development of Disclosure Consulting in China’s Stock Market

The use of disclosure consulting services by publicly traded companies has attracted regulatory attention, addressing various risks linked to this growing industry. Recently, the China Securities Regulatory Commission (CSRC) conducted a comprehensive survey targeting companies listed in China’s A-share market to gather insights about disclosure consulting firms. Industry insiders believe that regulatory oversight will foster the healthy development of this nascent sector, which plays a critical role in the evolution and reform of China’s capital markets [para. 1].

Disclosure consulting services encompass the creation or evaluation of routine announcements, periodic reports, social responsibility reports, responses to regulatory inquiries, and policy consulting. Their widespread adoption has led to the emergence of leading firms in the sector, underlining the industry's perceived importance. Nonetheless, concerns such as information leaks and "regulatory arbitrage" — where former regulators working in consulting could exploit their prior knowledge — persist. The CSRC’s survey underscores the need for legal and compliant operations to ensure stable capital market development [para. 2].

The surge in disclosure consulting firms arises within a specific context: China’s disclosure system is still developing compared to more mature capital markets. Occasional deficiencies and violations among listed companies reveal this inadequacy. As the disclosure system improves, the demand for consulting services rises [para. 3]. Reforms in the registration system impose higher standards on companies regarding information disclosure, aiming to standardize, make transparent, and render predictable the issuance and listing processes. These reforms present new challenges for regulators and consulting firms alike, enforcing clear requirements and stringent penalties for violations [para. 4].

Disclosure involves significant company information, potentially leading to increased risks of information leaks when accessed by consulting firms. Hence, it is vital to secure information and standardize internal mechanisms, clarifying responsibilities further. Some firms also offer digital services, including platform development, making regulation paramount to prevent unethical activities [para. 5]. Although companies can directly communicate with exchanges and have dedicated disclosure departments, disclosure consulting firms have identified a niche, indicating a strong market demand bolstered by personal networks and regulatory familiarity. This perceived added value, however, carries risks that necessitate regulatory vigilance [para. 6].

Professionalism and quality service are essential for the credibility of disclosure consulting firms. Resorting to loopholes for short-term gains or depending on connections may deliver immediate advantages but could ultimately harm the industry’s integrity. While some firms have demonstrated significant contributions, others may not offer superior expertise but still command premium prices, posing questions about the cost-benefit dynamics and potentially hindering the industry’s growth [para. 7]. Regulatory policies do not strictly prohibit former officials from joining or establishing disclosure consulting firms, though their previous roles carry inherent moral risks. The regulatory spotlight has increasingly focused on the potential "revolving door" issues between government and business, which, though not directly applicable to disclosure consulting, entail significant business risks [para. 8].

In summary, disclosure consulting services represent a market-driven necessity, emerging as a novel intermediary in China’s financial landscape. The critical issue lies not in their necessity but in their developmental approach. The competition driven by integrity and market rules is still evolving. The market awaits the outcome of the CSRC’s survey, hoping it will establish sound practices, ensuring accurate, complete, and timely disclosures essential for market order and investor protection [para. 9].