On Legal System For Protecting Investors In Asset Management Market In China

In recent years,the most important picture in the financial industry is undoubtedly the booming asset management industry.The rapid development of the asset management industry has prompted China to enter a new era of “National Wealth Management”.At the beginning,the trust industry,with its advantages of small investing restrictions and flexible business scope,was favored by the bank firstly.The asset management market in China has expanded rapidly due to the emergence of the “bank-trust cooperation” business.Subsequently,the emergence of “bank-security cooperation”,“bank-fund cooperation” and “bank-insurance cooperation” enriched the types of financial institutions in the asset management market and also aggravated the degree of financial mixed operation.The legal relationship between different financial institutions and investors has become more complicated.In the early developing stage of the asset management market,“rigid payment” and “high-yield commitment” have become the “bait” for financial institutions to attract investors.During this period,apart from high-risk and high-yield products such as private equity funds,there were few incidents of asset management product defaults.Investors realized that the return rate of asset management products is higher than the bank deposit rate,and their benefits can be guaranteed.In the early developing stage of asset management market,many hidden dangers were appeared in China due to the existence of a "hidden rule"-rigid payment.For instance,in order to expand business scale and occupy more market share,there are many irregularities in the asset management products sales promotion process for financial institutions.For example,baiting with a high-yield promise and ignoring risk tolerance to investors,financial institutions recommend to them an asset management product that does not match their risk capabilities;or financial institutions generally promised investors a fixed profit,which causing investors to confuse the difference between asset management products and bank savings.In the process of investment and operation of asset management products,significant information asymmetry is obviously exited between asset managers and investors,and the latter is in a weak position.It is difficult to effectively constrain the behavior of asset managers because they have almost all the key information but investors can only obtain the information through their disclosure.Therefore,investors' interests would be violated by managers by their insufficiency in management behavior.In recent years,asset management product defaults have occurred frequently,and investors' interests are hard to be protected.When there is a dispute between the manager and the investor,judicial relief is one of the important ways for investors to protect their own interests.At this stage,most of the normative documents in the asset management market are mainly sectoral regulations with lower effectiveness levels.In China,due to the restriction of business segregation and supervision segregation system in financial field,different financial regulatory agencies in the asset management market set different rules for various asset management products.However,in judicial decisions,the court does not have the obligation to apply the above-mentioned departmental regulations.In other words,the judgment standards in the judicial system of China's asset management market are not united,causing different judgments in the same case.The situation of judicial protection of investors could not be optimistic.With a series of asset management business regulatory documents issued by the Insurance Regulatory Commission and the Securities Regulatory Commission in China since 2017,the asset management industry has ushered in a round of intensified supervision.The active management requirements for asset management business managers have been strengthened,and the industry is facing reshaping.The Guiding Opinions on Regulating Asset Management Business of Financial Institutions promulgated in 2018,marks that China's asset management industry has entered a period of standardized development.The new asset management regulations clearly point out that China's asset management market should break the rigid payment.This also means that China's asset management industry faces a major “shuffle”.So it's really obvious that the issue of investor protection in the asset management market has become the primary proposition that needs to be resolved in the development of China's asset management market.However,due to the unclear legal position of our asset management products,the law is facing a difficult problem in the adjustment of the asset management market.This paper takes the issue of investor protection in the asset management market as the core,and proposes the path to improve the investor protection system in China's asset management market,focusing on the protection in advance,in-process protection and relief afterwards logic of investors in the asset management industry.The main contents are as follows:Introduction.This section mainly introduces background of the topic,significance of the research,literature review of the related research,along with this paper's logical and prime researching questions.The first chapter is an overview of how to protect investors in asset management markets.It summarizes the state and characteristics of China's asset management products by combing the origin and developing history of the asset management market.The chapter aims to make a typological research of China's asset management products so as to summarize the characteristics and differences of various types of asset management products.The paper analyzes the necessity and particularity for protecting investors in China's asset management market,and concludes that the nature of investor protection in the asset management market is different from that of other general financial market investors.The second chapter describes the basic theory of investors' protection in the asset management market.This part analyzes how principal-agent theory,incomplete contract theory and risk society theory represent and combine in the asset management market,and distinguishes the principal-agent problem existing in asset management and the significant information asymmetry between the participating entities and its harm.In conclusion,the part suggests that it is important to clarify key points and methods on how to protecting investors in China combining with relevant theories.The third chapter is the perfection of investor appropriateness system in asset management market,which is the protection in advance.The investor appropriateness system,which could be summarized as “selling the right products to the right people”,is the “first line of defense” for investor protection in the asset management market.However,there is still no comprehensive system of appropriateness for investors in China.To some extent,the investor appropriateness system has been simplified as a risk matching principle.The risk matching principle does not fully reflect the essence of the investor's appropriateness system.It is necessary to improve the appropriateness system of Chinese investors.The fourth chapter describes the legalization of the manager's fiduciary duty,which is in-process protection.There is a significant information asymmetry between the two parties in the asset management market.As a weak party,the interests of the investors are difficult to be protected.In the process of asset management product operation,it is common for managers to misbehave which leads to higher investor investment risk.The fiduciary duty is the basis for the relationship between the investor and the manager,and it is the realization path of “buyers are responsible” to “the seller is responsible”.To construct the fiduciary duty of managers in China's asset management market,not only to clarify the legal nature of the fiduciary duty,also the clarification of its specific performance in the asset management market is necessary.Only in this way can we achieve the goal of regulating the behavior of managers and thus achieve the goal of investor protection.The fifth chapter is the improvement of the judicial protection system of investors in China's asset management market,which means relief afterwards.This chapter examines the status quo of judicial remedies and the rules of the referee in the asset management market,so it concludes that most legal rules in the asset management market are only departmental regulations,which results that it is difficult to apply for these rules in judicial practice.In the judicial construction of China's asset management market,we should first clarify the effectiveness of financial regulations in a judgement,and fully apply commercial thinking to provide effective judicial relief for investors.The sixth chapter is legislative perfection for investor protection in China's asset management market.It is an academic consensus to supervise the asset management market in a uniform form,so the support of amending relevant legislation is to perfect investor protection system laws in the asset management market.Specifically,it is necessary to construct a legislative concept based on the equitable distribution of rights,to improve the efficiency of the financial market,and to back up with effective prevention and control risks.By setting short-term,medium-term and long-term goals,the horizontal integration legislation will be gradually realized in China's asset management market.