Study On Conflict Of Interest And Right Protection In Public Offering Securities Investment Fund Industry

First launched in the late90thof last century, public offering securitiesinvestment fund (hereinafter referred to as “fund”) has become the most popularinvestment vehicle for the public, due to its unique features of low investmentthreshold and professional investing management. However, under the backgroundof explosive growth of the industry, the problem of how to effectively regulateconflict of interest and protect interest of investors has never been solved properly.And because of this, there occurred many undue related party transactions andinsider trading in the market, which severely hurt the integrity and healthydevelopment of the whole financial industry. As a result, how to construct a soundmechanism for regulating and balancing conflict of interest becomes worth studying.This article tries to figure out the source of conflict of interest through a study of thebasic legal relationships and related key legal issues in fund industry, thus try toprovide valuable proposals on improving the current conflict of interest regulatingmechanism.Chapter one analyzes the legal feature of fund in China and studies the basiclegal relations between parties of both contractual type fund and corporate type fund,revealing the fact that conflict of interest does exist in fund investment practice. ThisChapter also provides a basis for the further study in the later chapters.Chapter two analyzes the characteristics of conflict of interest in China’s fundindustry as well as the sources of main types of interest conflicting behavior. Due tothe contractual type structure, great number of investors and complex relationshipbetween related parties, the conflict of interest in fund industry is more complex andharder to detect. This Chapter also highlights the importance of properly defining the scope of connected parties and the paramount principle of investors’ interest alwayscomes first in fund investing practice. Based on the author’s working experience infund industry, this Chapter finally analyzes the variety of conflict of interest andtheir respective source.Chapter three studies the existing internal balancing and regulating mechanismof conflict of interest of China’s fund industry, mainly including supervision of fundcustodian, independent board director and fund investors’ meeting. Deficiencies arediscussed and improving proposals are lifted. The Chapter also analyzes theimportance of internal control policy of fund management company and theeffectiveness of management incentive mechanism, making the point that fundincentive scheme is more effective than share incentive scheme. Due to theadvantages in governance structure and controlling conflict of interest, corporatetype fund has dominated the developed market, such as market in the USA. Chinashould also introduce corporate type fund and establish the corresponding legalinfrastructure.Chapter four analyzes the features and importance of external regulatorymechanism of conflict of interest, and then focuses on studying the deficiencies inmechanism of civil liability claiming and litigation process, administrative regulation,criminal responsibilities and compulsory information disclosure. Several proposalsof improvement are provided.The conclusion part summarizes the main content and opinions in this article.