‘Crocodiles’ facing crackdown by regulators
China’s insurance regulator has cracked down on the illegal activities of “crocodiles”, or unscrupulous operators, and taken measures to rein in potential financial risks.
In February, the China Insurance Regulatory Commission banned Yao Zhenhua, chairman of Foresea Life Insurance Co, from the insurance sector for 10 years after finding him guilty of irregular market operations. The regulator also imposed a combined fine of 1.36 million yuan ($198,000) on Foresea Life and six of its executives.
In the same month, CIRC also banned Evergrande Life Insurance Co from invest- ing in stocks for one year, and barred two executives from the insurance industry for as long as five years.
A little more than a year ago, Evergrande Life Insurance Co was bought and renamed by billionaire Hui Ka Yan’s China Evergrande Group. Evergrande Life and Foresea Life, another insurer, had been involved in a closely watched tussle for control of the homebuilder China Vanke Co.
The crackdown came after Xiang Junbo, the commission’s chairman, pledged to “severely punish” short-term speculation by insurers and their aggressive purchases of stakes in listed companies.
On Tuesday, Chen Wenhui, the commission’s vice-chairman, said CIRC is studying the detailed regulations that oblige insurers to register with it when they wish to acquire listed companies.
Fang Yan, an analyst at Guosen Securities Co, said a series of severe moves by the regulator will prevent insurers from aggressively buying stock in A-share listed companies in the future, adding that the regulator’s tougher stance will result in insurers paying greater attention to value investment rather than speculative activities.
Hao Yansu, director of the school of insurance at the Central University of Finance and Economics, said insurers can still participate in the stock market providing their market operations are not irregular: “I think the active participation of insurers in the Chi- nese stock market at this moment is good for them and listed companies, and is also boosting the stock market significantly.”
Even as China’s financial market regulators step up supervision, calls have been growing for greater reform of the regulatory framework.
According to a recent survey of 1,794 Chinese bankers, conducted by the China Banking Association and PricewaterhouseCoopers, more than 40 percent believed supervision of the financial market should take a macroprudential view — one aimed at reducing risks — and focus more on functional regulations that would address the supervision of cross-sector financial business.