Moves by many former officials at the China Securities Regulatory Commission (CSRC) to top positions at fund management firms is creating concerns about potential conflicts of interest when it comes to enforcing securities rules, especially those applying to insider trading.

Publicly available information shows that 28 executives of fund management firms are former officials from the securities watchdog agency, the CSRC.

Those executives include the CSRC's former chairman, Zhou Daojiong, who now is independent director of China International Fund Management Co, and also the CSRC's former vice chairman Fu Fengxiang, who is independent director of Galaxy Asset Management Co.

"It seems there is a tide of CSRC officials moving over to work at the fund management companies. For the officials, they could get much better salaries than in the government sector. For the fund management companies, they could be sheltered by these former CSRC officials," said Cao Zhongming, an independent commentator.

"That might explain why many fund management companies can avoid the scandals of their fund managers investigated for insider training," Cao said.

In June, Zhang Ye, a fund manager with Rongtong Fund Management Co, was punished by the CSRC for insider trading. Zhang had the money he earned confiscated, and he was fined 4 million yuan.

However, the company where he worked did not receive punishment. The case involved "a personal problem", according to the notice released by the CSRC.

Zhang Kaiping, a legal analyst with the Chinese Academy of Social Sciences, questioned that logic.

"It was not only Zhang's personal problem. The company should review its corporate governance, internal controls and whether other staff was involved in similar illegal behavior," Zhang said.

(China Daily September 14, 2009)