Who will protect the signatories in China's A-share market?
Friday, November 12, 2021. In the afternoon, the Guangzhou Intermediate People's Court handed down a verdict in China’s first securities class-action lawsuit. Kangmei Pharmaceutical was ordered to pay RMB 2.459 billion in compensation to 52,000 investors.
The RMB 2.459 billion award set a record in A-share history, but what truly kept corporate secretaries and independent directors awake at night were a few other lines in the judgment. Five independent directors—Jiang Zhenping, Li Ding’an, and Zhang Hong—were held jointly and severally liable for 10% of the damages, amounting to RMB 245.9 million; Guo Chonghui and Zhang Ping were liable for 5%, or RMB 122.95 million.
Their annual salaries from Kangmei ranged between RMB 70,000 and RMB 120,000.
Many have done the math: even at the top end of RMB 120,000 per year, it would take 2,049 years to earn back RMB 246 million—roughly from the end of the Western Han Dynasty straight through to today, without taking a single day off.
Over the next ten days, A-share listed companies issued 25 announcements of independent director resignations. The stated reason was strikingly consistent across all filings: 'personal reasons.'
Some left gracefully; others, in disarray. Shi Ximin, an independent director of Kaishan Corporation, had served barely five months when his resignation announcement triggered a 4.27% drop in the company’s share price that same day. At Jinhua Corporation, an independent director rushed the company to disclose his resignation so hastily that the number of remaining independent directors fell below the legal minimum.
No one wrote the truth in their announcements. But everyone understood it perfectly.
When did signing a document become something that could bankrupt you? To answer that, we must first answer another question: who were those signatures really meant for?
01 The Weight of a Signature
In the Kangmei case, compensation was awarded to 52,000 ordinary investors. Before the fraud was exposed, they viewed Kangmei as a blue-chip pharmaceutical stock. All the information available to them consisted of official announcements and annual reports, along with rows of signatures—those of auditors, directors, and independent directors.
Investors cannot see into a company’s warehouses or its ledgers. All they can see are the signatures.
The entire accountability framework of capital markets is fundamentally built around signatures. By signing, you affirm that you have reviewed the document, vouched for its accuracy, and accepted responsibility for it. The trust between over 5,000 listed companies and more than 200 million retail investors hangs on these handwritten names.
The problem was that, for a long time, the price of this guarantee was set far too low. Under the old Securities Law, the maximum penalty for disclosure violations was RMB 600,000 for companies and RMB 300,000 for individuals. For a company routinely inflating profits by hundreds of millions, such penalties were virtually meaningless. Meanwhile, it was nearly impossible for defrauded retail investors to recover their losses. Signatures carried so little weight that some signatories didn’t even bother reading what they were signing.
Change began in 2020 with the implementation of the new Securities Law, which raised the maximum fines to RMB 10 million for companies and RMB 5 million for individuals. More importantly, it opened the door to civil compensation. While administrative fines have caps, civil liability does not—and the RMB 2.459 billion compensation in the Kangmei case emerged through this newly opened door. Without each of the 52,000 investors having to file individual lawsuits, they recovered their losses. For China’s capital markets, this repaid a debt that had been overdue for two decades.
In July 2024, the new Company Law took effect, transforming the previously abstract fiduciary and duty-of-care obligations imposed on directors, supervisors, and senior management into detailed provisions. Fiduciary duties now explicitly list five prohibited behaviors, with three specific scenarios—self-dealing, usurping corporate opportunities, and engaging in competing businesses—each codified in separate clauses. Additionally, the newly introduced concepts of de facto directors and shadow directors extend liability to individuals who, though neither formally appointed nor registered, exercise control behind the scenes. The intent of this institutional design is clear: those pulling strings from the shadows cannot escape accountability, and front-facing executives should not bear blame blindly—responsibility must fall squarely on those who actually make decisions.
Further refinements followed. The Code of Corporate Governance for Listed Companies was revised twice in 2025, establishing a long-term mechanism linking executive compensation to performance-related risk and instituting a system for clawing back compensation from executives. Wen Hua, Deputy Chairman and Secretary-General of the Shenzhen Association for Public Companies, summarized the changes of recent years using three key phrases:Binding constraints, closed-loop accountability, and internal control safeguards. Within the principle of closed-loop accountability lies a ten-character maxim:Responsibility begins upon appointment and does not end upon departure.
In numerical terms, since the beginning of this year, the China Securities Regulatory Commission (CSRC) and its local branches have jointly issued more than 200 administrative penalty decisions. In the first half of 2026 alone, the CSRC system published 226 such decisions, of which 121—53.5%—related to violations of information disclosure rules. Behind each penalty decision stands a group of investors who have reclaimed justice. There is no dispute that the market is becoming cleaner.
The truly subtle shift has occurred on the side of those affixing their signatures. The same pen, when used twenty years ago, marked a procedural step; today, it signifies a concrete commitment. Heavier commitments signal a maturing market—but those expected to fulfill them now require support they never needed before: clearer boundaries, more professional assistance, and buffers in case they get drawn into trouble.
At an event in Shenzhen on July 30, Wenhua stated that corporate governance is not a multiple-choice question—it’s a matter of survival.
None of the directors and board secretaries seated in the audience thought this was mere rhetoric.
02 Three Ways to Fall
Rules are written on paper, but fate falls on people. In recent years, signatories who have fallen can be broadly categorized into three types of downfall.
The most severe type is deliberate fraud. This kind of downfall is uncontroversial and unworthy of sympathy.
The first-ever fraudulent IPO case on the STAR Market—Zijin Storage—is a textbook example of this type of collapse. The company submitted its draft prospectus in 2019, making it into the inaugural batch of STAR Market listings—and also becoming the first company on the STAR Market to be investigated for information disclosure violations. It had already begun inflating its performance before listing: profits were overstated by 35% in 2017, rising to an inflation rate of 137% by the first half of 2019. Its methods were comprehensive: fabricating sales contracts, forging logistics and verification documents, orchestrating circular fund transfers, and omitting RMB 135 million in pre-listing guarantees from its prospectus. The fraud continued even after listing.
The consequences were equally comprehensive. The CSRC penalized 13 responsible individuals, including directors, supervisors, senior management, business staff, and subsidiary employees. The then-chairman received a permanent market ban, another controlling shareholder was banned for ten years, and several executives for five years. After the case was referred to judicial authorities, in December 2025, the Intermediate People's Court of Meizhou City, Guangdong Province, handed down a first-instance verdict: the company was fined RMB 37 million, and all ten executives received prison sentences, with the longest term being seven years and six months.
But the story didn’t end there. After intermediaries made advance compensation payments to investors, they obtained subrogation rights and turned around to file lawsuits. In June 2026, four intermediaries—including China Securities—completed advance compensation and jointly sued 48 responsible parties in the Zijin Storage case, seeking RMB 1.086 billion in reimbursement. The defendants included not only directors, supervisors, and senior management, but also 26 client companies that facilitated the fraudulent transactions and five banks.
In other words, the scope of joint liability for fraud now extends across the entire industrial chain. In 2025, the China Securities Regulatory Commission (CSRC) set a precedent in the Yuebo Power case by simultaneously holding accountable third parties who colluded in the fraud. Two individuals used companies under their control to help this listed company fabricate contract manufacturing arrangements and fake sales of new energy vehicle powertrains—one was fined several hundred thousand yuan, and the other two million yuan. From then on, suppliers, customers, and related parties facilitating fraudulent transactions all found themselves on the enforcement list.
What truly sent chills down everyone’s spine were the latter two types of downfall.
One type stems from uttering a single wrong sentence.
Interactive Easy is the Shenzhen Stock Exchange’s investor Q&A platform, where company secretaries routinely respond to shareholder inquiries. Picture this scene: on an ordinary workday, the secretary of Sudian Weige logs into the backend and sees an investor asking about the company’s lithography machine business. The secretary types: 'Our lithography machines have already been sold to leading domestic chipmakers and exported to Japan, South Korea, Israel, and other countries.' Then hits send.
That same day, the company’s stock reversed course from falling to surging—up 20%. A formal investigation notice arrived shortly thereafter.
The investigation revealed that these lithography machines were not the semiconductor-grade equipment typically associated with that term, and the exports to Japan, South Korea, and Israel referred to minor legacy transactions from over a decade ago. The secretary argued that Interactive Easy did not constitute an official disclosure channel—a defense regulators rejected. According to CSRC guidelines, every external communication channel used by a listed company qualifies as a disclosure channel. The company and its secretary were jointly fined 2.5 million yuan by the Jiangsu CSRC bureau, followed by investor lawsuits seeking additional personal compensation. This case was later included among the CSRC’s Top Ten Model Cases for Investor Protection.
A single line of text triggered triple-layered liability. Every secretary who has ever typed a reply on Interactive Easy would read this case and instinctively recall every message they’ve ever posted.
The most unjust—and most common—type of downfall is failing to stop someone else.
The five independent directors of Kangmei were not involved in the fraud; the court ruled they had failed to fulfill their duty of care. Those four words—'failed to fulfill duty of care'—may sound light, but carry immense weight. In reality, independent directors typically attend just a few meetings per year, receive materials prepared by the company, follow agendas set by management, and must decide whether to trust or question the true circumstances behind each resolution they vote on. The average annual compensation for independent directors on Shanghai-listed A-share companies is RMB 92,000, and RMB 76,000 for Shenzhen-listed A-shares. Of the nearly 30,000 independent directors in the A-share market, roughly one-third serve on multiple listed company boards, and one-tenth hold positions at three or more companies.
Information asymmetry is inherent to this role, yet the liabilities are very real and financial. After the Kangmei case, the risk-reward ratio of being an independent director was fundamentally reassessed—the 25 resignation announcements that followed were the first tangible outcome of that reassessment.
Viewing the three types of liability regimes together reveals the true source of anxiety among signatories in China’s A-share market in recent years. Under the old accountability framework, it was enough to manage your own responsibilities. Under the new framework, you are held accountable for things beyond your sight—financial statements prepared by the CFO, contracts signed by subsidiaries, and matters undisclosed by actual controllers. This isn’t a flaw in the system; rather, it’s an inevitable step toward market maturity. Accountability in mature markets is precisely this heavy.
Responsibility has been upgraded, but the mechanisms for bearing that responsibility haven’t caught up yet. That gap remains.
03 An Imported Concept on the Sidelines
In fact, a tool already exists to address this gap—it’s just been sitting on the sidelines in China for nearly two decades.
Directors’ and Officers’ Liability Insurance (D&O insurance), formally known as Directors and Officers Liability Insurance, tells a revealing story through its historical sequence. The 1929 U.S. stock market crash created strong demand for robust securities regulation. The Securities Act of 1933 and the Securities Exchange Act of 1934 were subsequently enacted, making directors’ and officers’ liabilities concrete for the first time. In 1934, Lloyd’s of London introduced the first D&O liability insurance policy, pioneering this insurance category. Liability always comes first; insurance follows—this has always been the case.
In 2002, Ping An issued China’s first D&O insurance policy for an A-share listed company. For nearly two decades afterward, this product occupied an awkward position in China—not because it was flawed, but because the timing wasn’t right. In an era when signing documents carried little consequence, few felt they needed insurance for their signatures.
The turning point came with the Kangmei case. After the court ruling took effect, D&O insurance shifted from an obscure term to a buzzword among corporate secretaries. In 2025, 643 A-share listed companies disclosed plans to purchase D&O insurance, a 19% year-over-year increase, including 256 companies buying it for the first time. By the end of 2025, D&O insurance penetration among A-share companies reached 32%, up 4 percentage points from the end of 2024. Still, this figure lags far behind adoption rates in mature overseas markets.
While these numbers are rising, another set of figures raises concerns. Among the 17 companies delisted in 2025 for disclosure violations, 7 had purchased D&O insurance; at least 10 insured companies have been sued by investors. The policies didn’t save them. Market-wide claims are increasing: there were 26 payouts totaling RMB 390 million in 2024, and cumulative payouts from Q1 2022 through Q3 2025 exceeded RMB 850 million. Yet, relative to the hundreds of annual disclosure-related penalties, this amount seems suspiciously low.
The issue lies in the product’s foundational logic. Traditional D&O insurance is an imported concept, with policy terms translated directly from Western models. At its core, it operates as a post-event reimbursement mechanism: an incident occurs, liability is determined, a claim is filed, disputes arise, and compensation is paid. It compensates you after you’ve fallen—but doesn’t care how you fell.
But the needs of signatories have long since evolved. Listed companies no longer seek mere post-event compensation; they now require pre-event risk alerts and real-time professional support during crises. Put yourself in their shoes: on the afternoon an investigation notice arrives, what a corporate secretary needs most isn’t a claim form—but answers to three critical questions.Who can we turn to now? How should documents be submitted? What about public sentiment?
The company’s lawyers represent the company; brokerages are conducting internal reviews to protect themselves; and peers who once called each other brothers are all watching from the sidelines. That afternoon, who stood by the signatory?
Compensation is a painkiller. But what the patient truly wants is never to fall ill in the first place.
04 Installing Traffic Lights Inside the Boardroom
On the afternoon of July 30, on the fifth floor of the Park Hyatt Shenzhen. Typhoon Hongxia had just passed the day before, with Baihaitun following close behind. Tang Yong, Deputy Editor-in-Chief of Securities Times, took the stage to deliver opening remarks, joking about the weather by saying the event had landed right in the eye of the storm—signaling a year full of momentum and resilience through wind and rain. Seated below were directors, senior executives, and board secretaries from dozens of listed companies.
Titled 'Corporate Governance and Director Liability Risk Seminar,' the event unfolded like a three-act play. In Act One, Sheng Ruisheng, Secretary of the Board at Ping An Group, explained how his own company practices governance. In Act Two, lawyer Zhou Rui detailed how other companies collapsed. In Act Three, Shi Hequn, Deputy Party Secretary of Ping An Property & Casualty Insurance, took the stage to launch their new Directors’ and Officers’ Liability Insurance brand: 'Dong Anping.' Six people stepped onto the stage; the audience counted down from three—then the lights came on.
Product launches happen every year, most not worth writing about. The real highlight of this one wasn’t the ceremony—it was the sequence of the agenda. First governance, then risk, and only finally insurance. That order itself embodies the product’s underlying logic.
To understand this logic, we must first examine something Ping An Property & Casualty Insurance did in another domain.
Ping An’s big data model revealed that road sections adjacent to both factories and schools in urban-rural fringe areas saw high rates of traffic accidents involving elementary school students, often resulting in severe or fatal incidents. In 2025, Ping An Property & Casualty Insurance launched a public welfare initiative called 'Traffic Lights,' installing traffic signals, speed bumps, and warning signs at over 1,090 such locations nationwide. After installation, accident rates at these sites dropped by 60%, and personal injury cases fell by 90%. When Sheng Ruisheng revisited one site in Chaozhou, locals told him, 'You’ve done an immeasurable good deed—since the lights went up, there have been almost no more student collisions near that school.'
Ping An itself also benefited. With fewer accidents, both claim frequency and payout amounts declined.The insurance industry refers to this logic as 'risk reduction.' Put simply, helping clients avoid incidents is the cheapest way for insurers to pay claims.
Installing traffic lights into the boardrooms of listed companies—that’s what BoardSafe Ping An is all about.
What gives it the right to do so? Two things.
First is experience earned through claims. Since issuing its first policy in 2002, Ping An has spent 24 years in directors’ and officers’ (D&O) liability insurance. In 2018, it launched China’s first dedicated D&O insurance clause and remains the only Chinese insurer with a specialized D&O underwriting team. As of the first half of 2026, Ping An’s D&O insurance served over 600 A-share listed companies—roughly one-third of the market—and had handled more than 350 claims, paying out over RMB 200 million. What does 350 claims mean? It has witnessed more ways for companies to fail than any single listed company ever could. While others hold policy wordings, Ping An holds an entire filing cabinet of case studies.
The second is the path it forged itself. Sheng Ruisheng recounted several episodes from the company’s past on stage. When Ping An registered in Shekou in 1988, the local business administration asked, 'What’s your ownership structure—are you Q&M Dental?' To secure its business license, the founders added the words 'socialist' before 'joint-stock,' thereby creating China’s first joint-stock insurer. In 1994, Morgan Stanley and Goldman Sachs acquired stakes that accounted for 75% of the company’s net assets at the time—but due to regulatory restrictions, they couldn’t obtain board seats. The two investment banks grew anxious. Management devised a solution: modeling after the United Nations, they created observer seats, allowing the investors to attend board meetings and participate in discussions without voting rights. From that point on, Ping An became China’s first insurer to hire an international accounting firm and the first to issue actuarial reports compliant with international standards. In 2002, HSBC’s investment helped Ping An build a comprehensive risk management and internal control framework. Before its Hong Kong listing in 2004, four investment banks—Morgan Stanley, Goldman Sachs, HSBC, and CITIC—scrutinized Ping An’s governance structure repeatedly, plugging every gap they found.
A company that has been thoroughly examined by the world’s top four investment banks is now packaging that diagnostic expertise and selling it to other listed companies. This is BoardSafe Ping An’s strongest credential—stronger than any advertising slogan.
The product itself boils down to four words: Prevent, Assist, Protect, and Indemnify. Translated into day-to-day actions for signatories, it looks like this.
Before any public announcement is released, it undergoes professional pre-review—someone double-checks the wording, data, and legal basis to flag potential issues that could trigger regulatory inquiries or misinterpretations. Management also participates in stress simulations covering abnormal stock price movements, PR crises, and on-site inspections, rehearsing how to respond before any real incident occurs—essentially bringing fire drills into the boardroom. This is prevention.
When a crisis actually hits, one-on-one compliance advisory support kicks in: experts analyze public sentiment, devise reputation-repair strategies, and assist during regulatory investigations by helping organize key points and standardize submission materials—enabling the company to stay steady during the most critical window. This is assistance.
The policy terms have been rewritten specifically for China’s A-share market environment. Coverage explicitly includes controlling shareholders, actual controllers, de facto directors, and shadow directors. Risks unique to A-shares—such as regulatory investigations, administrative settlement payments, and shareholder activism—are written into the clauses. Moreover, coverage is triggered not only after penalties are imposed but as early as during regulatory inquiries or on-site inspections. This is protection.
Claims work in reverse. Ping An continuously monitors clients’ disclosure activities. When a client is investigated by securities regulators, it’s not the client chasing the insurer for money—instead, the insurer proactively reminds the client to file a claim and keeps them updated on the claims process. That’s how payouts happen.
The most telling feature of this service is a mechanism called ‘advance prepayment.’ In traditional claims processes, liability must first be established before any payout occurs. Yet securities litigation can drag on for years, and when signatories need funds most urgently—to hire lawyers—is precisely when their policy hasn’t even been triggered yet. Dong Anping flips this sequence: upon occurrence of a covered event, it responds immediately, providing both professional support and advance funding in parallel. Expenses for responding to regulatory inquiries or defending against investigations can be prepaid at the earliest stages.
This mechanism deserves a pause. Before any conclusion on liability is reached, the money has already arrived.For a signatory caught in the eye of the storm, this advance payment buys more than just legal counsel—it secures the scarcest commodity on that afternoon: someone standing by your side.
Of course, one thing must be made absolutely clear: D&O insurance is not a get-out-of-jail-free card. Fraud committed intentionally was never covered in the past, and it isn’t covered now—that’s the foundational premise of this insurance product. It was never meant to protect wrongdoers, but rather those who fulfill their duty of care yet may still get dragged into trouble. As Shi Hequn put it, the naming logic is simple: first, Ping An launched D&O insurance; second, we hope our directors and senior executives stay safe—hence ‘Dong Anping.’ His goal for this product is to build China’s leading brand for protecting directors and executives in the performance of their duties.
05 Accountability with Support
On the day after Dong Anping was launched,July 31, the National Financial Regulatory Administration, the People’s Bank of China, the China Securities Regulatory Commission, and the Ministry of Finance jointly issued the ‘Opinions on Strengthening Corporate Governance of Financial Institutions,’ comprising nine sections and 22 measures. Two key sentences stand out: one calls for strengthening protections and performance evaluations for directors’ duties, and the other encourages purchasing liability insurance for independent directors.
For the first time, liability insurance has been formally incorporated into the top-level design of corporate governance through an official document co-issued by four ministries. Market-driven innovation and regulatory institutional frameworks converged on the same issue within the same week—not by coincidence, but as a natural progression. Regulators understand better than anyone that a healthy market must hold violators accountable while empowering diligent individuals to act boldly. The roadmap targets 2029, and the very first six words of its stated objective are ‘clear delineation of rights and responsibilities.’
Let’s return to those five independent directors of Kangmei in November 2021. Their story cannot be rewritten. But signatories in 2026 already face a different reality. Legal and regulatory frameworks are increasingly clarifying the boundaries of responsibility, official documents repeatedly emphasize protections for duty fulfillment, and the market has developed a complete toolkit—from prevention to compensation. Only one question remains: will signatories themselves choose to build this line of defense before trouble strikes?
The U.S. capital market followed a clear sequence: first came the securities regulatory framework established in the 1930s, then the maturation of directors’ and officers’ liability insurance (D&O insurance), and only afterward did modern corporate governance emerge—empowering professional managers to operate with greater freedom. China has completed the first half of this journey in just over two decades, transforming a signature from a mere procedural step into a solemn commitment. As a result, the market has now reached a milestone where 52,000 investors have recovered RMB 2.459 billion. The second half has only just begun—to ensure that every person who signs such a solemn commitment can do so with confidence.
The progress of any market ultimately depends on two forces working together: a system that makes rule-breakers pay the price, and safeguards that allow diligent individuals to perform their duties without fear. The former has shown significant results in recent years; the latter has only just begun to take root.
Twenty-four years ago, when the first D&O insurance policy for an A-share company was issued in Shenzhen, few paid attention. Now, it’s time for it to protect those who sign on the dotted line.
References:
[1] China’s First-Ever Securities Class Action Lawsuit Ruled: Kangmei Pharmaceutical Ordered to Compensate 52,000 Investors RMB 2.459 Billion, Guancha.cn, December 2021
[2] The Truth Behind the Wave of Independent Director Resignations on the A-Share Market After the Kangmei Incident, 36Kr, November 2021
[3] Mid-Year Review of CSRC Enforcement Actions in 2026, iCourt, July 2026
[4] Found Guilty of Securities Fraud in IPO! Ten Senior Executives Including the Controlling Shareholder of Zijingshucun Collectively Sentenced, National Business Daily, December 2025
[5] Four Intermediaries That Completed Advance Compensation Seek Reimbursement of RMB 1.086 Billion; 48 Liable Parties in Zijingshucun Case Sued, Sina Finance, June 2026
[6] Both Sides in YUEBO Power’s Internal Conflict Penalized! CSRC Imposes Concurrent Liability on Parties That Assisted in Financial Fraud for the First Time, Huaxia Times, 2025
[7] Misleading Statements Made via Interactive Platform Regarding Lithography Machines and Other Matters; Suzhou Vmicro and Its Secretary to the Board Penalized, Cailian Press & Jiemian News, October 2023
[8] Directors' and Officers' Liability Insurance (D&O insurance) penetration in A-share listed companies has risen to 32%; high-severity claims primarily originate from a small number of insurers, Sina Finance, January 2026
[9] Nearly 30% of listed companies have purchased coverage! D&O insurance continues to gain traction since its introduction in 2023, Jiemian News
[10] The revised Securities Law restructures the information disclosure regime, Zhong Lun Law Firm, 2020
[11] Entry on Directors’ and Officers’ Liability Insurance, MBA Think Tank Encyclopedia; Directors’ Liability Under a Comparative Research Perspective (Part III), Wenkang Law Firm
[12] 'Implementation Opinions on Strengthening Financial Institution Governance' jointly issued by the National Financial Regulatory Administration, the People's Bank of China, the China Securities Regulatory Commission, and the Ministry of Finance, released publicly on July 31, 2026
Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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