Initial Issuance by Shanghai Financial Court of the Regulations on the Financial Market Case Test Mechanism

Background:

Why is the financial market case test mechanism introduced?

Over the 14th Five-Year Plan period, as China¡¯s economy and finance have moved into the fast lane of domestic and international circulations and high-quality development, Shanghai is making great efforts to build an upgraded international financial center having stronger functions and more opening-up systems.

The Opinions on Supporting the High-level Reform and Opening-up of Pudong New Area to Build a Leading Zone for Socialist Modernization issued by the Party Central Committee, proposes to give full play to the role of the "experimental field" of Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone, further increase financial opening, and promote high-quality reform and innovation in the financial market. In January this year, the Supreme People's Court released the Opinions of the People's Courts on Supporting and Guaranteeing the High-level Reform and Opening-up of Pudong New Area to Build a Leading Zone for Socialist Modernization (hereinafter referred to as the Opinions). It proposes to "innovate the specialized financial trial mechanism of the Shanghai Financial Court, proactively and prudently explore the financial market case test mechanism, and ensure the implementation of various financial innovation measures under the law." The Provisions on the Development of Green Finance in Pudong New Area of Shanghai adopted on June 22 has also explicitly authorized the "supporting the Shanghai Financial Court in exploring the financial market case test mechanism, providing rules and guidance to the financial market, and serving the innovation of green finance".

In July 2020, the Shanghai Financial Court issued the Measures for Serving and Ensuring the Financial Opening and Innovative Development of Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone, proposing for the first time to explore the establishment of a case test mechanism. In order to fully serve and ensure the high-level reform and opening up of Pudong New Area of Shanghai, and implement the requirements of the Opinions, the Shanghai Financial Court has formulated and released the Provisions through in-depth research on the frontier issues of innovation and opening up in the financial field, learning from the best judicial experience in other fields, and combining the actual work of the court in the past two years.

The financial market case test mechanism refers to the application to the Shanghai Financial Court for case test made by financial institutions, transaction counterparties and other entities, with respect to typical facts and legal issues that are cutting-edge in the financial business that are ready for conducting or being carried out, need to be clarified by law, and have a significant impact on the financial market, which may lead to disputes, to provide clear rules and guidelines to the financial market following the trials by SFC. The case test mechanism follows the five principles including full consultation, openness and transparency, good faith, extensive participation and prohibition of abuse, to stabilize the rule expectations of the financial market, effectively prevent legal risks and promote "lawsuit source governance".

Contents:

Initiation of procedures, pre-trial procedures, case trials, supporting mechanisms

The Regulations has five chapters and 28 articles, which mainly stipulates the definition, functions and purposes, basic principles, initiation procedures, pre-trial procedures, case trials and supporting mechanisms of the case test mechanism.

In terms of initiation of procedures, the conditions and methods for the case test procedures initiation are specified. It is clear that the initiation of the procedure should be a financial civil and commercial dispute, and the parties to the case must reach an agreement. The legal disputes involved in the case are specific and clear, and they are significant and typical. Higher requirements for the qualifications and capabilities of the agent are needed. And the Shanghai Financial Court shall review to determine whether to start the case test procedure.

In terms of pre-trial procedures, procedural matters before the trial of a case are stipulated. It is clear that the parties shall not raise objections on procedural matters except by consensus. The collegial panel is composed of judges with rich experience in financial trials and experts in the fields of finance and law. It regulates the parties' substantive debate rights and the obligation to fully disclose evidence and information, and allows individuals or organizations with special knowledge outside the case to publicly submit written opinions on legal disputes involved in the case.

In the case trial, the trial procedures, evaluation, declaration of results and the scope of validity of the case test are stipulated. It is clear that the trial mode of the test case is the trial mode of the contention, the judicial opinion of the test case is publicly announced, and the scope of validity and application of the test results of the case is clearly defined.

In terms of supporting mechanisms, it is stipulated that information technology will be fully used to improve the application level of judicial technology in case test; judicial suggestions will be made in a timely manner on typical problems found in case test; and financial justice and financial supervision will be strengthened.

Highlights:

New scenarios, new attempts, new modes

As an innovative measure of the financial trial work mechanism, the case test mechanism has seen explorations in the following three aspects:

1. The new scenario of judicial service guarantee, which is different from the civil litigation system.

The mechanism is based on the judicial service guarantee function of China's courts, fully draws on the best practices of global financial justice, and refers to the principles of civil litigation for testing and trials. It is characterized by a consensus-based initiation, comprehensive disclosure of evidence and materials, preferred agency, full substantive defense, and full participation of the society from all walks of life, to stabilize the rule expectations of the financial market. The judgment logic and reasons formed in the test case will be referred to by the Shanghai Financial Court in similar cases accepted later.

2. A new judicial attempt to respond to regulatory sandbox governance in the has financial market.

The mechanism provides legal risk stress tests for disputes that may be caused by financial innovation in the existing legal rule system, provides clearer rule expectations for the innovation of financial market entities in a timely manner, and controls risks to a minimum, which is consistent with the purpose and concept of financial regulatory sandbox governance.

3. Coordinating all parties to achieve a new dispute resolution model of comprehensive social governance.

The mechanism fully reflects the characteristics of openness, transparency and inclusiveness, and relies on many forces to promote the procedures. The whole procedure of case test is carried out under the supervision of the public, improving the support mechanism of expert opinions, and jointly promoting the effectiveness of case test with financial regulatory agencies, industry self-regulatory organizations and other forces. Xiao Kai, the Vice President of the Shanghai Financial Court, said: ¡° Always guided by the implementation of major national financial strategic tasks, the Shanghai Financial Court will constantly innovate various working mechanisms for financial trials and services to provide more powerful financial and judicial guarantees for significantly improving the significance level of the Shanghai International Financial Center and accelerating the construction of a modern socialist international metropolis having world influence, setting the stage for the 20th National Congress of the CPC with concrete actions".