The Administrative Measures for the Provision of Securities Legal Services by Law Firms (the “Measures”) was jointly promulgated by the China Securities Regulatory Commission (“CSRC”) and the Ministry of Justice of the People’s Republic of China (“MOJ”) on March 9, 2007, and took effect on May 1, 2007.  The Measures superseded the Notice of the CSRC on Strengthening the Administration of the Provision of Securities Legal Services by Lawyers, which has been in effect since 1998 (the “1998 Notice”). 

The Measures are a milestone for further supervision of securities legal services from the CSRC and the MOJ after the administrative approval for qualification of conducting securities legal services was eliminated on November 1, 2002.  Compared with the 1998 Notice, the major changes of the Measures are as follows:

1. Expanded the scope of the provision of securities legal services by law firms and further clarified the definition of the securities legal services

In accordance with the Measures, when providing securities legal services, law firms may issue legal opinions on the following matters: (1) initial public offering and listing of stocks; (2) issuance and listing of securities by listed companies; (3) acquisition, material asset restructuring, and repurchase of shares by listed companies; (4) stock option plan adopted by listed companies; (5) holding of the general meeting of shareholders by listed companies; (6) directly or indirectly overseas’ issuing and listing the securities by domestic enterprises; (7) establishment, change, winding up and termination of securities companies, securities investment fund management companies and their branches; (8) raising securities investment funds and establishment of integrated asset management plans by securities companies; (9) issuance and listing of securities derivatives and other matters stipulated by the CSRC.

2.  Tightened the qualification requirements for the provision of securities legal services by lawyers 

The Measures recommend that only the lawyers who have no record of any administrative penalty due to the illegal legal service within the latest two years and meet the following conditions to provide the securities legal services: (1) have experience in providing the securities legal services in the latest three years, or (2) having been practicing for the latest consecutive three years, the co-counsel engaged in such legal service together with the lawyer himself has experience of providing the securities legal services in the latest three years, or (3) having consecutively engaged in the teaching and research in the field of securities law for the latest three years or having received relevant training in securities legal services.

The requirements in the Measures are more restrictive compared with the stipulation of the 1998 Notice that the lawyer may conduct the securities legal services if he has involved in such business.

In addition, according to the Measures, once the practice license is revoked by the authority, the lawyer is forbidden from conducting any securities legal service any more.

3. Expanded the scope of withdrawal from the legal services

In accordance with the Measures, a law firm shall not simultaneously issue legal opinions for both the issuer and the recommender or the securities underwriting company for a same securities issuance, and shall not simultaneously issue legal opinions for the acquirer and the listed company being acquired in a same acquisition, nor may it simultaneously issue legal opinions for different clients that have a conflict of interest in a same securities business.  In case a lawyer acts as the director, supervisor or senior manager of a company or a related party, or is under the circumstance that will affect his independence, his law firm shall not be retained by such company to provide securities legal services for it.

4. Codified the business operational rules and the requirements on issuance of legal opinions.

According to the Measures, as engaged in the securities legal services, a law firm and the lawyers it assigns shall examine and verify the authenticity, accuracy and integrity of the documents and materials concerned.

The legal opinions issued by the law firm shall meet the following requirements:
(1) The legal opinions shall indicate relevant materials, facts, specific examination and verification results, related state provisions and conclusive opinions.  No ambiguous expression such as “generally meeting the requirements” or “having not discovered” could be used in the legal opinions.
(2) The documents the lawyers make and issue shall not contain any false content, misleading statement or major omission.
(3)  If it is under any of the following circumstances, a lawyer shall explain it in the legal opinions, and sufficiently reveal its impacts on relevant matters and the risks that may occur:
(i) All or part of the matters entrusted by the client do not comply with the regulations of the CSRC;
(ii) The facts are unclear and the materials are insufficient, and they can not comprehensively reflect the conditions of the client;
(iii) The scope of examination and verification are restricted by the objective conditions so that it is impossible to obtain the corresponding evidence;
(iv)  The lawyer has requested the client to make correction and supplement, but the client fails to do so;
(v) The lawyer has diligently performed his duties but still can not make precise judgment about all or part of matters; and
(vi) Other circumstances as considered by the lawyer that should be explained.
(4) The legal opinions shall be signed by three licensed lawyers, and one of whom shall be the managing partner of the law firm, sealed, and indicated by the date; and
(5) The lawyer shall sort out and collect the working records formed in the examination and verification as well as the materials he obtained, and explain the facts, relevant state regulations and his analysis and judgment on which the specific opinions in written legal opinions are based, and form well-organized working papers.  The working papers shall be kept by the law firm for no less than seven years.

5. Specified the legal liabilities

In case the law firm fails to perform duties diligent and issue the legal opinions with any false content, misleading statement or major omission, or fails to keep the working papers according to the Measures, it shall be given a warning or imposed fines by the supervising authorities in accordance with the Securities Law.  For serious breaches, the lawyers involved shall be forbidden from entering into the securities business.  In case the law firm in violence with the Lawyers Law or other regulations on the administration of lawyers’ practice, the judicial authority shall give corresponding administrative punishments.  In case of committing the crime, the lawyers shall be transferred to the criminal investigation authorities.