Analysis Report on Deficiencies in Caitong Securities' Compliance and Risk Control System

According to public information, Caitong Securities Co., Ltd. (stock code: 601108.SS) received a total of 5 regulatory fines in 2025, involving multiple areas such as over-the-counter (OTC) derivatives business, investment banking business, overseas subsidiary management, anti-money laundering compliance, and employee behavior management [1][2][3]. From the perspective of core regulatory indicators like net capital/risk coverage ratio, these penalties reflect systemic deficiencies in Caitong Securities’ compliance and risk control system.

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Penalty Date	Regulatory Authority	Violation Type	Key Issues	Relevant Indicator Links
Feb 17, 2025	People’s Bank of China Zhejiang Branch	Anti-money laundering fine of 1.95 million yuan	Failed to fulfill customer identification obligations as required, failed to submit large-value transaction reports or suspicious transaction reports	Risk coverage ratio, compliance risk management
Sep 26, 2025	Zhejiang Securities Regulatory Bureau	Warning letter for overseas subsidiaries	Failed to establish a tracking system for decision-making matters of overseas subsidiaries, failed to improve risk control mechanisms, directors’ qualifications did not meet requirements	Net capital/risk capital reserve, cross-border risk control
Nov 6, 2025	Shanghai Stock Exchange	Written warning for investment banking business	Failed to exercise due diligence in private placement bond projects, failed to fully verify the use of raised funds	Risk capital reserve, internal control
Nov 7, 2025	Zhejiang Securities Regulatory Bureau	Order to rectify OTC derivatives business	Inadequate underlying asset management mechanism, insufficient review of investor qualifications, improper permission management of management systems	Net capital/risk coverage ratio, market risk management
Dec 2025	Jiangsu Securities Regulatory Bureau	Warning letter for employee violations	Misleading customers via WeChat groups, insufficient risk disclosure, operating customer accounts	Employee behavior management, compliance culture

From the distribution of the above fines, Caitong Securities’ compliance issues cover multiple levels including front-end business (OTC derivatives, investment banking), middle-office management (internal control, risk management), and back-end support (anti-money laundering, information technology systems), showing a “comprehensive” characteristic.

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According to the “Measures for the Management of Risk Control Indicators of Securities Companies”, securities companies must meet the following core regulatory requirements:

The order to rectify the OTC derivatives business exposes potential risks in this indicator. Caitong Securities has the problem of “inadequate underlying asset management mechanism and failure to implement timely dynamic adjustments to linked underlying assets” in its OTC derivatives business [1][3]. This means that when the market environment changes or the risk characteristics of underlying assets change, the company fails to adjust risk exposure in a timely manner, which may lead to actual risk capital occupation exceeding a reasonable range.

Reflects the company’s insufficient ability to identify risks in new businesses. As the scale of OTC derivatives business expands, risk management technical means and system construction have not kept pace.

From the company’s financial data, Caitong Securities’ 2024 financial analysis shows it belongs to the “low-risk” category, but there is a time lag between business expansion and capital supplementation [0]. Especially the lack of management of overseas subsidiaries (warning letter issued by Zhejiang Securities Regulatory Bureau) [1][2], indicating insufficient forward-looking management of capital adequacy in the company’s cross-border business layout.

Violations in investment banking business reflect weak links in the company’s liability-side risk management. The Shanghai Stock Exchange pointed out that the company “failed to exercise due diligence and did not fully and effectively verify key information such as the use of raised funds in the application documents” in private placement bond projects [1]. This lack of verification may lead to discrepancies between the actual use of raised funds and the application, increasing the company’s contingent liability risks.

Although employee violations (operating customer accounts, insufficient risk disclosure) are not directly related to liquidity indicators, they reflect loopholes in internal management processes [3], which indirectly affect the company’s overall operational efficiency and risk response capabilities.

This is the most core comprehensive indicator. Caitong Securities’ 5 fines in the year cover multiple business lines, indicating structural defects in the company’s overall risk coverage system:

• Incomplete system coverage:
  From OTC derivatives to overseas subsidiaries, there is a lack of a unified risk identification, measurement, and monitoring framework
• Insufficient implementation:
  Even if systems are established, there are obvious loopholes in implementation aspects such as permission management and qualification review
• Lagging monitoring mechanism:
  No dynamic monitoring and timely early warning mechanism for business risks has been established

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• Lack of dynamic adjustment mechanism for linked underlying assets, leading to inability to respond timely when risk characteristics of underlying assets change
• Investor suitability management is a formality, and annual review work is insufficient
• Permission management of business management systems is chaotic, and password management has security risks

Directly affects net capital/risk capital reserve and risk coverage ratio, which may lead to underestimation of risk exposure.

• Incomplete project verification procedures, blind spots in key information review
• Lax verification of the use of raised funds, affecting the accuracy of application documents
• Insufficient forward shift of quality control checkpoints, relying on post-event regulatory discovery

Increases the company’s compliance risks and potential compensation risks, affecting risk-adjusted returns.

• No tracking system for the implementation of decision-making matters covering overseas subsidiaries has been established
• Risk control mechanism for overseas subsidiaries is inadequate
• Lax review of directors’ qualifications

Cross-border risk exposure is difficult to monitor effectively, which may lead to risk spillover and loss of capital control.

• Customer identification system is not properly implemented
• Large-value transaction and suspicious transaction reporting mechanisms are incomplete
• This is the first penalty for a securities firm since the newly revised Anti-Money Laundering Law was implemented in January 2025 [2][3]

Directly touches core indicators of compliance risk management, which may face higher regulatory rating pressure.

• Practitioners spread misleading information through WeChat groups
• No effective employee communication monitoring mechanism has been established
• Serious violations such as operating customer accounts

Reflects insufficient penetration of the company’s compliance culture, and lack of training on compliance awareness and behavioral norms.

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From the perspective of multi-dimensional indicators such as net capital/risk coverage ratio, the root causes of the deficiencies in Caitong Securities’ compliance and risk control system can be summarized as follows:

Multiple violations involve the most basic compliance requirements, such as customer identification, business system permission management, investor suitability review, etc. This reflects that the company’s compliance culture has not yet taken root, and compliance concepts have not really been integrated into daily operation and management.

Risk management of each business line is relatively independent, lacking a unified indicator system and monitoring platform. There may be problems such as inconsistent calibers and lagging data updates in the calculation and monitoring of core indicators like net capital/risk coverage ratio.

The OTC derivatives business is growing rapidly, but risk management technical means, system construction, and talent reserves have not kept pace, leading to a mismatch between risk exposure and risk control capabilities.

Problems in overseas subsidiary management and employee violations indicate that the company has obvious weak links in the daily management and supervision of branches, especially off-site institutions and subsidiaries.

From the perspective of regulatory penalty targets, in addition to institutional penalties, relevant responsible persons are also held accountable, but the timeliness and effectiveness of the internal accountability mechanism still need to be strengthened.

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With net capital/risk coverage ratio as the core, establish a risk monitoring indicator system covering all business lines to achieve real-time risk monitoring and early warning. Specifically include:

• Improve the risk exposure measurement model for OTC derivatives business
• Establish a dynamic adjustment trigger mechanism for linked underlying assets
• Strengthen the annual review system for investor suitability management

In response to the management deficiencies of overseas subsidiaries, it is recommended:

• Establish a tracking system for the implementation of decision-making matters of overseas subsidiaries
• Improve the risk assessment and reporting mechanism for overseas subsidiaries
• Strengthen the qualification review of directors and senior executives of overseas subsidiaries

As the first securities firm to be penalized after the implementation of the new Anti-Money Laundering Law, Caitong Securities should:

• Upgrade the customer identification system and introduce new technologies such as biometrics
• Improve the monitoring model for large-value transactions and suspicious transactions
• Establish a regular compliance audit and self-inspection mechanism

In response to employee violations, it is recommended:

• Establish norms and monitoring mechanisms for the use of employee communication tools
• Conduct regular compliance training and case warning education
• Improve the internal accountability system for employee violations

In response to the verification issues in investment banking business, it is recommended:

• Establish a special verification list for the use of raised funds
• Strengthen project quality control checkpoints and move risk identification nodes forward
• Improve the multi-level review mechanism for application documents

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Caitong Securities’ 5 fines in the year reveal systemic deficiencies in its compliance and risk control system from multiple dimensions. From the perspective of core regulatory indicators like net capital/risk coverage ratio, these deficiencies not only affect the company’s regulatory rating but also may substantially restrict its business development space and capital supplementation capacity.

Against the background of increasing competition and stricter regulation in the securities industry, Caitong Securities needs to elevate the construction of compliance and risk control capabilities to a strategic level, and make simultaneous efforts from multiple levels such as system construction, system upgrading, and cultural cultivation to achieve healthy and sustainable business development.

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[1] Caifuhao - Caitong Securities received 5 fines this year, why is its performance growth rate not keeping up with peers? (https://caifuhao.eastmoney.com/news/20251226151544071647930)

[2] China News Service - Scan of securities firm fines this year: Involving 77 securities firms, employee violations account for more than 30% (https://www.chinanews.com.cn/cj/2025/12-26/10540765.shtml)

[3] Sina Finance - Did a securities firm employee mislead customers via WeChat groups? Caitong Securities has been repeatedly named by regulators this year (https://finance.sina.com.cn/stock/quanshang/2025-12-17/doc-inhcavhm7549592.shtml)