At the beginning of 2025, the stock exchange sounded the “alarm bell” for sponsoring institutions, as China Merchants Securities received a warning letter for its inadequate performance in sponsoring “FeiSu Innovation”.

According to the announcement, there were defects in the internal controls related to the issuer FeiSu Innovation’s information system, which failed to accurately display information such as product sales and review data on the frontend mall. The issuer only started to fully retain system operation logs for the past six months from June 2023. The responses to inquiries did not match the actual situation. Moreover, employees with access to the financial system could perform reverse settlement and reverse audit operations without approval, reflecting inadequate internal management systems.

As the sponsoring institution for the project, China Merchants Securities failed to identify the above issues in its relevant verification report, indicating inadequate verification.

In addition, the exchange pointed out that China Merchants Securities did not strictly follow relevant procedures when verifying FeiSu Innovation’s fund flows and sales, and some verification procedures were missing. For this reason, both China Merchants Securities and the project sponsors Yang Meng and Liu Xingde were subject to self-regulatory measures in the form of written warnings.

This is not the first time China Merchants Securities has received a warning from the exchange. In 2024 alone, it received at least five regulatory warning letters.

For example, in February 2024, China Merchants Securities was issued a warning letter by the Anhui Regulatory Bureau and recorded in the securities and futures market integrity archive for failing to supervise the issuer’s management of raised funds and to continuously track and supervise the issuer’s fulfillment of its obligations to disclose temporary information.

In August 2024, China Merchants Securities received another warning letter from the Shenzhen Securities Regulatory Bureau due to inadequate supervision of the standardized operation of listed companies in some investment banking projects, insufficient prudent use and independent verification of professional opinions from other securities service institutions, and incomplete working papers.

Behind the frequent regulatory warnings, the quality of China Merchants Securities’ sponsorship has been poor, and there have even been cases of fraud. In June 2024, the Supreme People’s Court announced a batch of typical financial fraud cases, including the asset reorganization case of Shanghai Feilo Acoustic (now known as China Security & Technology Group Co., Ltd., stock abbreviation “CST”), for which China Merchants Securities served as the independent financial advisor.