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China regulator penalizes Kunlun Health over fabricated shareholding information

In a bid to crack down on the illegal transfer of benefits to shareholders of insurance companies, the China Insurance Regulatory Commission asked Kunlun Health Insurance Co. Ltd. to replace certain existing shareholders with new ones in three months.

The CIRC also withdrew previous decisions made in 2015 and 2016 to allow shareholder changes and capital injections at the health insurer. The regulator said Shenzhen Hongchangyu Business Management Consulting Co. and six other companies provided fake financial reports and fabricated statements on their funding sources and relations when applying to become Kunlun Health's shareholders.

The regulator added that it will put investors and intermediaries involved in the current Kunlun Health probe on a black list.

In February, the CIRC opened its first-ever open inquiry to ask Kunlun Health to identify whether four shareholders — Shenzhen Hongchangyu, Shenzhen Zhengyuanda Technology Co., Shenzhen Taiteng Material Trading Co. and Shenzhen Zhenglaida Industrial Co. — are related to the family of Kwok Ying-shing, the founder of Hong Kong-listed Kaisa Group Holdings Ltd.

The four Shenzhen-based companies collectively bought a 30.96% stake in Kunlun Health in August 2016, which was approved by the CIRC in December 2016. In addition, the regulator questioned whether Kunlun Health had submitted incorrect information related to its second-largest shareholder, Shenzhen Jiahaosheng Industrial Co.

On paper, Kunlun Health has 14 shareholders. Good First Group Co. Ltd. is the insurer's biggest shareholder, with a 19.04% stake, according to the health insurer's financial reports.

In July, the CIRC said it would tighten regulations on related-party transactions to prevent the illegal transfer of benefits from insurers to shareholders and affiliates.