The CSRC has staff shortages, Xiao said. It has 600 law enforcement officers, accounting for 20 percent of its workforce. In comparison, the United States Securities and Exchange Commission has 1,236 enforcement officers, or 32 percent of its staff.

A lack of investment in technology is also making it hard for the commission to keep up with increasingly complex crimes, Xiao added.

Strengthening law enforcement is only one component of the CSRC's plan to revamp the domestic capital markets.

It has suspended initial public offerings for almost 10 months, as it works on new rules that would impose harsh penalties on fraud by investment banks.

More than 700 companies are waiting to float shares, but the CSRC hasn't said when the rules will be implemented and IPOs will resume, a show of the CSRC's determination to let the rules make a difference.

The CSRC is reviewing public feedback on a draft of the regulations released on June 7. The draft calls for penalties against investment banks and their employees for misconduct such as including inaccurate information in a prospectus and inadequate risk disclosure.

Companies whose profits drop by more than 50 percent in the year following an IPO will also face penalties.

In an article published on the People's Daily on Wednesday, Xiao promised to add more layers to the country's capital markets and provide more funding channels to small and medium-sized enterprises.

This year, the CSRC expanded the SME corporate bond trial, allowing 210 companies to raise a total of 27 billion yuan ($4.4 billion) through private placements.