Fact Check
Streamlined financial regulation aims for a healthier industry
By Lan Xinzhen  ·  2023-05-26  ·   Source: NO.22 JUNE 1, 2023

The National Administration of Financial Regulation (NAFR), a new watchdog for the country's financial business, was launched on May 18. This agency replaces the China Banking and Insurance Regulatory Commission, which was established in 2018. It also takes over certain functions from the People's Bank of China (PBC), the central bank, including protecting consumers of financial services, as well as certain functions from the China Securities Regulatory Commission, including investor protection. The NAFR is in charge of regulating the entire financial industry except the securities sector. It is tasked with strengthening supervision over players in the financial industry and ensuring the supervision is penetrating and continuous.

The launch of the NAFR contributes to the reshaping of China's financial regulatory system. The system now consists of the PBC, the NAFR, the China Securities Regulatory Commission, which oversees the securities sector, and the State Administration of Foreign Exchange, which manages China's foreign exchange (forex) reserves and supervises the forex market.

Finance is the core of a modern economy. Economies around the world have all done a lot to lessen financial risks and ensure financial security within their borders, and China is no exception. China's regulatory authorities took effective measures against threats to its financial and economic stability amid the 1997 Asian financial crisis and the financial turmoil in 2008.

However, prominent problems prompted the Chinese Government to reform its financial regulation. For instance, there were overlapping responsibilities between different regulatory bodies, making regulation inefficient. Also, regulatory standards could vary from region to region, leaving room for arbitrage. The acceleration of financial innovation in recent years has given rise to many kinds of new businesses, calling for a more coordinated approach to supervision, particularly given the emergence of Internet finance, which integrates fintech and financial services.

It is against this backdrop that China decided to set up the NAFR. The establishment of the NAFR was a focus of the plan on central government department reforms passed by the First Session of the 14th National People's Congress, the top legislature. The body will reduce regulatory overlap, and promote unified and standardized regulation of financial products and services.

Ensuring China's fundamental financial stability must underpin efforts to reform the regulatory system. For this reason, one of the regulators' basic tasks is to eliminate the systemic risks that jeopardize this stability. The arrival of the NAFR helps fill the loopholes that might pop up when a business has dealings across different regions and sectors. Apart from the securities sector, the NAFR will bring other financial sectors under its regulation, including banking, trust, insurance, financial lease and financing guarantee businesses. In this way, supervisory resources can be coordinated to improve the quality and effectiveness of financial regulation and ensure a fair market system.

Consumer protection is the foundation for the stability and sound development of the financial sector. Unified supervision under the NAFR is conducive to preventing incidents that harm consumers' interests, untangling the web when they occur and ensuring a fair result.

This year has already witnessed black swan incidents featuring the collapse of some small and medium-sized banks outside China. High expectations are thus pinned on the NAFR to tackle risks and maintain financial stability in China.

Copyedited by G.P. Wilson 

Comments to lanxinzhen@cicgamericas.com 

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