More Fintech regulation on the horizon in China – The Diplomat
Pacific silver | Economy | East Asia
The Chinese government continues to add oversight and structure to this rapidly growing industry.
After a period of rapid growth, heavy fintech regulation is on the rise in China. The scale of third-party payments increased from RMB 13 trillion in 2013 to RMB 300 trillion in 2019, while internet-based wealth management grew from less than RMB 1 trillion in 2013 to over 5 500 billion RMB in 2018. engaged in inappropriate activities, using financial instruments such as P2P lending, microfinance and asset-backed securities. This allowed them to over-leverage or even resort to fraud, creating systemic risk. Indeed, the 2020 Chinese government work report said oversight of fintech companies is necessary to ensure innovation occurs under proper regulation.
Chinese regulators strongly support the move to regulate fintech more tightly. Last week, China Banking and Insurance Regulatory Commission (CBIRC) chairman Guo Shuqing said that fintech companies must meet capital adequacy requirements and must not receive financial support. special treatment within the financial sector. Online banking lending regulations require a minimum capital contribution and state that online banks must be regulated in accordance with financial regulations. This transition must take place within two years. The CBIRC has also demanded that small and medium-sized banks and others refrain from making cross-regional internet loans.
Ant Financial was the last major company to feel the brunt of regulatory repression. The company’s IPO was halted in November last year due to regulators announcing additional regulations aimed at raising online lending standards as well as corporate structure. To comply with new capital requirements, Ant Group is undergoing restructuring. On a positive note, Guo said there are no restrictions on Ant’s financial activities except for legal compliance.
More regulations can be expected in the next five to 10 years as fintech continues to grow. The 14th Five-Year Plan emphasizes that China will use technological innovation to drive development and specifically calls for continued research and development of central bank digital currency. During the plan period, more attention will be paid to the use of fintech for financial inclusion and green finance. The plan also highlights the need for new antitrust and licensing rules for technology platforms and new fintech regulations.
The loudest voices calling for more fintech regulation are demanding greater data security and privacy protection within the sector. Governmental and non-governmental experts have argued that large Internet companies have become “information islands”, obtaining large amounts of information without increasing people’s access to information services. These experts believe that sharing information can improve social effectiveness, especially in extreme cases, such as the COVID-19 outbreak. Information shared can also provide public data to build government capacity and improve public services.
At the same time, Chinese experts have also affirmed the need to improve personal data privacy rights and protect national data security. The idea is that data should be segregated based on its necessary control and privacy risks. While China’s legislature has already passed a Civil Code to broadly protect individual consumer data, there remain many concerns about what kind of data leaves the country and how cross-border data flows can be properly managed. . Some technology experts have even recommended that a national data bank be created and managed by a special agency to properly collect, store and transmit data.
Some government researchers have called for other types of fintech regulations to be put in place to better control loan funds and improve the credit investigation environment. Last month, the People’s Bank of China released the “Measures for the Management of Credit Investigation Services (draft for comment)”, which would prevent credit collection companies from collecting information from illegal channels or by deceptive means, collecting fees from individuals or companies, or otherwise violating the rights of data subjects. Currently, there are credit investigation companies that have questionable practices when it comes to collecting, storing, and using credit. The current draft regulations follow two earlier rules on credit reporting institutions and may be followed by additional rules.
As more and more fintech regulations are put in place, it will be difficult to leave room for fintech innovations to grow. After all, even fintech companies that have worked closely with regulators to ensure compliance with upcoming regulations have faced new rules that nullify much of their business. In the increasingly stringent financial regulatory environment, fintech companies can aim to be as compliant as possible with future rules and hope for the best.