New regulatory body introduced to shore up China's financial safety
China is seeking to ramp up its financial safety and stability through strengthened government oversight. This article examines why the new regulator matters, and how it will make a difference.
China announced in May that it had set up a new financial regulator, which is considered a milestone in the country's institutional reform on financial regulation.
Named the National Financial Regulatory Administration (NFRA), the new agency operates directly under the State Council -- China's cabinet, and was formed based on the previous China Banking and Insurance Regulatory Commission.
The establishment of NFRA is part of a national plan unveiled in March for reforming various institutions affiliated to the State Council.
—What are the key functions of the NFRA?
According to the institution reform plan, the NFRA is in charge of regulating China's financial industry in a unified manner, with the only exception of the securities sector.
It aims to tighten financial regulations over "institutions, behaviours and functions," and such regulation is officially described as "penetrating and consistent."
The new regulator will also play a pivotal role in protecting the rights and interests of financial consumers, preventing and managing risks, and cracking down on irregularities.
Being established on the basis of the China Banking and Insurance Regulatory Commission, the NFRA will also take over some routine functions of the People's Bank of China, or China's central bank, such as overseeing financial holding companies.
It will also assume the duty of protecting investors' rights and interests, which was previously performed by the China Securities Regulatory Commission.
—Why did China establish the NFRA?
China's financial industry has evolved exponentially over the recent years. However, its regulations have been outpaced by the expansion of the financial market, as well as the emergence of new financial activities.
The incoordination has left regulatory loopholes for companies to take advantages of, causing threats to the stability of the financial system.
In addressing the problem, China has sought to build a unified regulatory system that brings all financial entities under central control.
By creating the NFRA, the Chinese government is able to reshuffle the responsibilities of financial regulators so that they operate in a more coordinated and efficient fashion and ensure a full coverage of regulations.
With this new regulator, China is able to pool strengths in the face of financial risks, and reshape its regulation structure into one that corresponds to the characteristics of the contemporary financial industry.
—Ming Ming, chief economist with the CITIC Securities
—Who currently oversee China's financial system?
With the NFRA coming into operation, China has officially formed a regulatory trio whose duties and functions are correlated and complementary. It consists of:
** The NFRA -- financial regulator except in the securities sector; protecting financial consumers
** The People's Bank of China -- creator of China's macroeconomic policies; conducting macro and prudent financial regulations
** The China Securities Regulatory Commission -- regulating China's capital market; approving the issuance of corporate and enterprise bonds
—How will NFRA make a difference?
The NFRA has recently released its annual work plan for 2023. According to the plan, the regulatory body is estimated to dispatch 2,000 inspection teams to banking institutions nationwide throughout the year.
These teams will carry out some 2,500 operations during the period, with a focus on defusing systemic risks, rooting out regulatory loopholes, maintaining the order of the financial market, and increasing support for the real economy.
With regards to non-banking financial sectors, the NFRA will prioritize conducting on-site inspections of key institutions, including insurance companies, trust companies, financial asset management companies.
They will assess these institutions' capabilities of managing risks, implementation of key financial policies, and adherence to rules and laws.
Featuring a more clear-cut division of duties, the establishment of NFRA will help streamline regulatory procedures and avoid duty overlapping, thereby boosting efficiency and mitigating financial corruption, said Zhou Maohua, a researcher with the China Everbright Bank.
Lian Ping, chief economist at the Zhixin Investment Research Institute, said that with a principal objective to ensure a full coverage of regulations, the NFRA will help China's financial market, institutions and products grapple with risks more effectively, and ensure a steady and sound operation of the financial system as well as the real economy.