Spillover of technology companies into critical financial sectors such as micropayments require unified oversight of China’s fintech sector, the chairman of China’s Banking and Insurance Regulatory Commission said Tuesday at an event in Singapore.
Why it matters: The CBIRC chairman’s remarks about fintech giants were conciliatory, but he also called for more regulation of the industry on the national level.
- Delivered as the dust settles following Ant Group’s suspended public listing, the speech brings rare insight into Chinese regulator plans.
- Guo Shuqing did not mention Ant Group by name, but he appeared to refer to regulator criticism about the fintech giant.
The challenges ahead: Echoing criticism of Ant Group from other regulators, Guo spoke about “too big to fail” risks during a speech at the Switch conference on Tuesday. This phrase featured prominently in three anonymous op-eds that appeared in the PBOC’s official journal.
- Some companies are dominant in digital payments, which make them “important financial infrastructure,” Guo said. The PBOC updated its mandate to include such institutions in late October.
- Fintech is a “winner takes all” industry, according to Guo. While traditional antitrust regulation focuses on “monopoly agreements, market abuses, and the concentration of operators,” fintech has created many new monopolistic phenomena which Guo said must be addressed.
- China released new antitrust regulations in early November.
- Fintech regulation should be unified across segments of the industry to preclude regulatory inconsistencies, leading to systemic risk, according to Guo. Some fintech platforms issue credit card overdrafts and loans to induce excessive consumption, often giving loans to people who can’t afford to pay them back. Laws should be unified to prevent such behavior.
The data road ahead: Guo emphasized the role of security and privacy laws, and said that regulators are working to build a framework for the protection of financial data. Three out of the five “problems to be studied and solved” Guo referred to in his speech were about data management.
- Network security is crucial to China’s banking system because 90% of transactions happen online.
- Data rights must be clarified so that the data economy in China can flourish. “The laws of various countries seem to have not accurately defined the ownership of data property rights, and large technology companies actually have control over the data,” Guo said.
- Countries should work together on cross-border data flows. China’s Global Data Security Initiative calls for “all countries to respect the sovereignty, jurisdiction, and security management rights of other countries.”
READ MORE: INSIGHTS | Data localization is going global
Pat on the back: He said the sector has promoted inclusive finance, particularly in the areas of credit and insurance.
- Loans to small and medium enterprises this year as of end-October were up 30% year on year, and loans to farmers rose 14.3% in the same time period, he said.
- Fintech firms have also contributed to poverty alleviation, according to Guo. Microfinance platforms had issued more than RMB 5 billion ($766 million) nationwide to support 12 million households year to date as of end-September.
- The chairman also praised the role of digital payments in epidemic prevention during Covid-19.
Cautionary tales: Guo said that regulators have taken a cautious approach in regulating China’s nascent fintech industry, “crossing the river by feeling the stones” (our translation). He cited two examples where authorities stepped in when companies were behaving as banks without following the relevant regulations.
- He pointed to peer-to-peer lending, an industry that fell as quickly as it rose once Chinese regulators started clamping down. P2P companies were poised to be “financial information intermediaries” but ended up underwriting loans and selling investment products, Guo said.
- As of November, there are no longer any P2P platforms in China.
- Another important lesson was the management of third party payment platforms’ investment functions. When digital payment platforms added investment and financial management functions to online shopping services, they started chipping away at bank deposits and taking over the asset management market without following regulations that banks have to abide by.
- Consumers preferred to keep their money on fintech apps because of higher interest yields, and the apps were able to invest these deposits. In 2018, China’s central bank told fintech apps that they must keep 100% of user deposits with the People’s Bank of China.