One of the Chinese securities regulator’s senior-most officials has hailed the potential for Fintech innovation to improve the efficiency of the financial services sector.
Addressing a technology forum at the Shenzhen Stock Exchange on 4 December, Jiang Yang (姜洋), the vice-chair of the China Banking Regulatory Commission, said that Fintech is leading to profound changes in the development of the financial sector.
“Over the past several years, flourishing growth in modern information technology as represented by big data, cloud computing, artificial intelligence and block chains are broadly penetrating all areas,” said Jiang Yang.
“The financial sector is highly dependent upon information and data, and following daily deepening of the of between modern information technology and finance, Fintech is seeing accelerated innovation, application and promotion, and bringing increasingly profound change to the development of the financial sector.”
Jiang pointed to the potential of Fintech to increase efficiency and reduce financing costs by addressing the “information asymmetries” that affect standard market environments.
“Finance is intrinsically about achieving optimised resource allocation between the suppliers and users of funds,” said Jiang. “Information asymmetries reduce the risk assessment capability and operating efficiency of financial markets, making financing difficult and expensive for the users of funds, in particular micro, small and medium-sized enterprises.
“Fintech uses big data to evaluate and manage risk, and can effectively alleviate information asymmetries to reduce the threshold of entry to financial services, thus raising the coverage and inclusion level of financial services.
“Taking enterprise finance as an example, many small and medium-sized enterprises find it difficult to obtain adequate financial support in the form of bank loans, due to features such as a lack of fixed assets to serve as collateral, new commercial models, or non-linear growth.
“Using big data, it is possible to perform comprehensive assessment of the production and operation, financial condition and profit condition of small and medium-sized enterprises, to accurately determine their credit levels and perform investment decisions.
“Enterprise financial services will consequently become more efficient, convenient and quick.”
Jiang cited figures that point to roaring growth in both global and Chinese Fintech investment.
“Capital markets are…are a key support for the vigorous development of Fintech,” Jiang said.
“According to relevant statistics, during the period from 2010 to 2016, total global Fintech investment has risen from USD$1.791 billion to $23.2 billion for a near 12-fold increase.
“In recent years, China’s Fintech market scope has rapidly grown, with in excess of 5,700 Fintech sector enterprises, providing a total of approximately $42 billion in financing as of 2016.
“According to forecasts by 2020 Fintech will account for 10% of China’s asset management market, with a scope of over 10 trillion yuan.”
While the Chinese securities regulator would appear enthusiastic about the potential for Fintech to transform the financial sector, Jiang Yang also warned of attendant risks and pointed to the need for authorities to step up their scrutiny of new technologies.
“Application risk cannot be overlooked…with geometric growth in transaction speeds and transaction volumes, risk is spreading even more rapidly, and the potential for ruin is wider.
“Intrinsic defects could trigger regional or even systemic risk on the market under extreme conditions….certain incidents that occurred on China’s stock market in recent years are a classic example of systemic defects, technical malfunctions and lack of effective risk control triggering large-scale market volatility.
“The central banks and regulators of major countries around the world are now actively introducing and promoting research, development and application of Fintech, and continually exploring the standardised regulation of Fintech.
“The International Organization of Securities Commissions (IOSCO) released its Fintech Research Report in February, which points out that the surge in Fintech participants will impact the regulatory scope of regulators, and regulators will face multiple challenges during the performance of regulation when it comes to investor protection, fair regulation and market stability.”