Proposed reforms of China’s financial system involving the merger of the banking and insurance authorities will also have the effect of expanding the regulatory role of the Chinese central bank.
The State Council recently submitted a sweeping institutional reform plan to the 13th National People’s Congress, outlining the consolidation of the China Banking Regulatory Commission and the China Insurance Regulatory Commission as part of efforts to raise the coordination and efficiency of regulation.
The plan also proposes that certain key functions of both CBRC and CIRC be transferred to the People’s Bank of China, chief amongst them the drafting of key legislation for the banking and insurance sectors, as well as responsibility for the prudential regulatory system.
“This reform strengthens the central bank’s macro-prudential regulatory role, as well as shifts it from regulation of institutions to regulation of functions, conduct and prudential regulation,” said one expert on Chinese financial regulation to 21st Century Business Herald.
“We can see the logic of the ‘twin peaks’ regulatory model in these adjustments, while perhaps also fully taking into consideration China’s own operating situation based on division by sectors.”
According to the expert Beijing has drawn inspiration from the regulatory model implemented in the UK since 2013, that splits duties between the Prudential Regulation Authority and the Financial Conduct Authority.
An essay published on 13 March by Xu Zhong (徐忠), head of PBOC research department, says that China’s latest round of institutional reforms “strengthen the macro-prudnetial regulatory role of the central bank…and sets an important foundation for waging a determined war for the prevention and dissolution of key risk via the implementation of the ‘three overalls.'”
According to Xu the first of these “overalls” is regulation of systemically important financial institutions and financial holding companies, including their identification and the authority to investigate and sanction them, as well as veto the appointment and dismissal of senior executives.
The second “overall” is the planning, establishment and regulation of key financial market infrastructure (including various financial asset registration and trusteeship entities), with PBOC exercising a veto the formulation and amendment of main operating regulations of financial exchanges.
The third overall is responsibility for financial sector statistics, with PBOC permitted to engage in “direct data collection” based on professional necessity whenever macro-economic adjustments, systemic risk or other major issues arise.