Banking-Insurance Merger Marks Biggest Shakeup of Chinese Financial Regulation in 15 years


The merger of China’s banking and insurance authorities is set to have profound implications for the country’s financial regulatory landscape by bringing an end to the “One Bank Three Commissions” system.

On 13 March the State Council unveiled far-reaching reforms of China’s administrative and political system, chief amongst them the consolidation of the China Banking Regulatory Commission and the China Insurance Regulatory Commission into a single authority, as part of efforts to improve efficiency and co-ordination as well as stamp out “regulatory arbitrage.”

The reforms mark the end of a financial regulatory framework which has prevailed for the past 15 years, comprised of the “One Bank and the Three Commissions,” a reference to the People’s Bank of China (PBOC), the China Banking Regulatory Commission (CBRC), the China Insurance Regulatory Commission (CIRC) and the China Securities Regulatory Commission (CSRC).

CSRC was established in 1992, followed by CIRC in 1998, and the splitting off of CBRC from the Chinese central bank in 2003.

Cao Fengqi (曹凤岐), chair of Peking University’s Financial and Securities Research Center, said to Caijing that the One Bank Three Commission system has played a key role in the development and stabilisation of Chinese finance during its 15 years of existence.

Analysts point out, however, that the regulatory shakeup is desirable given the vast changes that have swept China’s financial system since 2003, transforming it into a huge asset holder.

As of the end of 2017 China’s 4549 banking sector financial institutions held more than 250 trillion yuan (approx. USD$39.52 trillion) in total assets, while the insurance sector’s nearly 200 firms held 16.75 trillion yuan in assets for 9-fold and 18-fold growth respectively since 2003.

One economic researcher specialising in reform of China’s financial regulatory system said to Caijing that the current round of reforms are motivated by the increasing prevalence of cross-sector operations in the financial system.

Over the past fifteen year’s China has seen the emergence of multiple banking and insurance sector conglomerates, chief amongst them Ping An of China, which is comprised of over 20 subsidiaries encompassing banking, securities, insurance, and private equity.

The expansion of online tech giants into financial operations has also shaken up the sector, with Alibaba, Baidu and Tencent all holding licenses to engage in banking, insurance and payments operations, prompting many to view them as potential financial holding companies.

“The emergence of share-controlled companies as the main form of financial firm alongside increasing regulatory overlap, regulatory gaps as well as regulatory arbitrage, means that regulation on the basis of sector no longer suits the current state of development of the financial system,” said the researcher.

Calls for reform of China’s sector-based financial regulatory system became increasingly acute after the the country’s 2015 stock market upset, which saw authorities struggle to containing diving share prices.

In October 2015 the central government formally released its plan for “Reform and Improvement of a Financial Regulatory Framework that Suits Modern Financial Market Development” (改革并完善适应现代金融市场发展的金融监管框架), while in July of last year the Central Financial Work Conference flagged the establishment of a Financial Stability and Development Commission, to be responsible for strengthening PBOC’s macro-prudential regulation and systemic risk-prevention role.

Beijing hopes that its latest decision to merge CBRC and CIRC will enable regulators to better address the increasing integration of the banking and insurance sectors, as well as improve the efficiency and coordination of their efforts.

At the same time the expansion of PBOC’s responsibilities, particularly with respect to the drafting of key regulation governing the financial sector, is expected to bring greater coherence and unity to the rules system and help to curb regulatory arbitrage.

While the merger of the banking and insurance authorities is the biggest change to China’s financial regulatory system in 15 years, market observers says that it only marks the start of a new round of reforms that will focus on the division or integration of regulatory functions, in order to better adapt to the breakneck pace of changes on the market.