Securities Commission Will Stay Intact Amidst China’s Financial Regulatory Shake-up

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The China Securities Regulatory Commission is expected to remain an independent body amidst sweeping reforms of the the country’s financial regulatory framework intended to consolidate key authorities.

The State Council recently unveiled far-reaching reforms of China’s administrative and political system, including the biggest adjustment of the financial regulatory system in 15 years.

The reforms include the merger of the China Banking Regulatory Commission and the China Insurance Regulatory Commission into a single body,  in order to better address “integrated operations” in the Chinese financial sector, as well as improve coordination and efficiency, and stamp out “regulatory arbitrage.”

They also envisage an expanded role for the People’s Bank of China, to encompass the drafting of insurance and financial sector regulations and a greater macro-prudential regulatory role.

The changes bring an end to the “One Bank and Three Commissions” system which has prevailed in China since 2003, and consists of the People’s Bank of China, the China Banking Regulatory Commission, the China Insurance Regulatory Commission and the China Securities Regulatory Commission.

While the goal of the reforms is to consolidate China’s financial regulatory system, taking its cue from the UK’s “twin peaks” model that splits the responsibility for oversight between the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority, observers say that Beijing will stop short of merging the country’s securities regulator.

Lou Jiwei (楼继伟), chair of the National Council for Social Security Fund and the former Minister of Finance, points out that the securities regulator differs from the banking and insurance regulators, in that its responsibilities include investor protection, including scrutiny of fraudulent market behaviour and the accuracy of information disclosures.

Hu Xiaolian (胡晓炼), chair of the Exim Bank of China, also believes that banking and insurance operations are comparable while securities operations are more distinct, and keeping CSRC distinct is of benefit to further standardisation and development of China’s capital markets.

In a recent essay on the impacts of the latest round of financial regulatory reforms, chief economist of the Evergrande Group Ren Zeping said that “the independence of CSRC clearly indicates the importance of the development of direct financing for the central bank.”

 

 

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