China’s Top Banking Regulator Highlights Five Focal Areas for Financial Risk Prevention in Future

The head of China’s banking authority has highlighted five key areas for financial risk prevention efforts undertaken by regulators in the near-term.

Guo Shuqing (郭树清), head of the China Banking and Insurance Regulatory Commission (CBIRC) and party secretary of the Chinese Central bank, said that despite the successes of a three year campaign to dissolve major forms of financial risk, work in this area was a “perennial theme” for regulators.

According to Guo Chinese financial regulators are currently focused on risk prevention in five key areas:

1. A rebound in non-performing assets. “We must oversee and drive banking institutions in properly performing asset categorisation and expanding the vigour of provisions, and ensure that they can dispose of non-performing assets more rapidly and in greater volume.”
2. Prevention of a “recovery from the dead” of shadow banking. “We must strictly prevent shadow banking from coming back from the dead…following rectification China’s shadow banking sector has already declined by 20 trillion yuan from its peak, but the outstanding volume remains quite large, and it would be extremely easy for there to be a rebound if there is just a slight lack of precaution. We must prevent financial institutions from using cross-sector financial products to engage in disorderly leveraging, and contain the initial formation of any new types of financing that are akin to loans.'”
3. Rectification of illegal public issuance of securities. “In the past many illegal funds-raising cases were in actuality forms of illegal public issuance of securities. All forms of ‘fake private fund-raising’ shall be strictly punished in accordance with the law.”
4. Pragmatic prevention of risk in relation to investment in financial derivatives products. “For mature financial markets, the main investors in financial derivatives are institutional investors, and financial derivatives are extremely ill-suited to investment by individuals for wealth management…the prices of financial derivatives fluctuate considerably, and make very high requirements for the level of professionalism and the risk-endurance capability of investors.”
5. Use of the terms “fintech” and “online finance” to engage in fraud or illegal fund-raising activities. “At present there have emerged innumerable forms of fraud which fly the flag of fintech and online finance, and use high-interest returns to tempt [investors.] In actuality they are all forms of illegal fund-raising activity.”

Guo made the remarks on 10 June at the 13th Lujiazui Forum held in Shanghai.