Chinese Central Bank Releases Draft Version of Financial Stability Law

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The People’s Bank of China (PBOC) has issued the draft version of a financial stability law in a bid to shore up the prevention of systemic risk in the Chinese financial system.

PBOC announced the release of the draft version of the “People’s Republic of China Financial Stability Law” for the solicitation of opinions from the public (中华人民共和国金融稳定法(草案征求意见稿)) on 6 April.

The Law was drafted by PBOC in conjunction with other central government authorities including the National Development and Reform Commission (NDRC), the Ministry of Finance (MOF), the China Banking and Insurance Regulatory Commission (CBIRC) and the China Securities Regulatory Commission (CSRC).

“The goal of the draft law is to establish complete, highly effective, authoritative, coordinated and vigorous work mechanisms for financial stability,” said PBOC.

“[It] will further solidify the individual responsibility of financial institutions and their main shareholders and actual controllers; the jurisdictional responsibilities of local governments and the regulatory responsibilities of financial authorities.”

Goals of the draft law highlighted by PBOC include:

  • Early risk discovery and intervention.
  • The establishment of market-based, rule-of-law based disposal mechanisms.
  • Clarification of sources for disposal funds and usage arrangements.
  • Improvement to disposal measures and tools.
  • Protection of the lawful rights and interests of market entities.
  • Strengthening of the pursuit of liability for illegal and non-compliant conduct.
  • Further consolidating the financial security network.
  • Firmly guarding the baseline against the onset of systemic financial risk.

The draft law also mandates the establishment of a financial stability guarantee fund to serve as back-up funds for the disposal of major financial risk, following the mooting of this measure in China’s government work report at the start of the year.