Editorial: Regulatory Reform Needed as First Defense Against Financial Risks

In recent months, financial regulators in China have taken bold steps to root out irregularities and plug potential legal loopholes as the country strives to tighten oversight and rein in risks in the financial sector, which is plagued by excessive debt and ballooning shadow-lending activities.

Earlier this year, the central bank introduced the Macro Prudential Assessment system to gauge financial institutions’ risk exposure, hoping to put a lid on fast-growing, off-the-books credit offerings. The China Banking Regulatory Commission stepped on the gas in late March, issuing seven policy documents in 10 days to increase scrutiny over the banking sector. The securities watchdog, the China Securities Regulatory Commission, also lashed its whip, imposing 5.5 billion yuan ($797 million) in penalties on companies found to be issuing fraudulent data or engaging in other malpractices in April alone. This sum is higher than the total amount of fines collected in all of 2016. The China Insurance Regulatory Commission, which saw its former chairman, Xiang Junbo, fall from grace over an alleged corruption scandal in April, has issued a slew of fresh regulations and carried out inspections to uncover irregularities in insurers’ investment activities. Several insurance giants, including Foresea Life Insurance, Evergrande Life Insurance and Anbang Life Insurance, have been punished for selling high-risk products known as “universal life insurance” — a type of short-term policy that combines minimal protection benefits with a high return on investment.

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