People's Daily Puts Financial Watchdogs in Hot Seat
China's financial regulators are usually portrayed as the good guys – guarding against risks, investigating and exposing wrongdoing, and handing out fines and punishment.
But a commentary (link in Chinese) in The People's Daily, the mouthpiece of the ruling Communist Party, has highlighted a series of shortcomings that have often aligned officials' interests with those of the regulated rather than the regulator, and weakened the integrity and effectiveness of the watchdogs in carrying out their mission. The author of the article, which appeared on the commentary page, was named as Ouyang Jie although he was not further identified.
The article, titled “Financial Regulators Should Be Good Guardians,” is another sign that Chinese authorities are stepping up their efforts to control risk and stamp out corruption in the financial industry. The Central Commission for Discipline Inspection (CCDI), the party's top anti-graft agency, signaled in January that banks will become the next target of the country’s sweeping anti-corruption campaign which began in 2012. The CCDI said it will focus on officials who have continued to engage in wrongdoing since the 18th Party Congress in November 2012, and step up scrutiny over “groups with vested interests that have intertwined political and economic ties.”
The People's Daily has in the past been used by China's authorities to convey strong messages to the country and to millions of government and party officials across the country. In May 2016, an interview with an unnamed “authoritative person” highlighted the dangers of high leverage and in January this year Guo Shuqing, the head of the China Banking Regulatory Commission (CBRC) gave an interview to the newspaper in which he reiterated the watchdog's commitment to deepen the campaign against financial risk.
Monday's commentary called for a line to be drawn between regulators and those being regulated to prevent the inevitable unconscious softening of supervision. A “fire wall” needs to be built between regulators and the institutions they oversee, including preventing officials from going to work for the companies they previously supervised, to prevent corruption and moral hazard, it said.
“If regulation is really going to have teeth, we must dismantle the ‘revolving door’ between financial institutions and regulatory bodies, and prevent their interests from becoming entwined,” the commentary said. It also called for supervision to be more open and for regulatory power to be kept in the public eye which would result in more effective regulation and stop it being just a cat-and-mouse game between watchdogs and companies.
The article pointed to a series of scandals that had exposed complicity between officials and the institutions punished for misconduct. In January, the CBRC said it had fined Shanghai Pudong Development Bank 462 million yuan ($73.4 million) for illegal lending activities in Chengdu, Sichuan province, marking one of the stiffest penalties handed out so far in the crackdown on financial wrongdoing. It also also led to the dismissal of the head of the Sichuan CBRC.
A total of 69 banking regulatory officials were punished last year for “negligent or inadequate performance of their professional duties exposed by major risk incidents,” the commentary said, a sign that the authorities are already taking action to root out collusion and malpractice in the watchdogs themselves.
At least four top-level securities, banking and insurance regulators have fallen since late 2015, including Zhang Yujun, assistant chairman of the China Securities Regulatory Commission (CSRC); Yao Gang, vice chairman of the CSRC; Yang Jiacai, assistant chairman of the CBRC; and Xiang Junbo, the chairman of the China Insurance Regulatory Commission and the first incumbent head of a financial watchdog to be removed as a result of a corruption investigation.
Contact reporter Leng Cheng (firstname.lastname@example.org)
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