Aug 06, 2018 02:59 AM

In Depth: Redrawing China’s Financial Regulatory Landscape

The top banking regulatory body was merged with the insurance regulator to create the China Banking and Insurance Regulatory Commission. Photo: Caixin
The top banking regulatory body was merged with the insurance regulator to create the China Banking and Insurance Regulatory Commission. Photo: Caixin

* The establishment of the Financial Stability and Development Commission in November is the centerpiece of the overhaul

* The regulatory restructuring also reallocates policymaking powers among the central bank and two regulatory commissions

Now that the outlines of China’s new financial supervisory landscape have become clear, officials are quickly painting in the details to complete an overhaul designed to make the nation’s market watchdogs more effective.

After a series of top appointments last week, more personnel moves are on the way as China’s top financial regulatory bodies staff up to carry out clearly defined new organizational responsibilities. The shakeup will affect thousands of regulatory employees by the end of this year, settling the dust of a sweeping government overhaul unveiled in March.

China’s previously fragmented regulatory system was blamed for allowing financial institutions to exploit gaps and loopholes to carry out risky and sometimes shady business practices. Lax oversight brewed corruption scandals that brought down top financial regulators including insurance industry head Xiang Junbo and senior banking regulator Yang Jiacai.

China restructured its financial regulatory system by merging the top banking regulatory body with the insurance regulator, creating a new, cabinet-level Financial Stability and Development Commission and strengthening the central bank’s role in policymaking.

The restructuring is aimed at closing regulatory loopholes and making financial supervision more effective in a rapidly evolving industry. Under the new structure, the Financial Stability and Development Commission is in charge of policy coordination; the central bank leads policy formulation; and two commissions oversee banking, insurance and the securities sector.

Earlier this week, the People’s Bank of China (PBOC) announced the appointment of two new deputy governors — Zhu Hexin, a former vice president of the Bank of China, and Liu Guoqiang, previously one of the central bank’s assistant governors. Meanwhile, Xuan Changneng, a former assistant chairman of the China Securities Regulatory Commission, was named a deputy director of the State Administration of Foreign Exchange.

The restructuring and the appointments made so far signal China’s commitment to financial reforms, analysts say. Experienced technocrats are filling the leading positions. In March, U.S.-educated economist Yi Gang was named China’s first new central bank governor in 15 years. In July, the Financial Stability and Development Commission unveiled a top management team led by Vice Premier Liu He, President Xi Jinping’s top economic adviser.

Guo Shuqing, head of the banking regulatory commission since February 2017, was named the chairman of the newly established China Banking and Insurance Regulatory Commission (CBIRC) and the party chief of the central bank, while Liu Shiyu remains as head of the China Securities Regulatory Commission (CSRC), a position he has held since 2016.

Now the top officials face the challenge of filling lower-level posts and distributing responsibilities among regulators and central and local officials. They also must streamline and integrate staff and departments of the banking and insurance commission after the merger.

Caixin learned that most central government ministries and departments will work out personnel and organizational arrangement next month to meet the cabinet’s deadline of doing so by the end of the year.

Enhancing coordination

The establishment of the Financial Stability and Development Commission in November is the centerpiece of the overhaul. Housed in the central bank, the commission is responsible for coordinating financial supervision among the central bank, the CSRC and the CBIRC to close regulatory gaps.

Under the leadership of Liu, the stability commission’s vice directors include central banker Yi and State Council Deputy Secretary-General Ding Xuedong. Senior members include the CBIRC’s Guo, the CSRC’s Liu and foreign-exchange administrator Pan Gongsheng.

“The commission has very strong authority as it gathers the most important financial policymakers,” said a person close to the stability commission who declined to be identified.

Since its establishment, the stability commission has led the drafting of key industry policies governing the asset management industry and financial holding companies — conglomerates engaging in a wide range of financial services.

But a detailed office and staff structure for the stability commission is still pending. The plan will also address the division of labor between the commission and the central bank.

Caixin learned that authorities are considering setting up separate offices and staff for the commission – which now shares space and people with the central bank – to give the commission independent presence and power.

An important task of the stability commission is to supervise financial regulators, especially at local levels. With its own team, the commission will be able to carry this out more effectively, sources said.

At the same time, a central bank source told Caixin that the stability commission is likely to share staff with central bank’s local branches and rely on the central bank’s extensive network to supervise local officials.

“The central bank has no authority to coordinate and regulate (officials at other regulatory bodies), but the stability commission has,” the source said.

Last month, the stability commission outlined its major policy agenda for the next three years, including stabilizing the financial market, enhancing regulatory coordination, fending off external risks and battling financial irregularities.

Redefining duties

The regulatory restructuring also reallocates policymaking powers among the central bank and two regulatory commissions. Under the new plan, the PBOC will be responsible for the formulation of a development strategy for the financial industry and drafting overarching regulations. Other financial regulators will no longer prepare development plans and rules for the industries they oversee, avoiding conflicting regulations and delays in preparing legislation.

Industry regulatory commissions instead will focus on enforcement and working out practice guidelines for implementation.

The PBOC is also responsible for building a unified system for collecting and sharing financial data. Previously, the central bank and the banking regulatory commission operated separate statistical collection systems and seldom shared the data.

Different statistics have made financial supervision and rule enforcement more difficult as regulators have been unable to see an accurate picture of the industry and monitor risks, an industry source said.

With greater responsibility, the central bank will also revamp its system by empowering provincial-level branches for drafting and implementing local monetary policy, Caixin learned. The new structure reverses a 1998 reform giving supremacy to the central bank’s regional offices and marginalizing provincial branches.

The regional offices, located in 11 major cities and each overseeing several provinces, have found it difficult to cope with diverse economic conditions across the regions, given the huge imbalances in China’s development, sources said.

Institutional shakeup

The merger of the banking and insurance regulatory agencies is a major institutional overhaul affecting commissions that employ a total of nearly 30,000 people.

“The banking regulatory system has recruited over 1,000 people annually in recent years, but maybe there will be no recruitment next year,” a regulatory official said.

Caixin learned that the headquarters of the China Banking Regulatory Commission, which have more than 1,000 employees, may eliminate about 100 positions, according to the new staffing plan proposed by the CBIRC.

At the end of 2016, the CBRC had 27 departments, and the CIRC, 16. The newly established CBIRC is expected to consolidate them into 27 departments. The CBIRC will also set up two new departments to focus on investigation of market violations and on corporate governance, reflecting the regulators’ commitment to tame financial risks and clean up market misconduct.

At the local level, the consolidation will affect the CBRC’s 36 branches, 306 sub-branches and 1,730 offices across the country, and the CIRC’s 36 branches and 13 sub-branches.

“As the integration unfolds, competition among mid-level officials will be very fierce,” a local banking regulatory official said.

Contact reporter Han Wei (

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