Caixin
Dec 18, 2019 07:53 AM
FINANCE

Former Securities Czar Calls for Tougher Rules on ‘Big Tech’

Former CSRC head Xiao Gang. Photo: VCG
Former CSRC head Xiao Gang. Photo: VCG

The former head of China’s state securities regulator voiced concerns over the rapid expansion of technology behemoths into the financial services sector, calling for a better regulatory system to put fintech giants’ financial conditions, data management and business expansion under closer oversight.

The rise of large financial technology companies, or Big Tech enterprises, has benefited society by pushing traditional financial companies to advance technology and services and by promoting the growth of the industrial internet. But it also created problems and challenges that can’t be ignored, Xiao Gang, former chairman of the China Securities Regulatory Commission (CSRC), told a fintech industry forum Tuesday in Beijing.

China’s financial sector has entered “a new stage” dominated by “capital strength plus technology monopoly,” said Xiao, the 61-year-old ex-regulator who oversaw China’s trillion-dollar stock market between March 2013 and February 2016.

“It is in urgent need to strengthen the supervision of large fintech companies,” said Xiao, who is now a member of the National Committee of the Chinese People's Political Consultative Conference ― China’s top political advisory body.

Xiao warned that risks of fintech companies stem from their complex mixture of business profiles that could cause contagion and systemic risks if things go wrong. The overwhelming market presence of fintech giants could put consumers and investors in a weaker position, and some companies may leverage their market dominance to undermine users’ privacy. In addition, there is a lack of effective emergency plans to tackle potential technology security risks, Xiao said.

Chinese technology companies, led by Alibaba Group Holding Co. and Tencent Holdings, have made forays into financial services over the past few years, using their massive holdings of data and access to users to tap new business opportunities including payment, wealth management and online lending.

Ant Financial Services Group, the fintech arm of Alibaba, has developed a sprawling business range allowing users to pay bills, book restaurants, buy services and make investments on its app. It is also behind a long list of business startups. Tencent, through its popular messaging app WeChat, has reached more than 1 billion users globally and challenged Alibaba in financial services.

Ant Financial’s Alipay and Tencent’s WeChat Pay, China’s two online-payment behemoths, have more users than any of the country’s biggest banks.

China should improve its regulatory framework for large fintech companies with wide business operations and social influence, and adopt macro-prudential management approaches on such institutions with stricter requirements on capital adequacy ratio, debt ratio and information disclosure that are similar to the systemically important financial institutions, Xiao said.

But requirements for major fintech companies should not be simply copied from those for conventional financial institutions, consistent with the new character of their businesses, Xiao said. For instance, the average bad loan ratio of fintech companies‘ lending to small and micro businesses is around 1%, compared with 5.9% for traditional banks, reflecting the need for new supervisory criteria, Xiao said.

Meanwhile, regulations should be worked out to better protect consumers and investors’ privacy and personal data to prevent big companies from recklessly collecting, storing and misusing such data, Xiao said. Regulators should also carefully manage financial business licenses and closely monitor monopolistic practices that could damage fair competition, he said.

Last year, China’s central bank identified Ant Financial among five financial conglomerates as “financial holding companies” in a pilot program to tighten supervisions of too-big-to-fail financial institutions.

Regulators globally have also stepped up oversight of rapidly expanding fintech giants. Authorities in Japan passed a bill that calls on e-commerce sites and app stores — including those of Amazon, Apple and Google — to file government reports about their operations in a move to increase regulations and demand transparency, Reuters reported Tuesday.

Contact reporter Han Wei (weihan@caixin.com)

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