Caixin
Sep 20, 2021 07:03 PM
FINANCE

No Financial Activity Should Be Free of Financial Regulators’ Scrutiny, PBOC Chief Says

People’s Bank of China Governor Yi Gang. Photo: VCG
People’s Bank of China Governor Yi Gang. Photo: VCG

China’s central bank Governor Yi Gang said in a recent speech that all financial activities should be put under financial regulatory scrutiny.

Yi’s speech, given via video at the opening of a Sino-German fintech event Saturday, offers a glimpse at what solutions Chinese regulators see emerging from the recent regulatory storm on financial services provided by tech companies.

According to a transcript of the speech released by the People’s Bank of China, Yi mentioned specifically that financial service providers should have the proper licenses, and payment services should get back to their roots — severing the inappropriate links between payment services and other financial products.

In one sign that the industry is responding, the operator of the world’s largest e-payment platform, Ant Group Co. Ltd., is removing its money-earners, the Huabei (花呗) and Jiebei (借呗) lending products, from its ubiquitous payments platform.

In his speech, Yi said that some problems have emerged amid fintech’s breakneck development in China. The issues include a greater chance of the return of systemic risk as payment platforms like Ant Group’s Alipay have begun to offer financial products and services such as insurance, microcredit and fund management. At the same time, the presence of large fintech companies raises the possibility of monopolies forming, which could stifle innovation.

Domestic regulators will urge the companies that run fintech platforms to upgrade their financial services to strengthen competitiveness globally, Yi said. Meanwhile, strict and fair supervision and regulation should be maintained to ensure fair competition in the financial markets.

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And there should also be strengthened cooperation on cross-border regulation, given the cross-sector and cross-regional characteristics of the fintech and internet platforms, Yi said.

In recent years, the fintech industry has experienced explosive growth in China, Yi said. The use of electronic payments, especially mobile payments, has made basic financial services more accessible. Mobile payments had an 86% penetration rate in China as of 2019.

However, the rapid growth of fintech has created challenges for banks regarding issues such as customer information and funding, said Yi, noting “with massive data on customers’ behavior, platform companies can extrapolate the financial need and financial situation of their customers.”

Compared with large banks, many of which have invested in fintech and its applications, small and midsize banks face more challenges, Yi said. These banks rely on large technology companies to provide technologies and platforms for customer maintenance, credit analysis and risk control. This may hurt the competitiveness of their products and their ability to gain customers on both the asset and liability sides, he said.

“We must pay attention to the implications of rising dependence on large technology companies for small and midsize banks, as well as the operating and network risks arising from excessive concentration of fintech service,” he said.

There are more than 4,000 small and midsize banks in China, he noted.

Yi also mentioned in his speech that regulators have strengthened antitrust efforts with the guidelines to fend off monopolies, requiring platform companies to guarantee customers’ right to choose the way they make payments.

In February, the State Council’s anti-monopoly committee issued the guidelines (link in Chinese), which aim to rein in monopolistic behavior by platform operators, addressing practices such as charging different customers different prices for the same product.

Contact reporter Cai Xuejiao (xuejiaocai@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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