Commentary: Why China Needs to Beef Up Fintech Regulation

[para. 3] In recent years, China's digital finance sector has grown rapidly, becoming the largest mobile payment market globally, with over 1 billion users. This growth, encompassing areas like mobile payments, online lending, and the central bank digital currency, has been somewhat chaotic, prompting calls for increased regulatory oversight to address systemic risks and ensure fair competition.

[para. 3] Digital finance, or fintech, leverages technologies such as the internet, big data, cloud computing, and artificial intelligence (AI) to enhance financial products and services. Despite improving efficiency and reducing costs, fintech challenges traditional financial systems, including pressure on regulators' resources due to the increased number of service providers and data, the accelerated pace of transactions, and the technological complexity affecting financial risks and law.

[para. 3] The integration of large internet platforms into financial services further blurs industry boundaries and poses risks to national financial stability, highlighting the inadequacy of traditional regulatory frameworks divided by industry and product classification.

[para. 3] Existing global regulatory frameworks struggle to keep pace with digital finance's rapid evolution. Approaches like regulatory sandboxes and fintech charters permit experimentation in controlled settings or provide specific licenses for fintech firms, respectively. The fintech charter, primarily linked to the U.S., allows operation nationwide under federal regulation rather than state-by-state licensing. However, the dynamic nature of fintech evolution hinders the development of comprehensive and flexible regulations, while regulatory technology (regtech) faces budgetary and resource constraints.

[para. 3] Internationally, efforts to regulate fintech often address micro and technical levels without establishing macro and structural oversight. Economies like the U.S. and Europe are increasingly using anti-monopoly tools in macroprudential supervision to foster competition and prevent monopolistic practices among large technology and financial institutions.

[para. 3] Strengthening anti-monopoly measures in digital finance prevents conglomerate monopolization, helping maintain financial stability and consumer protection. Establishing criteria to detect monopolistic behaviors and regulating "killer acquisition" practices in fintech are critical. Such acquisitions aim to eliminate competitors, evidenced by Chinese internet platforms acquiring potential fintech competitors to establish dominant positions through data monopolies.

[para. 3] Chinese policies now promote mergers and acquisitions (M&A) and restructuring, necessitating aligned financial and competition policies to prevent M&A predation and support legal and orderly corporate restructuring. Protection of financial consumer rights is paramount, as some fintech firms exploit personal data, induce debt, engage in price fraud, and leverage market dominance against consumers.

[para. 3] The commentary, authored by Jiao Jinhong, former chief lawyer at the China Securities Regulatory Commission, emphasizes the urgent need for regulatory reform to address digital finance's challenges and calls for safeguarding financial stability, ensuring fair competition, and protecting consumer interests amid China's fintech expansion.

[para. 3] The author clarified that the views expressed are personal and not reflective of Caixin Media’s editorial stance. They invite contributions for opinion pieces through a designated email, encouraging dialogue on fintech's regulation and other pressing topics.