China’s Regulators Vow ‘Special’ Oversight of Fintech Giants

China plans to impose “special and innovative regulatory measures” on financial technology behemoths such as Jack Ma’s Ant Group Co. to eliminate monopolistic practices and strengthen risk controls.

Advances in technology have brought tremendous change to the financial sector, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission and Party Secretary of the central bank, wrote in an article outlining regulations over the next five years. It was cited in the official Shanghai Securities News.

Financial innovations are a “double-edged sword,” Guo said. There’s little “experience in legal standards and risk monitoring for mobile payments or internet borrowing and insurance in our country,” he said.

Guo is the highest ranking regulator to weigh in on the issue after regulators last month halted the planned record initial public offering of Ma’s Ant Group. China has also called for deeper antitrust oversight of technology firms such as Alibaba Group Holding Co. and Tencent Holdings Ltd., which have expanded into finance with little oversight, posing a growing challenge to traditional banks and regulators.

The article was published in conjunction with pieces by central bank governor Yi Gang and China Securities Regulatory Commission Chairman Yi Huiman. Having China’s three top financial watchdogs weigh in on regulations at the same time shows curbing financial risk has moved firmly to the center of the national agenda.

Ant faces more regulations after the recent crackdown that derailed its $35 billion IPO. The chance that Ant will be able to revive its massive stock listing next year is looking increasingly slim as China overhauls its rules, according to regulators familiar with the matter.

In a rebuke to Ant’s founder Ma, Guo said that the core part of the global Basel Accords is to use capital requirements to constrain lending and keep leverage in a safe range. “Without adequate capital, financial services will get into trouble sooner or later,” Guo said.

Ma riled regulators after he gave a speech in late October that blasted authorities and banks, comparing the Basel capital rules to a club for the elderly. Ant’s platform has provided quick loans to more than 500 million people.

“The regulations should cover all financial institutions, businesses and products,” Guo wrote, saying online loan companies have skirted the rules under the camouflage of “financial innovation.”

Guo also didn’t spare China’s property market. It’s the biggest “gray rhino” in terms of financial risks in China at this stage, he said.

In his article, central bank governor Yi Gang said there should be more regulation of systemically important financial institutions as part of China’s five-year plan, which covers 2021 to 2025. Yi also called for a “firewall” between the government’s finances and the central bank to avoid monetizing the fiscal deficit, and said China will push forward with research and development of a digital currency “in a steady manner” and start trials “in an orderly way.”

CSRC Chairman Yi called for more direct financing and further bond market developments.

©2020 Bloomberg L.P.

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