Financial regulatory reform is due, says Cao Wenlian 曹文炼 National Development and Reform Commission international cooperation department director, advocating for ‘moderate reform’, as major reform is unrealistic while marginal reform is ineffective.
Now is the time, argues Cao, as
- financial product innovation and interest rate liberalisation conducted since the third National Financial Work Conference were bold steps forward, but have created problems
- financial risk containment was emphasised at the 2016 Central Economic Work Conference
- directing the financial sector to service the real sector has become key to monetary policy and financial regulation
Moderate reform should be underpinned by function-based regulation and administrative supervision, says Cao. In particular, he envisions
- function-based regulation led by the central bank (PBoC)
- function-based regulation refers to regulation over market and product innovation, including making professional and industrial standards
- a feasible short term option is to merge the banking regulator (CBRC) and insurance regulator (CIRC) into the PBoC, while leaving the securities regulator (CSRC) separate
- administrative supervision left to the Ministry of Finance (MoF)
- administrative supervision includes market entry and approval of institutional qualifications
- can be further divided between central MoF and its provincial counterparts
The central bank deserves more autonomy while under National People's Congress supervision, argues Cao. It is likely to be a major part of regulatory reform in the 14th 5-year plan.