Fintech firms must comply with financial rules

Thanks to the financial sector’s rapid development in recent years, its added value to China’s GDP has surpassed that of the United States in 2013 and United Kingdom in 2015.

Expectedly, the relevant regulatory departments have been pushing the financial sector to “transfer profits” to the real economy, resulting in a gradual decline of its added value to GDP since 2016.

In the early years, it was believed that internet finance was “subverting banks” and producing a “catfish effect” in promoting technological transformation of the traditional financial sector. However, the banking sector is still functioning, while internet finance has encountered challenges.

Under the pressure of regulatory compliance, fintech companies have actively embraced the colossal traditional financial market, which has helped the financial sector in serving the real economy while also distorting the process.

Against the backdrop of the excessive growth of the fintech lending business, some small and medium-sized banks have deviated from their obligation to serve the real economy, and issued a large amount of personal consumption loans to customers lacking sufficient solvency.

At the same time, fintech companies have grown rapidly, with some almost dominating the market. As a result, some of the financial sector’s profits have been transferred to technology companies, while the cost for real enterprises’ financing has not been really lowered.

It is true that an inclusive approach should be adopted when authorities regulate fintech innovation, but that does not mean unprincipled connivance.

Given the many problems that have emerged in the process of fintech innovations, the regulatory authorities must not sit idle. They should instead intervene in a timely manner. Fintech companies must not be allowed to evade financial regulation.

Since that fintech has broken the clear boundaries for financial business, the effective regulation over the fintech sector should not depend on financial regulatory authorities alone, because it is difficult for the financial authorities to carry out effective supervision over nonfinancial entities. In this aspect, the rectification of internet finance by the authorities in recent years can provide reference for multi-departmental cooperation in the supervision over the fintech sector.

Given that fintech is increasingly driven by data, China should promote the construction of a data information sharing mechanism for leading fintech enterprises. At the same time, the authorities should be wary of the “winnertakes-all” phenomenon in the fintech sector to prevent the “overpuffiness” of few fintech companies.