‘Super regulator’ necessary for future development

As part of what international business partners call another “sweeping” change in China’s economic management, the formerly separate regulatory bodies of the banking and insurance industries will be merged into one “super regulator”.

People in the Chinese financial market expect the merging of the two regulators to happen quickly, faster than the redistribution of power and reorganization of offices in many other areas of the State administration.

This is partly because the government has recently exposed financial irregularities in the banking and insurance industries that have resulted in huge losses and heavy penalties.

No healthy system can afford to let such things go on.

As the second-largest economy in the world continues its efforts to reposition itself in the global market, much of China’s future depends on how it manages its credit and money.

Often, international business partners note that regulating China’s financial system is a tough job — due to its sheer breadth and complexity, as the country’s financial assets have grown to nearly 470 percent of GDP, as the IMF reported.

So, the Chinese financial industry is a place where derelictions and negligence can have serious consequences, making regulation vital.

If China can retool its financial regulatory system in the coming one to two years, it will most likely avoid a major loss of global business.

In addition, establishing the banking and insurance super regulator is important because the world is experiencing a period of financial innovation, which will see many office workers replaced by robots.

In the meantime, technology allows instant transactions, the raising and redirecting of large volumes of funds, and for virtually every business, large or small, to become a financial business, and even for individuals to become investors operating in multiple channels on their mobile handsets.

It is already pointless to debate whether regulators should allow “mixed operation”, or universal banking, in formerly different financial service segments. Banks are selling insurance policies. Insurance companies are managing funds. These are daily realities.

Separate regulators no longer provide useful solutions in the era of universal banking.

Individuals may become “universal investors” once they are equipped with devices installed with capable chips and enabling apps.

Sooner or later, new investment concepts, instruments, platforms, and applications will flood the market like never before. The recent phenomenon of cryptocurrency is only one example.

Regulators and public-oriented financial services, such as credit rating agencies, will have to be prepared to deal with many such things at one time.

Many financial service companies, including Dagong International Credit Rating Group, are busy developing solutions based on frontline technologies to cater for the need of universal risk management.

China needs a super regulator for its present transition. And for its future development, it needs perhaps an even larger regulatory system, headed by an effective, forward-looking larger regulator. The new banking and insurance regulatory commission is expected to play this role.

To regulate is not to block competition. The right approach is to study the new areas in competition, to be sensitive to new loopholes once they occur, and to introduce new regulations.

There are still many things for us to learn. But the key is always to help the public understand the new competition, to disclose and report hidden or likely risks, and to help China prevent small problems from growing into large-scale dislocations.