PBOC sets up new committee to oversee China’s burgeoning fintech industry

The move reflects the need for regulation to catch up with technology-driven innovation that may carry cross-sector financial risks

PUBLISHED : Monday, 15 May, 2017, 5:11pm
UPDATED : Monday, 15 May, 2017, 10:46pm

China’s central bank said on Monday it has set up a committee to oversee financial technology, reflecting an attempt to bring regulation up to speed with a fast-growing industry that could bring cross-sector financial risks.

The People’s Bank of China said on its website it will gauge the impact of fintech on monetary policy, financial markets, financial stability, payment and clearing.

It will also beef up the use of new technology, such as big data, artificial intelligence, and cloud computing to enhance its capabilities in protecting against and resolving cross-market financial risks, it said in the statement.

Regulators have to catch up when technology-driven financial innovation rises as a disruptive force to existing financial sector mechanisms
Li Ying, senior researcher, Bank of Communications

“The new committee signals a strengthened regulatory stance to caution against risks amid the rise of the fintech sector,” said Li Ying, a senior researcher at Bank of Communications in Shanghai. “Regulators have to catch up when technology-driven financial innovation rises as a disruptive force to existing financial sector mechanisms.”

The main risks from the fintech sector may stem from the lack of – or ambiguous roles of – regulatory bodies, Ying said, noting that new technology could be an effective means of handling such risks.

Fintech firms use new technology and innovation to compete in the marketplace of traditional financial institutions, including banks, insurers and fund houses.

Lu Minfeng, secretary-general of the Jiangsu Internet Finance Association, said the new committee was “timely” in terms of market development and highlighted the need for new technology besides traditional regulatory methods in supervising the fintech industry.

“It signals a proactive regulatory stance from the central bank,” said Lu. Beijing learned a valuable lesson from the peer-to-peer lending sector, which was seriously undermined by a lack of clear supervision of internet finance.

China’s peer-to-peer lending industry once enjoyed breakneck growth and was touted as a financial innovation to quench the thirst for credit of individuals or small business. It helped them borrow from online investors as traditional banks shied away from lending to companies that didn’t have proper collateral.

But the sector was later rocked by a series of fraud scandals that prompted a government clean-up.

The new committee is also expected to play a significant role in the “Belt and Road Initiative,” China’s massive trade scheme, in smoothing cross-border payments, international exchange and cooperation, Li added.

Before the new committee was set up, the central bank relied on its technology department to supervise the fintech sector.

China leads the world in terms of the amount of capital it pours into fintech development. Investment was estimated to have topped 6.5 billion British pounds in 2016, accounting firm EY said earlier in a report, which went on to say “the size and scale of China’s fintech sector provides too big an opportunity to ignore, with the world’s largest, and increasingly digitally-savvy consumer base to target.”