‘Balanced’ regulation of fintech the way forward for China’s authorities, industry investor says

One size does not fit all in regulating new disruptive technologies, according to the head of Chinese fintech firm CreditEase’s investment fund

PUBLISHED : Monday, 15 January, 2018, 3:44pm
UPDATED : Monday, 15 January, 2018, 11:21pm

Regulation of new financial technologies, or fintech, in China should be designed to take into account the differing nature of the technology itself as well as issues of financial stability to create consumer confidence, according to a top investor in the disruptive technologies.

Anju Patwardhan, managing director of the investment arm of Chinese fintech firm CreditEase, suggested regulators design a supervisory system which is “proportionate to the amount of risks exposed to the financial stability” in tandem with the quick development of fintech.

“You can’t apply the same regulation to every bank, non-bank and fintech business,” she said in a media interview on Friday. “It is going to have some regulation because it’s positive for consumer protection. Consumers’ financial literacy is also important.”

Patwardhan, the former chief innovation officer of Standard Chartered Bank who joined CreditEase in 2016, said authorities in the UK and Singapore had taken a pro-fintech stance and balanced way of regulation.

“I would say China is starting to catch up,” she said. “Balanced regulation helps raise consumer confidence.”

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China’s leadership has been encouraging a wider use of digital technologies to redraw the country’s financial landscape, with a key part of the efforts aimed at helping residents and small businesses who find it difficult to access financing from the mainstream system. Already in China 11 times more mobile payments are processed every year than in the United States.

However at the same time regulators have published a series of stringent rules that have left fintech professionals as well as consumers guessing as to what the attitude of the authorities towards the new technologies actually is.

Last year, in a crackdown on online lending platforms following a spate of scams, regulators set high thresholds including lofty capital requirements, a rule mandating the appointment of a custodian bank, full disclosure of fund information and a ban on unsecured cash loans. Analysts said the rules could shut down most of the nearly 2,000 companies operating such businesses.

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Then in September, the central bank banned the practice of initial coin offerings (ICOs), or fundraising by the issue of digital currencies outside the regulatory framework, after it found that 90 per cent of such offerings were fraudulent.

At the same time, China’s central bank has urged fintech companies to help pay for authorities’ spending on regulatory technology, or regtech, given that the fast-growth of fintech has put pressure on regulators to invest heavily in overseeing the sector.

“Some of the regulatory moves were reasonable and correct,” said Cao Yin, chief strategist at Energy-Blockchain Labs, a Chinese firm that researches business applications of blockchain technology. “But officials will still need to learn the essence of fintech and the irreversible trend of a digitalised financial business.”

He said that the development of fintech is in line with the growth of inclusive and do-it-yourself financing, and can benefit people and businesses and buoy the long-term development of the global economy.