China Financial Technology And Regulations: Monthly Update – February 2020

In this bulletin we summarise recent updates relating to fintech and financial regulations in China to keep you updated on developments. We focus on three areas: regulatory developments, enforcement developments, and industry developments.

Regulatory developments

1. New guidance to promote the development of banking and insurance sectors

 

On 3 January 2020, the China Banking and Insurance Regulatory Commission issued guidance on the steps to be taken over the next five years to develop the banking and insurance sectors.

 

The main initiatives include:

 

(i) forming a multi-level, differentiated system of banking and insurance institutions with wide coverage;

 

(ii) improving financial products to meet people’s needs and serve the economy;

 

(iii) accurately and effectively preventing and resolving various risks in the banking and insurance system;

 

(iv) establishing and improving a modern financial enterprise system with Chinese characteristics;

 

(v) achieving a higher level of opening-up; and

 

(iv) strengthening financial regulation and anti-corruption efforts.

 

2. Public consultation on draft interim measures for the supervision and administration of financial leasing companies

 

On 8 January 2020, the China Banking and Insurance Regulatory Commission issued a one month public consultation on draft interim measures for the supervision and administration of financial leasing companies.

 

The draft measures propose:

 

(i) improving the business rules for financial leasing companies by specifying the business scope, financing activities, extent of leased properties, and prohibited businesses or activities, as well requirements for internal governance systems and other business rules;

 

(ii) exercising strict supervision, and setting up prudential supervision indicators, such as limits on the proportion of financial leasing assets and fixed-income securities investment business, leverage multiples and business concentration restrictions;

 

(iii) classifying financial leasing companies into three categories, namely normal operations, abnormal operations and illegal operations, with prescribed standards for each category to guide local governments; and

 

(iv) clarifying the division of responsibilities between the Commission and local governments, and strengthening supervision and administration.

 

3. New administrative measures for handling consumer complaints in the banking and insurance sectors

 

On 17 January 2020, the China Banking and Insurance Regulatory Commission issued new administrative measures for handling consumer complaints in the banking and insurance sectors. The measures will come into effect on 1 March 2020 and are organised into six parts covering general provisions, organisational management, complaint handling, the complaint handling system, supervision and administration, and supplementary provisions. The measures define consumer complaints as disputes between consumers (claiming their civil rights and interests) and banking and insurance institutions or their employees over the purchase of banking and insurance products or acceptance of related services.

 

Under the measures, banking and insurance institutions are responsible for handling consumer complaints. The measures clarify the procedural requirements which should be adopted for handling consumer complaints, such as the channels for accepting complaints, complaint evaluation and time limits for complaint resolution. Banking and insurance institutions are required to improve their complaints handling systems, establish and enhance their rectification mechanisms and improve accountability. Banking and insurance institutions must not refuse to accept reasonable complaints by consumers nor require them to provide documents already held by the institution or available in internal files.

 

4. New rules on the depository and clearing business of exchange traded funds in Shanghai and Shenzhen

 

On 17 January 2020, the China Securities Depository and Clearing Co., Ltd. issued new rules on the depository and clearing business of exchange traded funds (ETFs) which aim to prevent and control settlement risks, improve market efficiency and regulate the depository and clearing business of ETFs in Shanghai and Shenzhen. With the implementation of these rules, the original implementing rules for ETFs of the Shanghai Stock Exchange and the Shenzhen Stock Exchange have been repealed.

 

5. NEEQ temporarily prohibits financial and quasi-financial enterprises from the Select Tier

 

On 21 January 2020, the National Equities Exchange and Quotations (NEEQ) issued Q&As on its listing review of the Select Tier of NEEQ, stating that during the initial stage of establishment, the Select Tier will give priority to supporting innovative and entrepreneurial enterprises, and temporarily disallow financial and quasi-financial enterprises to enter the market. The position will be reconsidered in combination with the implementation of measures for deepening the reform of the NEEQ and the regulatory environment. The Q&As set out specific requirements on disclosure, verification and supervision, and requirements on other aspects including the thresholds for the Select Tier, issuing subjects and other common topics.

 

6. Policy measures issued to promote commercial insurance in the social services sector

 

On 23 January 2020, the China Banking and Insurance Regulatory Commission, jointly with 13 other authorities, issued guidelines on promoting the development of commercial insurance in the social services sector.

 

The guidelines propose several policy measures covering five areas:

 

(i) to improve health insurance products and services;

 

(ii) to develop diversified commercial pension insurance ;

 

(iii) to develop designated insurance products e in fields such as education, childcare culture, tourism and sports;

 

(iv) to support investment by insurance funds in health, elderly care and other social services sectors; and

 

(v) to enhance the insurance market, for instance through strengthened supervision. The Commission indicated that it will work with related authorities to implement the policy measures to promote commercial insurance in the social services sector.

Enforcement developments

1. Regulator highlights typical issues arising from life insurance products

 

On 10 January 2020, the China Banking and Insurance Regulatory Commission issued details of recent issues with life insurance products identified through its supervisory role. The issues included inconsistencies between the product liability design and the definition of products, weak product guarantee functions and unclear product clauses. The Commission requires all life insurance companies to strengthen their product development management, conduct self-examinations and tighten their control over the formulation of product clauses and premiums. In addition, the Commission attaches great importance to the protection of consumers’ rights and interests and companies must ensure their products are in compliance with laws and regulations.

Industry developments

1. First batch of pilot applications for fintech innovation supervision

 

On 14 January 2020, the People’s Bank of China announced the first batch of six pilot applications for financial technology innovation supervision in 2020, involving state-owned commercial banks, national joint-stock commercial banks, large urban commercial banks, payment institutions, technology companies and other institutions. The pilot applications have a focus on the application of internet of things, big data, artificial intelligence, block chain, API and other cutting-edge technologies in the financial field, covering digital finance and other application scenarios.

 

2. Foreign exchange administration to develop cross-border financial blockchain service platforms in 2020

 

On 5 January 2020, the State Administration of Foreign Exchange laid out the key tasks for the foreign exchange administration in 2020. These include continuously improving the “macro-prudential + micro-regulatory” administrative framework for the foreign exchange market and deepening the reform and opening-up of the foreign exchange sector in line with the overall landscape of opening-up. At the same time, the foreign exchange administration needs to promote the development of cross-border financial blockchain service platforms to assist in building an open and competitive foreign exchange market.

 

3. Shanghai accelerates plans to build a financial technology center

 

On 19 January 2020, the Shanghai Municipal Government launched its implementation plan to accelerate plans to develop Shanghai into a financial technology centre.

 

The plan, which came into force on 1 February 2020, covers five areas:

 

(i) driving ahead the research and development of core financial technologies;

 

(ii) boosting the application of financial technologies;

 

(iii) promoting the integration of the financial technology industry in all aspects;

 

(iv) advancing pilot regulatory innovation for financial technologies; and

 

(v) creating a first-class development environment for financial technologies. A total of 25 innovative and practical measures have been put forward designed to develop Shanghai into a financial and technological centre with global competitiveness within five years, building on its solid financial and technological strength.

 

4. First wholly foreign-owned insurance company commences business in Shanghai

 

On 16 January 2020, Allianz (China) Insurance Holding Co., Ltd. announced its official opening in Shanghai. As the first wholly foreign-owned insurance holding company in China, this has made possible by virtue of a series of policies recently adopted to expand China’s opening-up and encourage foreign insurance companies to increase their investment in China. China relaxed the upper limit on the foreign shareholding ratio for life insurance companies from 50% to 51% in 2018, and removed the foreign shareholding restriction for joint-venture insurance companies operating life insurance businesses from 1 January 2020.

 

5. Xiongan New Area launches blockchain information system for financial construction fund management

 

On 20 January 2020, a blockchain information system for financial construction fund management in Xiongan New Area was launched. This system enables users to take advantage of features such as tamper resistance and traceability of data in the blockchain to pay the funds to builders and materials suppliers in a timely manner. The system can ensure the safe and efficient payment of construction funds, and marks the first step for coordinated and innovative development of financial technologies in Xiongan New Area.