Currently, financial chaos occurs frequently, local financial risks occur frequently, and financial regulatory storms occur frequently. The reform and development of the financial industry affects the nerves of all parties. Faced with such a complicated situation, it is urgent to speed up the reform of the financial industry. Looking back on the past, putting aside departmentalism and strengthening top-level design can effectively promote the modernization of the national financial governance system and governance capabilities. Looking at the current contradictions and problems in the financial industry, it is recommended to start with the following four major issues to comprehensively plan and design the financial system and regulatory system.
The issue of financial supervision objectives
The history of modern financial development is also a history of financial crises. Each crisis has given the government a deeper understanding of the objectives of financial supervision.
Since the reform and opening up, my country's financial supervision has basically had two goals: financial stability and financial development. Financial stability is international practice and national knowledge, while financial development is the special national needs of our country as a post-development country. Focusing on the dual goals, each financial regulatory agency has its own focus at different times, especially maintaining financial stability, both in terms of legislation and institutional settings.
However, in recent years, with the accumulation of residents’ wealth, banks, securities and insurance institutions have made great efforts to advance into the competition for personal wealth management, using stocks, bonds, funds, private equity With the help of Internet finance and other basic financial products as targets, individuals often become victims of illegal fund-raising, financial fraud, and illegal financial management when faced with powerful financial institutions and complex financial products, and trigger local financial risks. China's per capita GDP is currently close to US$8,000 and is expected to exceed US$10,000 by 2020. Families and individuals will shift a greater proportion of their wealth from deposits and real estate to complex and diverse financial products, and financial protection for consumers will become increasingly prominent.
Learning from international experience and focusing on the development trend of the financial industry, maintaining fair transactions between individuals and financial institutions and preventing financial fraud should be the third pole of financial supervision goals to build stability, development and fair transactions. Only in this way can forward-looking institutional and institutional arrangements be made in terms of financial legislation, the establishment of financial institutions and the maintenance of financial market order.
Financial Supervision System Issues
The A-share market plummeted at the turn of the spring and summer of 2015, which fully exposed the pain points of China's separate industry supervision. The "railway police" each took charge of a section. This type of supervision can neither capture the whole picture of the financial market, nor can it adapt to the reality of turbulent expansion of mixed operations. To sum up, the current separate industry system with institutional entities as the regulatory boundary has the following disadvantages:
First, regulatory arbitrage. Taking the asset management business that has expanded rapidly in recent years as an example, the China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission have different standards for businesses that are essentially the same or consistent in terms of the number of qualified investors, investment thresholds, fundraising methods, risk capital, investment scope, etc. Different constraints have led to market participants to widely use institutions with loose supervision or to design multi-layered nested products to achieve cross-sector, cross-market, and cross-institution arbitrage.
The second is the regulatory vacuum. In recent years, four new technologies, namely Internet finance, financial holding companies, asset securitization and private wealth management, have made strong inroads into China's financial industry. The four new finance and new business forms all span the banking, securities and insurance industries. In the face of such chaos, Due to the current industry situation, banks, securities companies, and insurance companies have complex mentality. They want to manage but are afraid of not managing well. The final collective choice is to build their own boundary fences and ignore the intersecting blank areas. The lack of supervision has led to the wild growth of new finance and frequent local risks.
The third is the blind spot of supervision. One common understanding of the huge A-share crash in 2015 is that OTC funds used the respective rules of the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission to break through regulatory barriers. However, the regulatory authorities are all information islands, and no regulatory authority can fully Understand the source and accumulation dynamics of funds entering the market through the entire process and chain. Such regulatory blind spots exist in large numbers in the business interface areas between the "one bank, three commissions" and foreign exchange bureaus.
Fourth, supervision is against the trend. Since the 1980s, major economies such as the United Kingdom, Germany, France, and Japan have comprehensively moved toward mixed operations and mixed supervision. In 1999, the Clinton administration in the United States promulgated the Financial Services Modernization Act, which comprehensively ended restrictions on mixed operations. When major economic powers shifted from separate industries to mixed industries, my country successively established the China Securities Regulatory Commission, China Insurance Regulatory Commission and Banking Regulatory Commission in 1992, 1998 and 2003. With the deepening of finance, separate operations and separate supervision are no longer appropriate.
The fifth is to fragment the market. Building a unified large market has always been an important goal and direction of my country's market-oriented reform. However, the separate supervision system automatically extends the supervision of different institutions to the supervision of different markets. It regulates competition and approves competition, but it is not interconnected.
With regard to the shortcomings of separate supervision, various circles in the country have conducted extensive discussions. In this regard, the author recommends that the following three principles be clearly followed in the design of institutional reform: First, the principle of checks and balances of power, which does not allow any regulatory agency to have too much power; second, the principle of mixed industry supervision, mixed operation is the general trend, and the regulatory system needs to adapt Development trends; the third is the principle of dual protection of financial producers and financial consumers, protecting financial producers from stable operations and protecting financial consumers from participating in transactions fairly.
Based on the above principles, after fully considering China’s national conditions and learning from the reform of financial regulatory systems in other countries after the subprime mortgage crisis, the available reform plans are as follows:
First, enrich the central bank’s two Functions, namely macro-prudential management functions and financial information statistics functions. To this end, a financial macro-prudential management bureau has been added within the central bank, which is responsible for the identification, analysis, monitoring and response plans of systemic financial risks, formulating macro-prudential regulatory tool indicators such as countercyclical capital and industry capital, etc.; enriching financial information statistics functions, It is clarified that all financial regulatory authorities, financial institutions, and financial markets have the obligation to report financial information to the central bank, that the central bank uniformly formulates statistical standards for the financial industry, and that the central bank is the statistical focal point for national financial information.
The second is to merge the "Three Commissions" into the "Second Commission", that is, adjust and merge the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission to establish the China Financial Industry Regulatory Commission and the China Financial Consumer Protection Commission. The regulatory scope of the Financial Industry Regulatory Commission covers all financial institutions and all on-site and off-site, local and foreign currency financial markets. Business departments and bureaus can be set up according to five major sectors, namely, the systemically important financial holding group supervision sector, the banking industry supervision sector, the securities industry sector, the insurance industry sector, and the financial market sector. The regulatory scope of the Financial Industry Consumer Protection Commission covers all financial businesses that occur with consumers, including deposits and loans, bank cards, payments, financial management, etc., and they are all subject to functional supervision by the Consumer Protection Commission. Incorporate the Consumer Protection Bureau and the Illegal Fund-raising Bureau of the China Banking Regulatory Commission within the current "One Bank and Three Commissions", and clarify the responsibilities based on the protection of financial consumers' rights and interests such as fair transactions, property safety, independent choices, and education and knowledge. Rating agencies and personal wealth management planning consulting services will be included in the scope of supervision, and a financial consumer association and a wealth management industry association will be established.
Financial legal issues
Financial law is the carrier and guarantee of the financial system. Whether the financial system is advanced or not is closely related to financial legislation. The so-called modernization of the national financial governance system is essentially the modernization of financial laws. At present, there are four main problems in my country's financial laws:
First, the legal lines are rough. Even if the regulations enacted by the State Council are taken into account, my country's financial laws and regulations are still very limited compared with financial developed countries such as the United States, Japan, and Germany. To date, my country has not yet formulated basic laws on futures, foreign exchange, and financial derivatives.
Second, the laws and regulations are not detailed and not practical. Many laws and regulations have become the basic laws of regulatory authorities, and then each department formulates normative documents before laws and regulations can be implemented.
Third, legislation too much reflects the will of regulatory authorities. Due to the complexity and professionalism of the financial industry, legislative departments are often unable to escape the influence of regulatory authorities in terms of the boundaries of power and the thickness of legal provisions, and even become a tool for the legalization of power.
Fourth, legal updates are slow. Due to my country's rapid economic and financial development and other reasons, laws and regulations often lag significantly behind the reality of financial development. The result is either inhibiting financial innovation and development, or market participants continue to test or challenge the bottom line of laws and regulations.
Solving financial legal issues needs to be integrated into the national governance system and governance capabilities for overall consideration, including the professionalization and specialization of talents in the legislative body. Currently, in order to regulate mixed business operations, it is urgent to revise and improve the Securities Law and the Trust Law as a priority.
At present, the Securities Law is about to be revised. It is necessary to develop multi-level capital markets and strengthen investor protection. However, what is more urgent is to expand the definition of "securities". In recent years, the so-called mixed operations include, in addition to cross-sector licenses and cross-industry operations of financial institutions, more importantly, cross-market investment and financing, including banks, trust companies, securities companies, public fund subsidiaries, private equity funds, and insurance asset management companies. Focusing on the financial management business, they will break into the other party's market and carry out comprehensive competition. The businesses are similar, but the regulatory rules are different, leading to the prevalence of regulatory arbitrage.
The revision of my country's Securities Law in 2017 is accelerating. It is recommended to lay a legal foundation for mixed operations and supervision, and at least include various asset management collective fund plans in the definition of "securities".
The "Trust Law" is another basic law governing mixed operations, especially in countries with civil law systems. In October 2001, my country’s Trust Law was officially implemented. At present, the "Trust Law" faces several major problems in terms of content and practice: first, the "Trust Law" is narrowly limited to the trust company law; second, it is shelved on the shelf. There are few court cases. The China Securities Regulatory Commission and the China Insurance Regulatory Commission are afraid of stepping on the introduction of the "Trust Law". They chose to turn a blind eye to the "foot" of the China Banking Regulatory Commission. Third, the content did not adapt to the development and changes of the financial industry.
From foreign experience, the "Trust Law" regulates the wealth management system, not a type of corporate business, and there is no such type of financial institution as a trust company. Countries pass the "Trust Law" to "recipients" The rights, responsibilities, and rights of all parties concerned have been legally regulated, especially the isolation of trust property and the obligations of the trustee. At present, my country's wealth management market is full of chaos. The fundamental reason is that the Trust Law is weak and empty.
Therefore, it is recommended to initiate the revision of the "Trust Law" as soon as possible to bring all types of asset management businesses currently managed by the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission into the regulations of the "Trust Law". Focus on improving the trust registration system, trust tax system, trustor loyalty system, public welfare trust system, etc.
State-owned financial issues
At present, among all industries in the national economy, the state-owned economy ranks first in the financial industry in terms of scale, proportion, and influence. , and in the financial industry, the state-owned economic component of the banking industry is particularly prominent, accounting for more than 60% of total assets.
The dominance of the state-owned economy in the financial industry is conducive to macroeconomic control, maintaining financial stability, resolving local financial risks, and cooperating with the country's major economic strategic deployments. However, while obtaining the above advantages, many problems have also arisen, and concentration can be attributed to low efficiency. Due to the insurmountable flaws in the corporate governance structure of state-owned economic banks, they prefer the state-owned economy in capital investment, overemphasize stability in their operating style, and lack long-term incentives in their assessment mechanisms. As a result, banks will have a large number of low-income banks. Cost funds are invested in inefficient state-owned enterprises and local government financing platforms.
Financing difficulties and expensive financing in recent years are mainly reflected in private enterprises. The root cause of the chaotic channel business and nested business in the asset management market is that it is difficult for private enterprises to obtain low-cost funds through formal channels.
Past reform practice has proved that the separation of government from enterprises and separation of government from capital cannot solve the problem of low efficiency of state-owned enterprises. In the final analysis, state-owned enterprises are essentially the direct allocation of resources by the government. The secret to the success of large state-owned banks from being "technically bankrupt" more than a decade ago to today's global financial giants is: government divestiture of non-performing assets + government capital injection + government tilt toward listing financing + government long-term high interest rate protection , government support has played a major role, and marketization capabilities are limited. To this end, it is recommended that in accordance with the requirements of the Third Plenary Session of the 18th CPC Central Committee on actively developing the mixed-ownership economy and promoting state-owned enterprises to improve the modern enterprise system, the state-owned economic reform of the banking industry needs to be accelerated.
The first is to gradually transform several large state-owned banks into mixed-ownership enterprises dominated by state-owned capital. Gradually and orderly replace the capital injection from China Investment Corporation or Huijin into private capital through market-oriented mechanisms and means, with the proportion of state-owned capital reduced to less than 50% and the largest shareholder with more than a controlling stake.
The second is to transform state-owned joint-stock banks other than the six major banks of China, Agriculture, Industry, Construction, Communications and Postal Savings into mixed-ownership enterprises with private capital as the mainstay and state-owned capital as the supplement. State-owned capital is only an important shareholder and does not have a controlling position. It is more of a strategic financial holder.
The third is to speed up the review of small and medium-sized banks opened by private capital. The market positioning of small and medium-sized banks is to absorb local deposits and issue loans locally, similar to community banks in the United States. The government's policies for private capital to open small and medium-sized banks must be transparent, concise, and convenient. The threshold requirements should be limited to: establishing a relatively standardized joint-stock system with clear property rights; meeting capital adequacy ratio requirements; participating in the deposit insurance system; and having clear market positioning. As long as the enterprise initiated and established meets the above requirements, it should be approved to engage in banking as soon as possible.
The fourth is to deepen the reform of the corporate system of large state-owned banks. Establish a professional manager system and promote a more market-oriented management selection method. Both the chairman of the bank's board of directors and the president of the bank should be selected by the board of directors. Establish healthy management incentives to ensure that senior managers take shareholder interests as their main goal. On the premise of market-based selection and employment, executive compensation should be completely market-based.
(The author is a visiting professor at the Institute of International Economics, Nankai University)