The fifth National Financial Work Conference (the "Conference"), held from July 14 to 15, 2017, demonstrated that the Chinese government gives high priority to reducing financial risks and aims to strengthen coordinated financial regulation. As a result of the Conference, the State Financial Stability and Development Commission has been established to lead the coordinated financial regulation. While the exact role of the commission is yet to be further defined, in the past two months relevant PRC authorities have taken various actions to strengthen financial regulation, including:
1. Studying and promoting the policies of the Conference.
Chinese authorities have been studying and promoting the policies set forth at the Conference by holding seminars and meetings, and issuing notices and guidelines. Besides the traditional financial regulators, i.e. the People's Bank of China ("PBOC"), the China Banking Regulatory Commission ("CBRC"), the China Securities Regulatory Commission ("CSRC"), and the China Insurance Regulatory Commission ("CIRC"), such authorities also include a number of other government organs, such as the Supreme People's Court, the Supreme People's Procuratorate, the Ministry of Public Security, the State-owned Assets Supervision and Administration Commission, and the Office of the Leading Group for Financial and Economic Affairs. Each of them has been endeavoring to prevent financial risks by taking measures within its scope of responsibility.
2. Drafting Regulations on Handling Illegal Fund-raising.
On August 24, 2017, the Legislative Office of the State Council issued the draft Regulations on Handling Illegal Fund-raising (the "Draft Regulations"). According to the Draft Regulations, the State Council shall establish a cross-ministry joint conference for handling illegal fund-raising, which is empowered to guide and coordinate the regulatory activities of the member ministries and provincial governments. Its functions include, for example, instructing the member ministries and provincial governments to share information and thus timely detect illegal fund-raising.
3. Cracking down on Initial Coin Offerings ("ICOs").
On September 4, 2017, the Chinese government banned unauthorized ICOs as illegal fund-raising activities by the Public Notice on Preventing Risks Related to Fund-raising by Issuing Tokens (the "Public Notice"). The Public Notice was jointly issued by PBOC, CBRC, CSRC, CIRC, the Cyberspace Administration of China ("CAC"), the Ministry of Industry and Information Technology ("MIIT"), and the State Administration for Industry and Commerce ("SAIC"). While such total ban was somehow unexpected by the market and cryptocurrency prices plunged following the Public Notice, it is not a complete surprise and is consistent with the already announced policy of preventing financial risks; it also demonstrates the Chinese government's power to coordinate and exercise regulatory powers. According to the Public Notice, the financial regulators may request for enforcement cooperation from MIIT, CAC and SAIC, which respectively have the powers to shut down websites and apps, delist apps from app stores, and revoke business licenses of the ICO platforms.
The Conference sets the tone for financial development in the coming years, and it can be expected that China will keep endeavoring to reduce financial risks and promote a coordinated and strengthened regulation on the financial sector. Following such trend, the financial community will be well advised to have a clear understanding of regulatory requirements, and reassess and reinforce risk and compliance management as appropriate
Published in September 2017
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