Insurance and bank sectors to see overhaul of their regulation

China is planning to overhaul its financial regulatory bodies by combining the country’s top banking and insurance regulators and transferring some of their functions to the central bank.

Under the plan, the China Banking Regulatory Commission and the China Insurance Regulatory Commission will be merged into one organization that will be under the control of the State Council, the country’s Cabinet.

The central bank will take the roles of drafting key legislation and regulations as well as handling the basic system for supervision of the two watchdogs, according to the proposal submitted to the national legislature for deliberations yesterday.

The move is aimed at solving existing problems such as unclear responsibilities, cross-regulation and absence of supervision, said State Councilor Wang Yong when explaining the plan to the lawmakers.

The move marks another big restructuring of the financial regulatory framework, following the central government establishing the Financial Stability and Development Commission in November.

The measure submitted yesterday is aimed at playing a vital role in fending off systemic risk and underpinning the steady development of China’s financial market, according to Xu Wenbing, chief banking analyst at the Bank of Communications, and Lian Ping, chief economist at the Shanghai-based lender. 

Xu and Lian said the proposed new commission responsible for overseeing both the banking and insurance sectors will create a better synergy that will overlap effectively.

Thanks to their long-term close business relations, the cross-industry integration of banking and insurance supervision is also in line with the requirements of the development of China’s financial market, the research team at the BoCom said.

The plan aims to separate the development and regulatory functions of the financial regulators, by assigning the development functions to the central bank. The move will enable regulators to focus on supervision and improve the professionalism and effectiveness of that supervision, according to a report by the financial magazine Caixin.

The consolidation of the banking and insurance regulators will streamline and unify regulation, especially with regard to shadow-banking activities, by reducing the room for regulatory arbitrage, Moody’s Investors Service said yesterday.

The rating agency believes the consolidation will help to contain the use of pass-through channels — off-balance-sheet lending activities — involving the banking and insurance industries. 

Moody’s expects the merged regulator will adopt a more effective approach to regulating such activities.

Furthermore, Moody’s said the transfer to the central bank of rule-making authority in the two industries will enhance coordination between monetary and regulatory policies in the interests of safeguarding financial stability.

China will also set up a state market regulatory administration to shoulder the responsibilities including comprehensive market supervision, market entity registration and market order maintenance.

Meanwhile, the administration will be in charge of safety supervision of industrial products as well as food and special equipment, while managing measurement criteria, examination and testing, certification and accreditation issues.