Big tech firms face more regulation of financial activities: PBOC Governor warns

Tracy Li
Online money platforms should follow the principle of 'same business, same rules,' Chinese central bank leader tells international meeting.
Tracy Li
Big tech firms face more regulation of financial activities: PBOC Governor warns

Big technology companies that engage in financial activities will face tougher regulations, and platform firms offering financial services should follow the principle of 'same business, same rules', China's central bank governor vowed during an international meeting.

"In the era of the digital economy, the integration between finance and technology is a global trend," Yi Gang, governor of the People's Bank of China (PBOC), said in a pre-recorded speech for a conference held on Thursday by the Bank for International Settlements.

While applauding the convenience, efficiency and inclusion brought by big techs' financial innovations in business like mobile payments and Internet-based consumer credit loans, Yi added that a common challenge was how to enhance innovation while preventing the negative effects of fintechs.

Financial technology companies have posed new regulatory challenges, as some of them are conducting unlicensed financial activities and collecting massive user data through e-commerce, payments and search engine services.

In the name of supporting lending activities, some top platform companies help financial institutions analyze users' behavior and credit worthiness without relevant regulatory permission.

They also offer wealth management, investment and insurance services on the same platform, thus increasing the possibility of cross-product and cross-sector risk contagion.

The "winner takes all" nature of platform companies could lead to market monopoly, topple the level playing field and threaten personal privacy and information security, the central banker noted.

Also, big techs have posed challenges to the traditional banking industry, according to governor Yi. Nearly 4,000 Chinese small banks have no choice but to rely on platform companies to expand their business, which will undermine their competitiveness and ability to gain customers.

To address these challenges and fill regulatory gaps, Chinese regulators have been making concerted efforts to promote fair competition and protect consumers' rights.

"Financial activities must be licensed to operate," the central governor emphasized, adding that improper connections between financial information and commercial information should be "cut off".

On payment business, for instance, the People's Bank required in 2016 non-bank payment service providers to cut their direct links with commercial banks and conduct clearing services via legitimate clearing institutions.

Since the end of last year, non-bank payment service providers were prohibited from setting their consumer credit products as default payment options and were required to give consumers more payment choices.

"We will strengthen regulatory measures on payment business going forward," Yi said.

In September 2020, the central bank required platform companies which conduct financial activities to establish a financial holding company and separate their tech services from financial business.

"Platform firms offering financial services should follow the principle of 'same business, same rules'," said Yi.

To break information monopoly and promote information sharing, Chinese regulators have recently announced plans to rein in the use of personal credit data.

Governor Yi noted that the PBOC had asked technology platform operators to carve out their personal credit information businesses and to provide credit information services to financial institutions through licensed credit information agencies.

Since 2016 China has issued several laws and regulations to better protect people's data rights and to curb irregularities on information collection.

"Going forward, we will continue to improve the rule of law and ask all financial services to be licensed," he vowed, noting that China is willing to participate in international rule making around the digitalisation of financial services to prevent anti-competitive behaviour and increase data protection for consumers.

Thanks to digital companies' help, the penetration rate of mobile payments in China has reached 86 percent and the number of small and micro businesses with loans from Chinese banks had reached over 38 million at the end of this July.

China now hosts around 1 billion netizens, a solid foundation for the adoption of financial technology, and five of the top 20 platform companies in the world in 2020 were from China.

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