CHINA TO INCREASE FOCUS ON COMBATTING FINANCIAL CRIME

Last month the Communist Party of China held its 19th National Congress. One of the key themes that came out of the Congress was the desire to increase the focus on combatting financial crime and systemic financial risk.

This increased focus follows on the back of the stock market crash in summer 2015 and enforcement actions against those considered responsible for the crash, including investigations into allegations of bribery and stock market manipulation involving senior officials at the China Securities Regulatory Commission (CSRC) and the China Insurance Regulatory Commission (CIRC), as well as criminal proceedings against brokerages. Two particular initiatives have followed hot on the heels of the Congress. Last week a super financial regulator, the Financial Stability and Development Committee, was formed to supervise and coordinate the activities of the existing financial regulators. The Committee will be headed by the Vice-Premier, Ma Kai, and will sit under China’s cabinet, the State Council making it more powerful than ministries. The People’s Bank of China (PBC) and each of the regulators will be nominating a representative to the Committee. The Committee will be tasked with the supervision of China’s monetary policy and financial regulation and will be involved in formulating policies on systematic financial risk management. It will have the power to supervise and question financial regulators and local governments.

Also, last week China’s public security ministry released a policy announcement emphasising that it will increase its focus on combatting financial crime with the view to safeguarding “national financial security”. Particular areas of concern that have been singled out relate to China’s shadow banking, the asset management sector, internet finance and financial holding companies as well as “new” risks such as cryptocurrencies, risky insurance products, peer-to-peer lending and other innovative products.

We have already been seeing a considerable up-tick in investigation and enforcement activities from the prudential and securities market regulators over the past year in matters that we have handled for clients. These most recent developments suggest this trend is very likely to continue.

Financial security is clearly a key theme and it can be expected that enforcement activity is likely to increase, in particular in areas such as market-misconduct and other issues that are able to lead to wider financial troubles or to impact financial markets improperly. We will be monitoring policy statements from the Financial Stability and Development Committee which are likely to provide further indication of the likely direction of future enforcement activity.

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Filed under Announcements, China, Regulatory Reform

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