Coordination key to improving supervision

Financial regulations need to be interlinked, says PBOC official

Strengthening policy coordination among Chinese regulators is an important step toward improving supervision over the country's financial system as well as warding off potential financial risks, said a vice-governor of the People's Bank of China on Thursday.

Hu Xiaolian's remarks followed the establishment of a new supervisory mechanism last month under which the central bank plays a leading role in regular meetings on policy and regulations with other financial regulators.

The country's current main financial supervisors include the PBOC, the China Banking Regulatory Commission, China Securities Regulatory Commission, China Insurance Regulatory Commission and the State Administration of Foreign Exchange.

China's separate regulation mechanism has met the requirement of economic and financial development as a whole since 2003, but problems emerged such as the absence or duplication of regulations and a lack of unity in regulation standards.

"It is urgent to set up a mechanism that is both relatively separate and cooperative to solve these problems and maintain the operational efficiency of the whole financial system," said Hu at the Financial Street Forum in Beijing.

Hu said the mechanism is also necessary to ward off potential financial risks, some of which stem from overcapacity and debt problems in some sectors.

"Overcapacity and excessively high debt levels in some sectors will create hidden dangers and potential financial risks," she said.

"We need to strengthen policy coordination, strengthen systemic risk monitoring and macro-prudential regulatory requirements. Only in this way we can firmly safeguard the bottom line in preventing systemic and regional financial risks."

Concerted efforts are needed to rein in risks in China's banking sector, including credit and money markets, as well as capital and insurance markets.

According to Hu, the mechanism is positive for carrying out financial innovation and consistent with global consensus and behavior.

Under the separate regulation conditions, the sales of insurance, securities and banking businesses are limited while the coordination among regulators can make companies' businesses more diversified and flexible, Ping An Insurance (Group) Co Chairman Ma Mingzhe said earlier. The company has been experimenting with integrated businesses of insurance, banking and investment.

The mechanism will perform functions that include strengthening the coordination of monetary policy and financial supervision policy, maintaining the consistency of financial regulation policy, laws and rules, maintaining financial stability and preventing and mitigating financial risks, as well as paying attention to the healthy development of cross-financial products.

"Monetary policy is a macro-control tool to maintain smooth and steady economic growth. It needs to be coordinated with financial regulations to have the required policy effect," said Hu.

Hu also said preventing regulatory arbitrage is an important lesson taken from the international financial crisis, while the emergence and rapid development of shadow banking is related to the inconsistency of regulation policy and rules, which also exists in China.