On the issue of financial regulators of the banking system of the People's Republic of China
The article examines the peculiarities of regulation of the banking system of the People's Republic of China. In particular, the author identifies two key regulators - the People's Bank of China and the Chinese Banking and Insurance Regulatory Commission, and reveals their main powers to implement banking regulation and banking supervision. The author also touches upon the issue of regulatory regulation of the activities of these entities, in particular the Law of the People's Republic of China "On the People's Bank of China" and the Law of the People's Republic of China "On Banking Regulation and Supervision", which are key legislative acts in this area. Among the features inherent in banking regulators, the author highlights such as their attribution to executive authorities, relative independence while subordinating to the State Council of the People's Republic of China, duality of regulation and division of powers between regulators. The article provides an overview of the scientific positions of foreign authors on various issues of the activities of regulators of the Chinese banking system. In conclusion, conclusions are drawn based on the results of the study and the author's opinion is given regarding the borrowing of China's experience in the field of banking regulation.
Keywords: People's Bank of China, China Banking and Insurance Regulatory Commission, banking regulation, banking supervision, banking regulator.
Being one of the fastest growing economies in the world, the People's Republic of China is of great scientific interest from the point of view of studying the institutional and regulatory foundations of its functioning. In particular, the Chinese banking sector, characterized by the active introduction of new technologies and digitalization of key processes, is interesting from the point of view of its regulatory component. Studying the specifics of the regulation of the banking system of the People's Republic of China will allow us to adopt the best experience in this area, which can be useful in improving the regulatory regulation of the domestic banking system.
Speaking about the modern regulators of the Chinese banking system, it should begin with the fact that at the 3rd session of the 8th National People's Congress on March 18, 1995, a specialized regulatory legal act was adopted, which consolidated the legal status of the country's central bank, the People's Bank of China (hereinafter - NBK). It should be noted that the NBK belongs to the executive authorities and is considered as a structural unit of the State Council of the People's Republic of China (State Council of the People's Republic of China) <1>.
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<1> Artemyeva Yu.A. Banking system of the People's Republic of China // Problems of economics and legal practice. 2017. N 4. pp. 90-95.
At the same time, the model of the national bank of the country provides that the management of the NBK's activities is carried out by the State Council of the People's Republic of China (Article 2 of the Law of the People's Republic of China "On the People's Bank of China", hereinafter - the NBK) <2>. Thus, the State Council approves the NBK's decisions on monetary policy issues. All decisions made by the NBK are necessarily sent to the State Council of the People's Republic of China (Article 5 of the NBK). This fact highlights the important role of the state in the organization and regulation of the banking sector.
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<2> Law of the People's Republic of China on The People's Bank of China // The People's Bank of China. 2015.
Despite the fact that all decisions of the NBK are approved by the State Council (Article 5 of the NBK), it is itself funded by the state (Article 8 of the NBK), its manager is appointed by the Prime Minister of the State Council (Article 10 of the NBK), and the NBK budget and its execution are checked and controlled by the State Council (Article 38 of the ZNBK), the law provides for independence The NBK in the performance of its functions, that is, without any interference from local governments or administrative bodies of any level, public organizations and individuals (art. 2 of the NBK).
It should be noted that, although the NBK is under the leadership of the State Council of the People's Republic of China, it is also accountable to the Standing Committee of the National People's Congress (Standing Committee of the National People's Congress, Article 6 of the NBK).
Thus, based on the analyzed provisions, we can conclude that the NBK is relatively independent in the implementation of the powers and functions assigned to it. The NBK mainly has the authority to perform functions related to the definition and implementation of monetary policy, the issue and circulation of banknotes (Article 32 of the NBK).
The NBK is the central bank of the country, but at the same time it regulates the activities of only those banking institutions that face insolvency difficulties (Articles 23, 34 of the NBK). We believe that this is due to the fact that the NBK is responsible for maintaining financial stability (Articles 1, 2 of the NBK). However, in general, regulation and supervision in the banking sector is carried out by another body - the China Banking and Insurance Regulatory Commission (hereinafter referred to as the Commission), on the basis of Article 33 of the NBK. An interesting feature of regulatory regulation is the fact that the Commission is not explicitly named in the ZNBC. Oversight functions were transferred to the Commission due to China's accession to the World Trade Organization. The scientists note that the Commission was established to monitor banks' compliance with the criteria of the Basel Committee on Banking Supervision.
Despite the creation of the Commission, as the Chinese authors note, certain supervisory powers remained with the NBK. His responsibilities include preventing and reducing systemic risks and maintaining the stability of the financial system, as well as overseeing the payment and settlement system. Thus, in addition to the national bank's responsibility for monetary policy and representing the People's Republic of China at the international level, the NBK is also responsible for reducing overall financial risk and promoting the stability of the financial system. He also oversees interbank markets, foreign exchange markets, payment and settlement systems. His policy is crucial for the work of banks in China. In addition, according to the statement of the State Council <3> on the institutional reform plan, some powers to develop its key provisions and prudential supervision of banking and insurance companies were transferred to the NBK <4>.
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<3> Artemyeva Yu.A. Banking system of the People's Republic of China // Ibid., p. 91.
<4> Bence Varga. Current Challenges Facing Chinese Financial Supervision and Methods of Handling these Challenges // Financial and Economic Review. January 2017. Vol. 16. Special Issue. P. 127.
On the other hand, the Commission has become the regulatory and supervisory authority within the banking system. It is interesting that a specialized law regulating the activities of the Commission has not been developed. We believe that this is due to the fact that the Commission was created within the framework of the State Council and is a fairly new supervisory body in the banking system.
Initially, the Commission was created in order to improve the effectiveness of monitoring and evaluating the activities of banking organizations. At the same time, the literature notes the risk of collusion between the supervisory authority and banking institutions in order to mislead the central bank about the effectiveness of the bank's activities <5>, as well as the risk of collusion between the central bank and the banking institution, which may lead to the use of selective supervision and leniency in regulation by the supervisory authority <6>.
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<5> 2019.
<6> Wang S., Tan F. The Banking Regulation Review. Ed. 10. China // The Law Reviews. 2019.
Foreign authors note that the Commission is assigned not only supervision of banks themselves, but also asset management companies, trust companies, investment companies, as well as other financial institutions engaged in raising funds <7>.
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<7> Faure-Grimaud A., Laffont J.-J., Martimort D. Risk Averse Supervisors and the Efficiency of Collusion // Contributions to Theoretical Economics. 2002. Vol. IV (2). N 1.
Thus, the main functions of the Commission for the Regulation of Banking and Insurance Activities are:
- development of regulatory acts in the field of supervision, norms and rules governing the activities of banking institutions;
- approval of the creation, reorganization, termination of activities, expansion of the scope of banking institutions;
- conducting a special assessment to confirm the competence of directors and senior managers of banking institutions;
- conducting on-site supervision and inspections of banking institutions in the field;
- conducting investigations, applying sanctions and coercive measures against institutions that violate the requirements of laws and regulations;
- collection of statistical data and publication of reports on the entire banking sector in accordance with the established procedure;
- making proposals to resolve the problems of deposit-taking organizations in coordination with the relevant regulatory authorities;
- management of supervisory boards of state financial institutions;
- performing other duties delegated by the State Council of the People's Republic of China.
The literature also describes the main tasks of the regulator - protecting the interests of depositors and customers, maintaining market confidence through prudential and effective ongoing supervision, promoting public awareness of modern finance through consumer education and information disclosure, reducing financial crime; highlights the main areas of supervision, as well as concepts and approaches to its implementation. The concept, in particular, includes the conduct of consolidated supervision with an emphasis on risk-based supervision; recommendations to banks on creating and maintaining the effectiveness of the internal control system; increasing the transparency of supervision in accordance with international standards and practices. The main approach is understood to be prudential supervision of the level of risk, in particular, ensuring accurate classification of loans, sufficiency of reserves to cover losses, as well as monitoring compliance with capital adequacy requirements based on the reporting of supervised organizations <8>.
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<8> Ibid.
At the present stage of development of the Chinese banking system, the Commission is a relatively independent body and carries out its activities under the leadership of the State Council of the People's Republic of China, but at the same time decisions on the conduct of supervisory measures and the application of response measures are taken by the NBK.
The activities of the Commission are regulated by the Law of the People's Republic of China "On Banking Regulation and Supervision" (hereinafter - ZBRN), as well as information letters and recommendations that are issued directly by the Commission itself <9>.
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<9> Rules and Regulations / China Banking and Insurance Regulatory Commission. 2022.
It should also be noted that both the NBK and the Commission have the right to request reports and other documentation from banking organizations, which demonstrates the intersection of their functions <10>.
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<10> The Law of the People's Republic of China "On Banking Regulation and Supervision" // Law of the People's Republic of China on Banking Regulation and Supervision. The People's Bank of China. 2015.
Thus, the existing banking supervision system in China presupposes the existence of two relatively independent institutions that regulate and supervise the banking sector. At the same time, despite the risk of duality and duplication of powers, China's banking supervision system is showing its effectiveness in the modern digital economy. It seems promising from the point of view of implementing best practices in Russia to apply the concept of a single regulatory act on banking supervision, including supervision of compliance with financial data protection requirements. In particular, taking into account the specifics of this area of verification activity, it is advisable to provide in such an act a special procedure for conducting inspections, the rights and obligations of its participants, requirements to be observed and verified, requirements for mediation and outsourcing to protect financial information in the context of the use of new financial technologies, as well as responsibility for late communication, non-communication, distortion or concealment of information about an incident related to a violation of financial information protection requirements.
