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How to Improve Internet Financial Supervision under the New Normal

The current economy is facing greater downward pressure, and it needs financial reform and financial innovation to take greater steps to help the economy. Internet finance has become an irreplaceable role in making up for the lack of traditional finance, supporting the development of small and micro enterprises, and promoting mass entrepreneurship.

As a product of the combination of finance and internet, Internet finance not only has the traditional risks of financial business, but also has legal risks, information security risks and technical risks outside the traditional financial services. How to supervise Internet finance has become a worldwide problem. In July 2015, the People’s Bank and other 10 ministries and commissions issued the “Guiding Opinions on Promoting the Healthy Development of Internet Finance” (hereinafter referred to as “Guiding Opinions”), and proposed the principles and guiding ideology for strengthening Internet financial supervision, but only It is an administrative guidance. It is impossible to solve all the problems facing the current Internet financial supervision. Internet financial supervision still has a long way to go.

The outstanding problems facing the development of internet finance

As a form of financial innovation, Internet finance is currently facing many problems:

First, legislation still lags behind. The financial business complies with the existing laws. After the emergence of new financial formats, the corresponding laws are often not found. Only when the risks accumulate to a certain extent, the relevant legislation will be put on the agenda. The "Guidance Opinion" is not a law. The development and supervision of various Internet financial services can only be generalized and cannot be refined. Some specific businesses of Internet finance still lack clear specifications. According to relevant statistics, in 2014, the scale of third-party payment in China was as high as 1,873.15 billion yuan, an increase of 84% year-on-year. Although there are at least 60 payment regulations for banks, there are basically no regulations for third-party payment institutions.

Second, the regulatory body is still not reasonable. The "Guidance Opinion" clarifies that the Internet payment business is supervised by the People's Bank of China. The online lending business (P2P) is supervised by the CBRC. The equity crowdfunding business is supervised by the CSRC. Internet fund sales and Internet insurance business are supervised by the China Banking Regulatory Commission and the China Insurance Regulatory Commission. It is still the traditional "one line, three meetings" institutional supervision mode, and the Internet financial business is complex in form, the financial institutions involved are small and scattered, and private-oriented, traditional supervision is difficult to fully and effectively cover them.

Third, business development is affected by various negative events. Due to the low barriers to entry and inadequate supervision coverage, Internet finance services are increasingly showing mixed conditions. Some Internet financial institutions use regulatory airspace to illegally absorb public deposits and illegal fund-raising. Some Internet financial institutions use information. The opaque and illegal encroachment of investors' funds, and some Internet financial institutions' own ability to prevent risks are weak, and the operation is not standardized, causing losses to investors' funds. With the emergence of various negative events, the image of internet finance has been affected.

Fourth, the foundation for supporting business development is still weak. Internet finance relies heavily on technology. Although many powerful Internet companies have intervened in the early stage, the technology platform launched by Internet Finance has developed rapidly. However, with more and more enterprises involved in this field, technical support is insufficient. The risks are also increasing. The Internet, as a public platform, is vulnerable to hackers and the security situation is shocking.

Specific suggestions for improving Internet financial supervision

In response to the outstanding problems faced by the current development of Internet financial services, the following suggestions are made for improving Internet financial supervision:

First, complete Internet finance legislation as soon as possible. The "Guiding Opinions" proposes "actively carrying out legislative research in the field of Internet finance and issuing relevant management regulations in a timely manner." At present, this work must be speeded up. The "Internet Finance Law" and its supporting administrative regulations should be formulated as soon as possible to scientifically define Internet finance. Concept, clarify the nature and norms of various types of business, define the regulatory body according to different business types, and determine the legal status of Internet finance. While establishing the principle of legal supervision, we must adhere to the principle of appropriate supervision. We must not stick to the hands of Internet finance because of supervision, and we must not exceed the legal requirements to impose restrictions on normal Internet financial services.

The second is to further refine the regulatory body. According to the experience of foreign Internet financial supervision, local governments can play a greater role in supervision. In the United States, for example, Internet lending business (P2P) is basically concentrated in the regulatory agencies set up at the federal and state levels, while Hong Kong is simply The small loan companies were handed over to the police department for management, and in practice these practices have received good results. At the same time, according to the different types and characteristics of business, further refine the main body of Internet financial services, highlight the role of local governments and the management of the letter and Internet management departments. To this end, it is necessary to strengthen local legislation and accelerate the formulation of administrative regulations and implementation rules. To clarify the responsibilities and authorities of each regulatory body and strengthen coordination and linkage.

The third is to implement differentiated classification supervision. Traditional supervision is based on institutional supervision. Nobel Prize winner in economics, Morton, puts forward that “financial functions are more stable than financial institutions.” In the face of the small and scattered characteristics of Internet financial institutions, the focus of supervision should gradually shift from institutional supervision to functional supervision. The regulatory focus of third-party payment services should be placed on the transaction process rather than on institutions that engage in third-party payments. The regulation of Internet lending business (P2P) focuses on enhancing information disclosure. According to the nature of the business, the Internet financial institutions can be divided into two categories: the entity enterprise financial service platform and the securities investment service platform. For the former, the “negative list” management can be implemented, and the organizations with bad records and lack of certain scale can be cleared. Going out; the latter can be managed with reference to the rules of private equity funds, so that the organization and the customer can achieve full symmetry of information and prevent risks.

The fourth is to enhance the ability of Internet financial institutions to withstand risks. The core of the Internet finance business is financial business. The Internet is only a means to reduce costs and expand the scale. Solving the source of funds is not the whole of financial business. Where is the investment of funds is a common weakness of emerging Internet institutions, and this aspect is precisely the traditional financial institutions. Strengths. It is necessary to establish a certain threshold for Internet financial institutions, and gradually integrate institutions with weak strength, low management level and poor anti-risk ability, and promote the overall strength of the whole industry by improving the strength of the organization itself. In view of the current status and existing problems of the development of third-party payment services, it is necessary to do a top-level design, gradually limit the third-party payment services to the consumer payment field, and strictly enforce cross-institutional clearing services, and gradually do not pay for liquidation in the People's Bank of China. The system is engaged in clearing business by ordinary Internet financial institutions.

The fifth is to establish a market early warning and exit mechanism. Internet finance tends to amplify systemic risks, and early warning must be made to avoid the market and society from being forced down when the institution goes bankrupt. All regulatory authorities shall conduct a general assessment of the regulated Internet financial services on a regular basis, focusing on the economic and social impacts and risk levels of these businesses, and timely adjusting the direction of supervision and supervision according to the assessment results, for businesses with high risks and high impacts. Institutions should be included in key regulatory areas until the most stringent regulatory tools are adopted. The regulatory authorities should strengthen the research of Internet finance business, track the evolution of business development direction and business model in a timely manner, clarify the boundaries between various business models and illegal criminal acts, crack down on illegal and criminal activities, and establish an exit mechanism based on legal supervision. The institution or business that meets the exit conditions is determined to withdraw from the market and avoid greater risks.

The sixth is to play the role of the industry's "leading enterprise" and strengthen industry self-discipline. All regulatory authorities should strengthen daily contact with Internet financial institutions to enhance understanding and mutual understanding. For businesses that are not clearly defined by law, the regulatory authorities and agencies should communicate in a timely manner and reach an agreement in advance to avoid legal risks. At present, a number of “leading companies” have emerged in the field of Internet finance. They have a high market share, many customers, and a large influence. Most of the new businesses are the first to be launched by these institutions, and other institutions are following up. It is necessary to strengthen the links with these institutions. And coordination, play their positive role, and promote business continuity. It is necessary to strengthen self-discipline in the industry, establish and improve Internet finance associations at all levels, formulate industry self-discipline standards, and establish industry self-discipline and corrective mechanisms.

The seventh is to accelerate the construction of a social credit system. Compared with traditional finance, Internet finance often carries out some “unseen business”, but most Internet financial institutions are small in scale, do not have sufficient information in the use of funds, lack comprehensive and true understanding of investment objects, and increase business. Blindness. To this end, we should establish a nationwide credit system covering all citizens and enterprises as soon as possible, and build a safe and convenient bridge for the "supply and demand sides" of the Internet business. This work seems to be urgent and must be accelerated.

Eight is to strengthen the protection of customer rights and interests. Supervision is essentially protecting customers, not financial institutions. Given the complexity and risk of Internet finance, the protection of customer interests is even more important. It is necessary to establish and improve the third-party depository system for client funds, realize the sub-account management of client funds and financial institutions' own funds, actively carry out investor education activities, and raise investors' risk awareness; all financial institutions must also actively disclose business risks to investors. To ensure the investor's right to know; establish a mandatory information disclosure system, determine the disclosure of matters according to the characteristics of various types of business, and protect the investor's right to know. In case of violation of the information disclosure system or intentional fraud, it is necessary to investigate and deal with it in a timely manner; Class-related crimes must be severely cracked down on the basis of law to maintain the healthy development of the industry.

Nine is to strengthen the security system of Internet finance. Accelerate the research on new technologies and standards for Internet finance, and timely introduce corresponding technical standards and norms to keep up with the pace of market development. Internet financial institutions should also increase hardware investment, improve the level of information and information security, prevent hacker attacks, properly keep customer information and transaction information, and ensure the absolute security of business information.

Author: State-owned Assets Management Office of the State Council Development Research Center director Xu Pengcheng Source: "China Economic Times" November 27, 2015