Deputy Governor of the Central Bank: Substantial results have been achieved in the rectification work since 2016, avoiding the risk of a large-scale virtual asset bubble

Source: Sina Finance

Sina Finance reported on December 17 that the 2019 Third China Internet Finance Forum with the theme of "Financial Technology to Promote the Construction of a Modern Financial System" was held in Beijing today. Pan Gongsheng, Deputy Governor of the People's Bank of China, was unable to attend for some reason and was addressed by Zou Lan, Director of the Financial Markets Department of the People's Bank of China.

Zou Lan, Director of the Financial Markets Department of the People's Bank of China, delivered a speech

In his speech, Pan Gongsheng pointed out that in the development of new financial activities driven by technology, we must do a good job in several aspects: persistence and consolidation, as well as improvement and development.

First, we must adhere to the fundamental purpose of serving the real economy. New technologies, new products, and new models should be evaluated based on whether they improve the quality and inclusiveness of financial services, and their impact on the financial industry and macro-control. We must adhere to the principle of finance for the people, encourage the use of technology to lower the threshold and cost of financial services, and provide support for solving the financing difficulties of small and micro enterprises, winning the battle against poverty, and implementing the rural revitalization strategy. We must prevent the use of technology as a cover to deviate from the real economy and turn to the virtual economy, which will lead to the idleness of financial supply and demand.

Second, we must adhere to the basic bottom line of preventing financial risks. The establishment of financial institutions and the conduct of financial business must be subject to access management in accordance with the law, functional supervision must be implemented, supervision must be fair, and the substance of the business must be determined in accordance with the principle that substance is more important than form. As long as the substance of the business is the same, consistent policy orientations and regulatory rules must be adopted. We must protect the interests of investors who have no risk identification ability and keep the people's wallets. Financial activities facing the public, whether in the name of technology or not, must be strictly regulated.

Third, develop technology-enabled financial services to improve the quality and efficiency of the financial industry. Support various institutions to provide inclusive financial services and enrich the financial organization system based on their technology or scenario advantages under the premise of licensed operation. Support financial institutions to connect with various physical scenarios such as e-commerce platforms and supply chains, provide differentiated and personalized financial services, and enrich the financial product system. Support financial institutions to explore big data-driven risk control models and improve risk management capabilities. Support the use of scientific and technological means to build a sound, stable, safe and efficient financial infrastructure such as payment and clearing, registration and custody, and credit information sharing, and optimize the efficiency of my country's financial operations.

Fourth, develop regulatory technology to improve the effectiveness of financial supervision. Adapt to the changing and fast-changing characteristics of science and technology, improve the rapid response capabilities of supervision, promote the normalization of online financial risk early warning and monitoring mechanisms, and use technology to enhance the financial regulatory authorities' cross-market, cross-industry, and cross-regional financial risk identification, early warning, and disposal capabilities. Improve the construction of financial regulatory information platforms, adapt to the needs of macro-monitoring and expanding data processing capabilities, and form a strong support for regulatory work.

The following is a transcript of the speech:

Dear Chairman Xiao, Mayor Yin, Chairman Li, Minister Gu, Chairman Wang, distinguished leaders, guests, and friends:

Fintech has been a hot topic in the financial industry in recent years, and building a modern financial system is a key task emphasized by the Fourth Plenary Session of the 19th CPC Central Committee. The theme of this forum, "Fintech helps build a modern financial system," is of great practical significance. We look forward to everyone sharing insights, exchanging ideas, and building consensus here. I would like to take this opportunity to share some of my views and experiences based on my work.

Around 2010, driven by a new wave of information technology, my country's Internet finance has rapidly emerged, covering almost all areas of the financial industry. Among them, the development level of non-bank payment ranks among the best in the world. Technology-driven financial innovation has played a very obvious positive role in improving the coverage, efficiency and level of my country's financial services, and has important potential and value in promoting the construction of a modern financial system. However, during the rapid development, some business innovations have gone astray, the quality of the industry institutions is uneven, the industry ecology has continued to deteriorate, and risks have continued to accumulate and expand.

Since 2016, under the leadership of the CPC Central Committee and the State Council, the People's Bank of China has taken the lead in carrying out special rectification of Internet risks with 17 departments and governments at all levels. After four years of efforts by various departments and regions, the rectification work has achieved substantial results.

First, the overall risk level has dropped significantly and incremental risks have been controlled. The number of online lending institutions in operation has dropped from nearly 10,000 at the beginning of the rectification to less than 500, the business scale and the number of people involved have been greatly reduced, and the risks of the industry have been significantly alleviated. Resolute action was taken to crack down on virtual currency speculation and speculation, avoiding the risk of a large-scale virtual asset bubble. Resolute rectification of campus loans, cash loans, and online foreign exchange speculation has protected the property safety of the people and effectively curbed incremental risks.

Second, the regulatory system has been gradually established and improved while rectification is being made. The regulatory framework for non-bank payment, online lending, and Internet insurance has been basically established and continuously improved. Virtual currency trading platforms, token issuance and financing, unlicensed online asset management business, and Internet foreign exchange margin trading are expressly prohibited, drawing a clear bottom line. The construction of Internet financial infrastructure has been continuously promoted, and China UnionPay and Baihang Credit have been successfully operated. The risk monitoring technology system built by the China Internet Finance Association and the National Internet Emergency Center has been continuously improved.

Third, we have accumulated rich experience in the supervision of new financial activities and explored an effective supervision cooperation mechanism. In the past four years of rectification work, financial management departments, propaganda departments, network and telecommunications management departments, market supervision departments, judicial departments, self-regulatory organizations, etc. have been seamlessly connected. Central government departments and local governments have worked closely together, taken on responsibilities, and innovated working methods. They have explored a set of financial supervision ideas and methods that adapt to the characteristics of new technologies, including insisting on the consistency, penetration, and full coverage of financial supervision, grasping the key means of fund account monitoring and publicity and marketing management, focusing on investor suitability and consumer rights protection, and fully cooperating with administrative management and self-regulatory management. These are all valuable assets for effective financial supervision in the future.

We must not forget the past and learn from it for the future. From the accumulation, expansion, and exposure of Internet financial risks to the cleanup and rectification that has continued to this day, we have paid a huge price and learned very profound lessons that deserve serious reflection and summary.

First, all parties did not fully understand the attributes of Internet finance. Internet finance is still finance, and financial technology is also financial innovation driven by technology. Judgment should be made based on legal relations and business substance. Conceptual fluctuations and technological cloaks cannot change the essence of finance. Whether it is FinTech or TechFin, whether it is ICO or STO, the essence of its business activities should be identified through the dazzling terms.

Second, Internet finance and financial technology have not changed the risk attributes of finance. Instead, they are more contagious and involved, and the risks of network data and information security are more prominent. On the one hand, due to the cross-border and cross-regional mixed business characteristics, the risk spreads faster and the spillover effect is stronger. On the other hand, the multi-dimensional long-tail customers who receive services have low risk identification capabilities, limited loss tolerance, and more serious potential social harm.

Third, some market players do not respect financial laws and their incentives are distorted. Against the backdrop of rapid technological iteration, there is a mixture of real and fake technologies, some market players lack sufficient identification capabilities, the phenomenon of bad money driving out good money is prominent, technology applications are not carefully demonstrated and tested, there is too much emphasis on technology, there is a lack of respect and awe for financial laws, and people rush in and out, which is likely to leave a mess.

At present, the integrated development of finance and technology is in full swing. Under the general trend of digitalization and informatization, new business forms and models of Internet finance and financial technology will continue to emerge in an endless stream, and will continue to have profound and far-reaching impacts on the financial industry.

The Fourth Plenary Session of the 19th CPC Central Committee proposed to improve the governance of a modern financial system that is highly applicable, competitive and inclusive, which provides a fundamental guideline for the construction of my country's financial system. In the next step, in the development of new financial activities driven by technology, we must do a good job in several aspects: adherence and consolidation, improvement and development:

First, adhere to the fundamental purpose of serving the real economy.

New technologies, new products, and new models should be evaluated based on whether they improve the quality and inclusiveness of financial services, and their impact on the financial industry and macro-control. We should adhere to the principle of finance for the people, encourage the use of technology to lower the threshold and cost of financial services, and provide support for solving the financing difficulties of small and micro enterprises, winning the battle against poverty, and implementing the rural revitalization strategy. We should prevent the use of technology as a cloak to move away from reality and toward virtuality, resulting in the idleness of financial supply and demand.

Second, adhere to the basic bottom line of preventing financial risks.

The establishment of financial institutions and the conduct of financial business must be subject to access management in accordance with the law, functional supervision must be implemented, supervision must be fair, and the substance of the business must be determined in accordance with the principle that substance is more important than form. As long as the substance of the business is the same, consistent policy orientations and regulatory rules must be adopted. The interests of investors without risk identification capabilities must be protected, and the wallets of ordinary people must be protected. Financial activities facing the public, whether in the name of technology or not, must be strictly regulated.

Third, develop technology-enabled financial services to improve the quality and efficiency of the financial industry.

Support various institutions to provide inclusive financial services and enrich the financial organization system by relying on their technology or scenario advantages under the premise of operating with a license. Support financial institutions to connect with various physical scenarios such as e-commerce platforms and supply chains, provide differentiated and personalized financial services, and enrich the financial product system. Support financial institutions to explore risk control models driven by big data and improve risk management capabilities. Support the use of scientific and technological means to build a sound, stable, safe and efficient financial infrastructure such as payment and clearing, registration and custody, and credit information sharing, and optimize the efficiency of my country's financial operations.

Fourth, develop regulatory technology to improve the effectiveness of financial supervision.

Adapt to the changing and fast-changing characteristics of science and technology, improve the rapid response capability of supervision, promote the normalization of online financial risk early warning and monitoring mechanisms, and use technology to enhance the cross-market, cross-industry, and cross-regional financial risk identification, early warning, and disposal capabilities of financial regulatory departments. Improve the construction of financial regulatory information platforms, adapt to the needs of macro-monitoring and expanding data processing capabilities, and form a strong support for regulatory work.

As a national industry self-regulatory organization, the China Internet Finance Association has continuously improved the industry's self-regulatory management mechanism, promoted the construction of industry infrastructure, and carried out industry standardization construction and policy publicity and training, playing an extremely important role in industry standardization and development. It is hoped that under the leadership of President Dong Rong, the China Internet Finance Association will continue to play an important supporting role in self-regulatory management for administrative management, continue to practice the original intention of serving the people, and make greater contributions to the construction of a modern financial system with high applicability, competitiveness and inclusiveness!

Finally, I wish the forum a great success. Thank you all!