Beijing Business Daily: Beijing tries out the financial technology "regulatory sandbox", and licensed institutions and digital currencies are expected to enter first

Reporter Meng Fanxia Ma Di

Three months after the central bank released its top-level design, financial technology innovation supervision has made a breakthrough. On December 5, the central bank announced the launch of a pilot program for financial technology innovation supervision, with Beijing taking the lead and the Chinese version of the "regulatory sandbox" officially launched. This year, Beijing's exploration of the regulatory sandbox has also been advancing at full speed, and Xicheng District is expected to be the first to implement the pilot. Analysts told Beijing Business Daily that licensed institutions are expected to be the first to enter the pilot program. In addition, "new, hot, and controllable risks" may be the standards for products in the pilot program. Among them, attempts such as digital currencies and controversial products such as loan assistance and joint loans involving traditional financial fields may also enter the pilot program.

China's version of "regulatory sandbox" launched

The Chinese version of the "regulatory sandbox" was officially launched, first landing in Beijing. On December 5, the central bank's official website announced that in order to implement the "Financial Technology (FinTech) Development Plan (2019-2021)", in accordance with the "State Council's Reply on Comprehensively Promoting the Comprehensive Pilot Work Plan for Expanding the Opening of Beijing's Service Industry", support was given to Beijing to take the lead in carrying out a pilot project for financial technology innovation supervision, explore the construction of financial technology innovation supervision tools that are in line with my country's national conditions and in line with international standards, and guide licensed financial institutions to use modern information technology to empower finance to improve quality and efficiency under the premise of compliance with laws and regulations and protecting consumer rights, and create a righteous, safe, inclusive and open financial technology innovation development environment.

On the same afternoon, the Beijing Local Financial Supervision and Administration Bureau also announced that, under the guidance and support of the central bank, it will be the first in the country to launch a pilot program for financial technology innovation supervision, explore the construction of an inclusive and prudent Chinese version of the "regulatory sandbox", and use flexible management methods such as information disclosure, product disclosure, and joint supervision to guide licensed financial institutions to promote integrity and innovation in financial technology, and enable financial services to improve quality and efficiency.

As we all know, how to balance financial technology innovation and risk is a common problem faced by financial supervision, and the regulatory sandbox, as a testing mechanism for financial product innovation, has always attracted widespread attention from the market and regulators. Beijing Business Daily reporters noted that as early as last year, the "Beijing Plan for Promoting the Development of Financial Technology (2018-2022)" clearly stated that Beijing will promote the construction of regulatory innovation and risk prevention systems, and explore and promote the implementation of financial technology regulatory innovation pilot projects with the regulatory sandbox as the core.

Since the beginning of this year, China's exploration of the regulatory sandbox has also been advancing at full speed. On July 15 this year, at the "Fourth Global Fintech (Beijing) Summit", Li Wei, Director of the Technology Department of the Central Bank, revealed that the central bank, together with relevant ministries and commissions, will carry out pilot projects for the application of financial technology in ten provinces and cities, including Beijing, Shanghai, and Guangzhou, so as to establish and improve policy measures to adapt to the development of financial technology. He called this pilot the Chinese version of the "regulatory sandbox".

Beijing Xicheng District is about to pilot

In fact, with the continuous penetration of new technologies such as big data, artificial intelligence, and blockchain into the financial industry, regulatory innovation has gradually become an urgent matter. In particular, after the release of the top-level design of financial technology, the Financial Technology Development Plan 2019-2021, released by the central bank in September this year, when Beijing will launch the implementation details has attracted much attention.

A Beijing regulator revealed that they are currently speeding up the formulation of specific implementation rules for Beijing in accordance with the requirements of the "Financial Technology Development Plan 2019-2021" to further increase incentives and support policies for financial technology innovation. Sun Shuo, deputy secretary of the Xicheng District Party Committee and district mayor of Beijing, also revealed that the regulatory sandbox mechanism will soon be implemented in Xicheng.

Regarding the implementation of the regulatory pilot in Beijing, Yin Zhentao, deputy director of the Law and Finance Research Office of the Institute of Finance of the Chinese Academy of Social Sciences, told the Beijing Business Daily reporter that financial technology is an industry with high capital investment, high talent concentration and high innovation model. The industry development is mainly concentrated in Beijing, Shanghai, Shenzhen and Hangzhou. Beijing has a good foundation and as a regulatory center and hub, the operation process of the regulatory pilot requires cooperation from many departments, which will be more convenient in Beijing.

Che Ning, deputy secretary-general of the Beijing Internet Law Society and researcher at the Financial Technology and Internet Security Research Center of Renmin University of China, told the Beijing Business Daily that Beijing's first financial technology innovation supervision pilot in the country is a great boon to Beijing's development of the financial service industry. At present, Beijing's economic development is also facing development transformation and needs to find new economic growth points. The supervision pilot can be regarded as a booster.

"Beijing is the city with the largest number of financial technology companies, and has been ranked the world's strongest financial technology city for consecutive years. Choosing Beijing, which has the most financial technology companies, means that the construction of the financial technology regulatory system has entered a substantive stage. After the pilot is successful, the results will be promoted nationwide." Sun Yang, director of the Financial Technology Center of Suning Financial Research Institute, told the Beijing Business Daily reporter.

Licensed institutions and digital currencies are expected to enter first

"During the pilot process, some special 'regulatory exceptions' may be created. Businesses that were not allowed before or that were controversial may be allowed in the pilot. However, according to international regulatory sandbox trials, not all innovative projects will be successfully implemented in the end." Chen Wenjun, professor at Zhangjiang Institute of Fudan University and executive director of Digital Economy Research Center, told Beijing Business Daily. Many analysts pointed out that the pilot sandbox supervision will use blockchain, big data, artificial intelligence and other means to assist supervision, giving financial technology products and corresponding regulatory means a chance to test. So, what means will be adopted in this pilot? What actions will be taken in the next pilot?

Che Ning said that the central bank mentioned exploring the use of flexible management methods such as information disclosure, product publicity, and social supervision. Next, new mechanisms and information disclosure platforms may be established. From the perspective of flexible management, diversified social means may be used for supervision, and the Financial Technology Research Institute and industry self-regulatory organizations will play a role. In terms of technical means, regulatory technologies such as monitoring based on big data and artificial intelligence will usher in a wave of benefits.

Yin Zhentao believes that the pilot model will mainly refer to the more popular international regulatory sandbox model, set entry standards and thresholds, conduct pilot projects within a scope, and leave the sandbox after passing the pilot. Judging from the industries targeted by the pilot, Internet micro-loans and other innovative fields may be covered.

In Chen Ning's view, the pilot launch is a great boon to the technological innovation of licensed institutions. In addition, "new, hot, and risk-controlled" may also be the pilot standards for industries and products. Among them, digital currency and payment fields may be the first to be piloted, and may be refined to a specific solution or product in the field.

"From the perspective of the main body, licensed institutions may be the first to enter the pilot program. Products such as loan assistance and joint loans that involve the traditional financial field but are controversial may also enter the pilot program. At the same time, there will be non-state forms of digital currency attempts similar to Libra (Facebook's newly launched virtual cryptocurrency)." Chen Wenjun said.

Sun Yang said that under the guidance of the national policy of supporting the development of inclusive finance, it is very likely that in the future, technology application pilot projects that serve small and micro enterprises and inclusive finance and rural finance will be encouraged to guide the development of financial technology in supporting small and medium-sized enterprises and agriculture.