China’s new powerful financial regulator could deal a big blow to digital assets

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In a move that could signal a greater government crackdown on the fintech industry in China, lawmakers have proposed a new financial regulator that will consolidate the powers of three top existing regulators.

In a plan recently submitted to parliament, the lawmakers proposed giving the country’s cabinet—known as the State Council—greater oversight over the financial industry by creating the National Financial Regulatory Administration (NFRA).

The new agency would replace the China Banking and Insurance Regulatory Commission (CBIRC), the existing agency tasked with overseeing China’s vast banking and insurance industry.

NFRA would also take up many oversight duties currently relegated to the People’s Bank of China (PBoC), the country’s top bank.

The only sector exempt from the new agency’s reach would be the securities industry, which would remain under the China Securities Regulatory Commission (CSRC) jurisdiction.

The goal is to reduce the regulatory loopholes that having multiple regulators makes the country prone to. President Xi Jinping’s government has been on a campaign to shore up the financial industry in recent years. This has seen clampdowns on major financial and fintech players, including the much-publicized crackdown on Ant Group, Jack Ma’s fintech giant. This crackdown forced the company to suspend its $37 billion IPO days before its launch.

“You could certainly argue for better coordination between regulators but a whole new super regulatory administration may not be the solution. But centralisation of power appeals to many in China,” Fraser Howie, an expert on the Chinese financial industry, commented.

China’s proposed regulatory system, which borrows heavily from Australia, will relegate the central bank to monetary policies and related aspects, including the interbank bond market. The new agency would take over some of its former responsibilities, including investor protection and supervision of financial entities.

China’s renewed fight against Bitcoin

There was no specific mention of Bitcoin in the new agency proposal. However, experts believe the NFRA will translate to a greater crackdown on the industry. President Xi Jinping’s government has been open about its opposition to digital assets, including banning ICOs and, more recently, block reward mining.

However, digital currency users in the country had room for regulatory arbitrage, which saw China rank in the top ten globally for digital asset usage last year despite the crackdown.

Under the new regime, the NFRA will be tasked with cracking down on the sector, taking up a responsibility previously shared by several agencies. And with the NFRA being directly led by Jinping’s Communist Party, it will be tougher on the industry.

Along with the proposal for the NFRA, lawmakers also proposed a new National Data Bureau to guide the country toward a digital future. This new bureau will, among other things, establish a data system for China, including overseeing internet-based services.

The bureau could have a major impact on digital assets. Since it will operate under the National Development and Reform Commission, the bureau will be anti-Bitcoin, in line with the Commission’s strict stance against digital assets.

The big winner from the expected renewed attack on BTC in China will be Hong Kong. In recent years, the city-state has positioned itself as a digital asset-friendly destination as it seeks to compete with Singapore and London as the digital financial hub.

Hong Kong’s securities watchdog, the SFC, has ramped up digital currency regulations over the past year, including through increasing its staffing headcount. The city’s push is bearing dividends, with Financial Secretary Paul Chan saying earlier this year that several firms had expressed interest in setting up operations in the city.

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