The new regulatory scheme is overseen by a single, multi-sector, super-regulator
China's financial landscape is set to undergo significant changes as the country ushers in a new regulatory regime aimed at streamlining oversight across its banking and financial services sectors, the International Bar Association (IBA) reported.
The establishment of the National Financial Regulatory Administration (NFRA) in May 2023 marks a pivotal shift from the previous regulatory framework, signalling the start of a new chapter in China's financial oversight.
The NFRA, described as a “super” financial regulator, emerged from the reorganization that dissolved the China Banking and Insurance Regulatory Commission (CBIRC). It was not until November 2023 that the scope of NFRA's responsibilities and structure were fully unveiled. This new body now oversees all financial sectors, excluding the securities industry, a responsibility previously held by the China Banking and Insurance Regulatory Commission and partially by the People's Bank of China (PBOC) and the China Securities Regulatory Commission (CSRC).
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The reformed structure aims to consolidate regulatory oversight, transferring financial holding companies' approval and supervision authority from the PBOC to the NFRA. Consequently, the PBOC will sharpen its focus on monetary policy and macro-prudential supervision, while the NFRA also assumes the role of financial consumer protection from the CSRC.
“The new regulatory regime, which is overseen by a single, multi-sector, super regulator, is a familiar one to large global banks and international financial institutions,” said Liam Flynn, European Regional Forum Liaison Officer of the IBA Banking & Financial Law Committee and co-head of the Financial Regulation team at Irish law firm Mason Hayes & Curran.
The NFRA's broadened mandate covers asset and wealth management institution supervision, previously under disparate regulators. This consolidation is expected to curb regulatory arbitrage opportunities and enhance the regulator's capability to enforce compliance and risk control standards.
Since its inception, the NFRA has introduced several measures to strengthen supervision, emphasizing corporate governance and risk management. These developments come against increased regulatory enforcement in China, with banks facing fines exceeding RMB 2.8 billion in 2023 for various infractions.
The reform has elevated domestic companies' compliance and risk control requirements and introduced tougher enforcement actions. David Liu, Co-Chair of the IBA China Working Group, anticipates a surge in demand for legal services in financial services compliance, driven by the rising level of fines and the proliferation of new rules issued by the NFRA.
Additionally, the central government's policies encourage banks to support the “real economy” and lend to qualified property developers, prioritizing lending to green and low-carbon sectors. This policy direction necessitates commercial banks to develop expertise in diverse areas and sectors, further complicating the risk identification and management processes.
“Lawyers and their financial sector clients must embrace the new way of working, while the regulatory structural changes may affect the practice of law in certain areas,” said Yuan Ting, a partner at Zhong Lun in Beijing. “Given that different authorities have divergent review standards and processes, as well as varying approaches to the same issue, lawyers should tailor legal documentation and the style of interaction accordingly.”
