The People's Bank of China headquarters in Beijing, Aug 3, 2018. (Photo: IC)

Unified framework in the pipeline to boost oversight of key infrastructure

Chinese financial regulatory bodies are designing a unified framework to streamline supervision of systemically important financial infrastructure, said experts, to prevent financial risks and strengthen financial safety.

They expected that the central bank, the People's Bank of China, will further enhance overall supervision of financial infrastructure to improve the centralized settlement arrangements and better control risks.

On Monday, the 10th meeting of the central committee for deepening overall reform reviewed and approved a series of documents, concerning promotion of the integrated development of advanced manufacturing and modern service industries, said a statement released by Xinhua News Agency.

As one of the key measures to achieve the high-quality economic development and reform goals, it urged efforts to strengthen overall supervision and control over key financial infrastructure and promote the formation of a well-organized, effective, advanced, reliable and flexible financial infrastructure system, the statement said.

"To coordinate regulations on systemically important financial infrastructure is necessary," said Wang Gang, a senior financial researcher at the Development Research Center of the State Council. "It is reasonable for the central bank to do the major coordination work, which is also consistent with international practices."

Financial infrastructure is the foundation to secure stable and efficient operation of financial markets, which is also an important factor for implementing macro-prudential management and strengthening risk prevention, said policy watchers.

They expected that a work plan for implementing the overall coordination of financial infrastructure regulation could be published soon, as it has been reviewed by the high-profile meeting. It will be a high-level guidance that authorizes financial regulators to perform the duties, said experts.

Financial infrastructure is generally defined as a comprehensive and centralized system covering multiple institutions, which is used for clearing, settling or recording payments, securities, derivatives, or other financial transactions, said a document issued by the Bank for International Settlements, an international organization acting as a bank for central banks.

Financial infrastructure is critical to helping central banks maintain financial stability and conduct monetary policy, said the BIS.

"China has not yet launched a unified framework for regulating systemically important financial infrastructure, but efforts are being made toward this direction," said Yin Zhentao, a researcher at the Chinese Academy of Social Sciences' Institute of Finance and Banking.

Following different regulatory rules made by various government departments, the payment and settlement system in the Chinese bond market is segmented, which has influenced market liquidity and trade efficiency, said Wang.

In China, some crucial financial infrastructure, including the Cross-Border Interbank Payment System and the bank card payment system China UnionPay, are under the supervision of the central bank.

Some others, such as China Securities Depository and Clearing, a platform for securities registration and settlement, is under the supervision of the China Securities Regulatory Commission.

A PBOC meeting in June 2018 urged efforts to coordinate the regulation of crucial financial infrastructure, especially to prevent and control risks in internet finance.