Development of the Regulatory System
1. National Regulators and their Shanghai Offices
China’s regulatory departments are the People’s Bank of China (PBOC), China Securities Regulatory Commission (CSRC), China Banking Regulatory Commission (CBRC) and China Insurance Regulatory Commission (CIRC). The organizing principle is separation of industries and separation of regulators; the banking industry, securities industry, insurance industry and trust industry are each responsible for their own financial business.
The PBOC is China’s central bank. It is responsible for the monetary policy, and also plays a key role in managing and mitigating financial risk, maintaining financial stability, and coordinating the management of systemic risk involving multiple institutions, markets or countries. The CBRC is the regulator for all of China’s banks, asset management companies, trust funds and other financial institutions which accept deposits. The CSRC regulates the national securities and futures markets. The CIRC regulates China’s insurance market. The State Administration of Foreign Exchange (SAFE) regulates all foreign exchange transactions and business among Chinese individuals and entities and foreign individuals and entities.
2. Local Government Services and Administration
The Shanghai Municipal Government Financial Services Office (SHFSO) is a municipal government department established in September 2002. Its responsibilities are following as:
Implement national laws, regulations and policies relating to finance. Coordinate with other municipal departments on the making policies, rules and municipal legislation to promote the development of Shanghai as an international financial center. Research and make plans for the development of Shanghai as an international financial center, and long term and annual plans for the growth of the financial industries.
Another function of the SHFSO is being the regulator of new financial industries. By taking over both the right of licensing and regulating the financial guarantee companies, it was able to reform this industry, license new companies and manage their development. It also pushed forward the pilot work on licensing private equity companies; collaborated on the filing of records by local private equity companies; and supported the pioneering pilot program for investment by overseas companies in Chinese PE firms (qualified foreign limited partner, QFLP).
3. Self-Regulation
Self-regulation is a powerful support in the regulation of any industry. Tapping into effective self-regulation increases the traction of the regulatory regime providing an extra, indirect channel for regulation.
(1) Banking industry. The Shanghai Banking Association was founded in December 1992. There are currently 160 members, of whom 135 are full members, and 25 associate members. 58 members are Chinese banks; 77 are foreign or joint venture banks. The 25 associate members are representative offices of foreign banks.
(2) Securities industry. The Shanghai Securities Association was founded on January 31, 1997, and adopted its current name on July 17, 2003. It is a self-regulation organization for Shanghai’s securities industry, with voluntary membership drawn from all companies involved in Shanghai’s securities industry.
(3) Insurance industry. The Shanghai Insurance Association was founded on February 4, 1994. Today it has 168 members.
(4) Other self-regulatory organizations. Industry associations exist for futures companies, funds, pawnbrokers, private equity, microfinance and guarantors, as well as the Shanghai Financial Association, founded in 2009.
4. Exchanges as Front-line Regulators
Exchanges’ role as front-line regulators means that Exchanges monitor transactions and related activities to ensure that they conform to existing regulations. This is the fundamental role of exchanges in industry self-regulation mechanisms. There are mainly Shanghai Stock Exchange, China Financial Futures Exchange, Shanghai Futures Exchange, Shanghai Gold Exchange, Shanghai Clearing House, and China Foreign Exchange Trade System/National Interbank Funding Center.