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 China's stock markets dropped by more than 40 percent between
mid-June and August, forcing Beijing to take unprecedented measures
to prevent a wider panic, embarrassing the government and delaying
planned improvements to nascent derivatives and futures markets.
The uncoordinated policy response prompted senior leadership to
begin internal discussions about merging the three main financial
regulators, part of a broader goal to reform China's markets, said a
senior official at one of the regulators involved in the process.
A financial services executive who is in frequent contact with
regulators, and a source close to the senior leadership confirmed
discussions were taking place.
Industry insiders have expected a shake-up in the regulatory
apparatus in the months following the crash, and sources told
Reuters that Beijing had already begun exploring a replacement for
China Securities Regulatory Commission (CSRC) head Xiao Gang.
The three regulatory agencies that may be merged are the CSRC, the
China Banking Regulatory Commission (CBRC) and the China Insurance
Regulatory Commission (CIRC).
The three regulators did not immediately respond to requests for
comment.
POWER SHIFT
Beijing is looking at Britain's regulatory set-up as a model, among
other options, the senior regulator source said. Britain reformed
its regulation after the global financial crisis, handing the Bank
of England more control over the financial system, partly in the
hope of avoiding future bank failures.
It's not clear whether the People's Bank of China (PBOC), the
country's central bank, would be part of any new super-regulatory
body, the sources said.
Currently, China's three regulators operate independently, each
reporting to the State Council, or cabinet.
"It's quite difficult to differentiate between a securities company
versus an insurance company versus an asset management company, yet
they are under different regulatory umbrellas and belong to
different regulators. This leads to a lot of overlap," said Zhou Hao,
economist at Commerzbank in Singapore.
"This is something that follows the more sophisticated and more
straightforward regulatory framework, which I think has done quite
well in the British system," he added.
Discussions around a unified financial supervisory commission have
been ongoing for more than a decade.
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Those plans haven't moved forward, but in August 2013 the State
Council created a system to coordinate meetings on monetary and
financial supervision, headed by the central bank and including the
regulatory agencies.
More recently, authority figures have discussed publicly the need
for major reform of China's financial and markets regulators.
Yang Weimin, vice-director of a central financial policy making
committee, told a State Council news briefing last week that China
will reform its regulatory structure, as stated in its latest
Five-Year Plan, because of market volatility and cross-asset
developments.
And local media reported late last week that Yin Zhongqing, deputy
director of the finance committee of the National People's Congress,
suggested the central bank, CBRC, CSRC and CIRC be merged into a
single regulatory body when conditions are ready.
In August, a report from the Financial Stability Board, the
international regulatory body comprised of central banks, urged
China's regulators to work more closely and clearly define their
roles to improve risk management in the financial system.
Any move to centralize regulatory supervision would shift power away
from the three current agencies and create a more direct link
between market oversight and China's leadership. A new institution
would be overseen by the State Council, the senior regulatory source
said.
No decision has yet been made, and any process of integration would
likely take some time.
(Reporting by Engen Tham and Benjamin Kang Lim, with additional
reporting by Michelle Price in HONG KONG and Pete Sweeney in
SHANGHAI; Editing by Matthew Miller and Ian Geoghegan)
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