This chapter examines the legal and institutional regulatory framework for China’s financial markets, and evaluates how China may need to restructure its regulatory regime in order to keep up with market developments. The chapter first provides a detailed discussion of the current Chinese financial regulatory framework, and then identifies its major structural problems. In search of an appropriate agenda for reform of China’s financial regulatory structure, it conducts a comparative analysis of financial regulatory structures in overseas jurisdictions, as well as a contextual consideration of China’s local conditions. Finally, it discusses the recent developments and their implications for the future prospects of China’s transition to a Twin Peaks model of financial regulation.

While mobile payments bring great benefits like convenience, flexibility and efficiency, they are not without risks. Among them, the data privacy risk is probably one of the most serious, which is largely caused and exacerbated by the involvement of multiple players and the extensive collection of personal information. China has been trying to consolidate and modernize its regulatory regime for data privacy to suit the needs of the new digital era. China has made great efforts to enact new laws and regulations to delineate the scope of personal information, introduce the obligations for data controllers and processors and incorporate the principles of the Fair Information Practices. However, there are some remaining concerns; the ineffective requirements of consent and disclosure, the ambiguous principle of purpose limitation and the limited applicability of the principle of data minimization. There is a need for China to enact a specific law for data protection, establish a unified law enforcement agency and enhance private and public enforcement. The issue of data privacy is not unique or limited to mobile payment and can apply to other sectors of Fintech and even beyond.

China has become one of the leaders in the global mobile payment market in terms of market volume, growth rate and innovation capability. This can be attributed to a number of enabling factors, including technological advancement in China, mobile payment’s competitive advantages and its wide acceptance by the Chinese people. Mobile payment brings significant benefits as well as various risks and thus should be regulated in a way that reaps its benefits while containing the risks. Over the past decade, China has gradually established a regulatory regime which is composed of various rules issued by different regulators in a piecemeal manner. China’s regulatory regime for mobile payment has several key elements, such as the entry and exit mechanism, management of customer reserves, anti-money laundering measures and consumer protection. The Chinese regulation has strengths and shortcomings, particularly in relation to the overall structure and approach of the regulation. There is also a need to address the negative effects on competition in the mobile payment market that may be brought by the high entry threshold and the centralized clearing mechanism.

As China has banned ICOs, cryptoassets cannot be created and traded there. This chapter thus examines the relevant law in the Hong Kong Special Adminstrative Region (HKSAR). Due to the difficulties in regulating cryptoassets under the traditional framework, HKSAR set up its first regulatory regime on cryptoassets in November 2018, imposing new standards on cryptoasset fund managers, distributors and platform operators. A year later, HKSAR further clarified its position on the regulation of cryptoasset exchanges. Overall, the new regulatory regime for cryptoassets in HKSAR addresses the issues of regulatory gaps and regulatory arbitrage that existed under the previous framework as well as introducing enhanced regulatory standards. This has the effect of improving investor protection, but there are some remaining concerns. Chief amongst them are the problems with regulatory scope, the application of traditional regulatory standards to cryptoassets that do not fall within the definition of securities or futures, problems with the sandbox mechanism and ultimately, as a matter of regulatory philosophy, the need for a better balance between investor protection and market development.

China’s online P2P lending has undergone a roller-coaster period in the past decade with explosive growth initially to become the largest in the world currently. Online lending platforms have mushroomed across the country followed by a free fall in the past couple of years to see the market shrink drastically, with the closure or transformation of most of the platforms. The initial rapid development is a consequence of the simultaneous emergence of three key factors, namely deep penetration of internet, large supply of funds and unmet financial needs. In 2016, China issued an important regulation for online lending, introducing a number of significant measures, such as the restriction on the business model that can be adopted by platforms, registration requirements, custodian requirements, information disclosure requirements and lending limits. The regulation has far-reaching implications, including a reshuffling of the market and more collaboration between online lending platforms and traditional banks. However, now it seems that the regulation has failed to achieve its purposes, due to the problems with both substantive rules and enforcement mechanisms.

This introduction chapter is meant to provide background information on the book. It sets out the concept of Fintech and the reasons for writing the book. It also provides a general introduction to the Chinese Fintech markets and a snapshot of the main topics covered by the book. Finally, it discusses the Chinese regulatory framework for Fintech, including governmental regulators, self-regulatory organizations and local regulators.

The term initial coin offerings (ICOs) refers to a new fundraising tool which allows organizations, mainly entrepreneurs or start-ups, to launch a business based on distributed ledger or blockchain technology to raise operating funds. The development trajectory of the ICOs in China is broadly similar to that of online P2P lending, or more accurately, the former presages the latter. Specifically, the ICOs underwent a period of explosive growth in China since the second half of 2016 and then were banned in September 2017. The outright ban on ICOs may hamper revolutionary technological developments and dampen the growth of this potentially beneficial market in China. Hence, by completely stifling technology innovation and market development, the Chinese regulatory approach needs to be reconsidered in light of international experiences. Indeed, the ICOs can be broadly divided into five categories, namely pre-sale of products or services, offering of shares, issue of debentures, issue of derivatives, collective investment schemes and crowdfunding. Instead of a blanket ban, China should adopt a flexible and targeted regulatory approach according to the particular category of the ICOs.

As a form of artificial intelligence in the financial markets, robo-advisory has grown rapidly to provide automated investment services along with human advisors. Automated investment advice firms have brought significant benefits by improving the delivery of high-quality, less-biased financial advice. However, robo-advisors also bring risks due to the high dependence on technology. In the area of robo-advisory services, China has several advantages, such as strong consumer demand and a rapidly rising middle class, as well as disadvantages such as regulatory risks and low-level service quality. The over-demanding and inconsistent entry threshold, insufficient asset management powers of robo-advisors, weak fiduciary duties and inadequate information disclosure duties have hindered the development of robo-advisory services in China. By analysing the overseas experiences and local conditions, this chapter makes relevant suggestions for further improvement of the Chinese regulatory regime.

This chapter is a conclusion. It sums up the main findings of the previous chapters and, based on them, draws general implications of the Chinese experience for international discourse on Fintech regulation. It also points out areas for future research.

This chapter covers two important topics, namely equity crowdfunding and central bank digital currency. Equity crowdfunding was once a popular idea in China and almost gained formal recognition of the regulator. However, due to various reasons, equity crowdfunding failed to be written into the 2019 Securities Law. This means that in the foreseeable future, equity crowdfunding is unlikely to be legally permitted as a special Fintech sector in China. A very recent major development of Fintech in China is the Digital Currency Electronic Payment project (DC/EP) initiated by the Chinese central bank. Unlike Bitcoin and other types of cryptoassets, DC/EP has the backing of the credit of a state and is based on a more complicated system of operation. China is at the international forefront of developing central bank digital currency (sovereign digital currency), which has attracted a lot of attention. However, the development is still at an early stage, and only time will tell how the DC/EP will operate in practice and what effects it will bring to the people in China and beyond.