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China Warns Fintech Revolution Potentially At Risk Without Rules

China Warns Fintech Revolution Potentially At Risk Without Rules

The president of a major financial investment platform has suggested that the sheer numbers of fintech companies setting up in China represents a risk to the country’s development as a major hub because of lack of controls.

Vince Zhang, President of Phoenix Finance, was speaking on Day 3 of CNBC’s East Tech West on 29 November 2018 in Guangzhou. He suggested that many of the country’s fintech firms could be unsound due to lack of strict operating checks and balances, making them unsuitable in the long term for consumers. It is estimated that there are now tens of thousands of such companies operating in mainland China.

Zhang went on to say that this factor means that China’s fintech revolution is potentially at “a very big risk” due to this lack of competent management. He stated:

“A lot of companies are not [there] in terms of their business plan, in terms of their risk management process, in terms of their overall management… A lot of these corporate control mechanisms are not in place.”

Zang maintains that China’s so named “fintech revolution” has caused the numbers of fintech firms to swell over the past two years in a surge to attract unbanked consumers. He said that although other sectors may survive, he sees the financial sector in danger of coming under increased pressure: “For anything related to financial services, [it] is pretty dangerous.”

Phoenix Finance’s president suggests that better regulation is key to solving this potential problem and feels that the issue will get the attention from government regulators next year as the risks to China’s fintech developmental plans for the future become more evident. He argued that regulation will reduce the number of companies currently operating financial services:

“Without proper risk control mechanism personnel, without proper ways of communicating with regulation, it’s potentially becoming a very big risk going forward… I would predict in 2019 it’s becoming more regulated… There will be less and less players in this field.”

The Cyberspace Administration of China (CAC), the central government’s internet censor, is drafting a policy framework which, once formulated will be used for regulating blockchain projects in the country.

The new regulation, when established, will apply specifically to both individual and institutional providers of blockchain services, whether by laptop or mobile, referring to providers as “entities or nodes”.

 

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China Sets Its Direction With New Draft Rules for DLT

The Cyberspace Administration of China (CAC), the central government’s internet censor, is drafting a policy framework which, once formulated will be used for regulating blockchain projects in the country.

The CAC’s draft called “The Regulation for Managing Blockchain Information Services” will be thrown open to the public for feedback who will have until Nov 2 to give it the thumbs up before it moves to the next level of state approval by the country’s regulators.

The new regulation, when established, will apply specifically to both individual and institutional providers of blockchain services, whether by laptop or mobile, referring to providers as “entities or nodes”

The draft currently contains 23 proposals, including one which determines that any public offerings by a provider must be registered with the CAC within 10 days including details like company name, service type, and server address. Experts in China suggest that supernodes of certain blockchain networks could be affected. Jiang Zhuo’er, founder of the BTC.TOP mining pool commented on the proposed regulations:

“For example, each of the 21 supernodes of the EOS network is operated by a company or an individual. As such, they must be fully compliant.”

The new regulations would have a broad range, also incorporating news reporting, publishing, education, and pharmaceutical services, which would all be required to obtain licenses before registering with the CAC. Unsurprisingly the draft stipulates that DLT cannot be used to disseminate content deemed prohibited by the Chinese authorities. The #Metoo movement had managed to bypass government controls via DLT, a fact clearly not lost on officials when drafting the new rules.

Protection for user security and against fraud is another feature of the 23 proposals, with the CAC proposing KYC measures that would gather national identification numbers or mobile phone numbers of clients, stating:

“Service providers must store the logs and content published by users of their blockchain services for six months and provide this information to law enforcement when required,” the draft policy proposed.

The Blockchain Technology and Industry Development Forum (CBD Forum) of CESI want to draft three new blockchain standards by the end of 2018, with a possible release in 2019. CBD Forum has been largely responsible for drawing up guidelines for blockchain development in China, having so far published “China Blockchain Technology and Application Development White Paper (2016)” and “Reference Architecture of Blockchain” standards under instruction from MIIT (Ministry of Industry and Information Technology).

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