How to balance financial supervision and financial innovation? The latest article from the Central Financial Office points out the direction, experts: supervision is the key to ensuring impartial innovation

On April 25, the Office of the Central Financial Commission and the Theoretical Study Center Group of the Central Financial Working Committee wrote an article stating that they should adhere to the general tone of seeking progress while maintaining stability. It is necessary to properly handle the relationship between strengthening financial supervision and financial innovation, and not engage in \”innovation\” that deviates from the needs of the real economy and circumvents supervision.

Source: Financial News Agency On April 25, the Office of the Central Financial Commission and the Theoretical Study Center Group of the Central Financial Working Committee wrote an article stating that they adhere to the general tone of seeking progress while maintaining stability.
It is necessary to properly handle the relationship between strengthening financial supervision and financial innovation, and not engage in \”innovation\” that deviates from the needs of the real economy and circumvents supervision.
This proposal to rebalance the relationship between financial supervision and financial innovation has attracted the attention of institutions and markets.
Many analysts interviewed believe that the Central Financial Office and the Financial Working Committee still affirm the necessity of innovation. It does not mean that there is no need for innovation, but that financial innovation needs to be anchored by serving the real economy and subject to regulatory coverage.
On April 25, Luo Zhiheng, chief economist of Guangdong Securities, told the Associated Press that the real economy has put forward higher requirements for the financial system, and financial innovation has become a powerful means to improve service efficiency.
However, considering the inherent nature of capital\’s pursuit of profit and the natural characteristics of financial self-expansion, financial innovation may lead to the phenomenon of capital \”shifting from reality to virtuality.\”
Regarding the possible harm of financial innovation, Zheng Liansheng, a researcher at the Institute of Finance of the Chinese Academy of Social Sciences and director of the Financial Risk and Financial Supervision Research Office, believes that due to financial innovation, financial business is becoming increasingly complex, and the essence is that different financial markets, industries and institutions The balance sheet correlation becomes complicated. When some specific or accidental risk shocks occur, the financial system may fall into major risks due to balance sheet correlation or other shocks.
Luo Zhiheng believes that financial capital is prone to the phenomenon of \”shifting from reality to imaginary\”. The 2008 financial crisis is a vivid example, so financial supervision is essential.
The natural characteristics of financial self-expansion may lead to capital \”shifting from reality to virtuality.\” The Office of the Central Financial Commission and the Central Financial Working Committee also mentioned in the article that financial innovation must be carried out, but innovation cannot be indiscriminate.
Serving the real economy is the bounden duty of finance. If finance is keen on self-circulation and self-expansion, it will become water without a source and a tree without roots.
Zheng Liansheng introduced that in recent years, with the development of diversified financial innovation, especially the widespread application of digital technology and the deepening of the digital transformation of financial institutions, it has become a norm for financial activities to transcend time and space constraints, and non-licensed financial institutions have been involved or even participated in the activities. Financial services are also common.
To a certain extent, some financial innovation projects in the past may become one of the loopholes for financial problems and financial risks.
Luo Zhiheng also believes that considering the inherent nature of capital\’s pursuit of profit and the natural characteristics of financial self-expansion, financial innovation may lead to the phenomenon of capital \”shifting from reality to virtuality.\”
The 2008 financial crisis is a vivid example, so financial supervision is essential.
Zheng Liansheng believes that due to the vigorous development of the financial industry, the continuous expansion and deepening of the breadth and depth of financial business, coupled with factors such as economic cycles and external shocks, financial risk issues are also more prominent, and it is urgent for the financial regulatory system to better cover and handle them.
At the same time, in addition to formal financial activities, there are also some domestic financial activities that are outside the financial regulatory system, especially stakeholder financial activities.
In the absence of strong regulatory constraints, these informal finances are often prone to major financial risks and damage the rights and interests of the general public.
In this regard, the Office of the Central Financial Commission and the Central Financial Working Committee also emphasized in the article that financial supervision is a key institutional design for preventing and controlling financial risks, governing financial chaos, and standardizing financial order.
It is necessary to speed up filling the gaps in the regulatory system, strengthen regulatory coordination, implement all-inclusive regulatory responsibilities, and achieve full coverage of financial regulation.
Comprehensively strengthen the \”five major supervision\” and resolutely reverse the long-standing disadvantages of focusing on development, weak supervision, and spreading risks and covering up the situation.
How to deal with the imbalance between financial innovation and supervision? In addition to emphasizing that innovations that deviate from the needs of the real economy should not be carried out, the Office of the Central Financial Commission and the Central Financial Working Committee also emphasized that \”innovations\” that circumvent supervision should not be carried out.
At the beginning of the year, Yi Huiman, the former chairman of the China Securities Regulatory Commission, said at the annual meeting of the Financial Street Forum that the imbalance between innovation and supervision deserves attention.
Innovation is an important driving force for financial development, but \”pseudo-innovation\” that violates the essential laws of economics and finance leads to financial generalization and will inevitably lead to risks.
In the past period, various forms of \”quasi-financial\” chaos such as \”pseudo-private equity\”, gold exchanges, and \”fake gold exchanges\” have occurred frequently, and supervision has lagged behind, becoming an important source of risks.
Back to financial innovation itself, how to judge and achieve the balance between supervision and innovation? In this regard, Luo Zhiheng believes that the fundamental goal of financial innovation should be to improve the energy efficiency of serving the real economy, play a role in supporting technological innovation with financial innovation, and help the development of new productive forces.
Financial supervision is the key to ensuring that financial innovation is impartial and that breakthroughs are achieved in key areas.
A reporter from the Associated Press noted that the China Securities Regulatory Commission system also expressed the issue of imbalance between innovation and supervision.
On April 22, the Theoretical Learning Center Group of the Party Committee of the China Securities Regulatory Commission wrote an article stating that the key to promoting the development of financial innovation on the track of marketization and rule of law is to properly handle the relationship between the government and the market.
The Party Committee of the China Securities Regulatory Commission believes that only by fully mobilizing the initiative of all parties in the market and further stimulating innovation vitality can we provide better financial services for high-quality economic and social development.
However, corresponding institutional and mechanism guarantees are needed. Specifically, the first is to continuously improve the financial laws and market rules system.
Financial transactions involve complex and diverse rights and obligations, are characterized by information asymmetry, and have very high credit requirements, and a sound regulatory system is necessary.
The second is to continue to improve financial governance efficiency and regulatory effectiveness.
The vitality and authority of the law lies in its implementation.
Financial innovation updates and iterates quickly, and has obvious procyclicality and strong spillovers. It is necessary to strengthen the supervision of financial innovation and eliminate gaps and blind spots in a timely manner.

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