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Advice Sought by China From Britain on Creating Financial Super-Regulator

Advice Sought by China From Britain on Creating Financial Super-Regulator
As China looks to improve financial oversight following last year's stock market crash, it has asked Britain for advice on plans to create a financial super-regulator, reported Reuters quoting sources with knowledge of the talks.
Notwithstanding this week's gaffe by Queen Elizabeth, who was caught on camera grumbling that Chinese officials accompanying President Xi Jinping on a visit to the UK last year had been "very rude to the ambassador", the discussions between representatives from China and the UK Foreign Office and Treasury highlight Britain's burgeoning relationship with Beijing on financial matters.
In a bid to increase transparency, reduce systemic risk, and stop companies exploiting loopholes, the talks signal Beijing's growing willingness to seek outside help to improve regulation of its financial infrastructure.
Beijing had sent delegations to London to study the UK regulatory framework, reports the media citing several Chinese and British sources with direct knowledge of the talks.
Sources also said that UK government representatives also visited Beijing last month to discuss financial, economic and regulatory issues.
China's stock markets lost a third of their value in a month, having soared 150 percent in the previous 12 months which revealed the weaknesses in Chinese regulation.
Measures that included limiting short-selling, stopping new listings and strong-arming big funds to buy more stocks, the government and regulators rushed out a series of measures to arrest the crash. However over-riding market mechanisms, poor inter-agency coordination and creating moral hazard by implying government support were the alleged criticism of the interventions.
There were reports earlier that the proposal for creating a single regulator covering banking, mutual funds, insurance and securities were being mulled by China as a measure at consolidating supervisory powers.
Handing enormous power to the Bank of England, which is responsible for averting risks to the financial system as a whole, the regulatory system in Britain was overhauled after the global financial crisis of 2008-09.
Closer aligning of macro-economic policies with on-the-ground regulation and supervision of financial institutions and markets is done to reduce blind spots by the new structure.
Differences in their political systems and potential rivalries over where such a powerful regulator would fit among senior decision makers limited China’s ability to exactly recreate Britain's regulatory structure.
"The UK model is a reference, but we can't completely copy it. The UK model is worth us studying but it would have flaws when implemented in China," said one of the sources.
Foreign help in addressing financial problems at home has been sought by China on earlier occasions also. Advice on handling its tumbling stock markets was sought from the U.S. Federal Reserve last July by the People's Bank of China (PBOC), the central bank of China. UK and China are collaborating on several economic and financial projects, including a stock trading link between London and Shanghai as the UK Treasury has lobbied hard to become China's partner of choice on a range of financial issues.
The merger of China's top financial regulators - the China Securities Regulatory Commission (CSRC), the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC)  is one of the options that is currently under discussion.
Currently these three agencies operate independently, reporting to the State Council, China's cabinet, and would continue to report to the cabinet if merged.
Giving the central bank more power, as in Britain, another option under consideration would see the new super-regulator report to the PBOC. The PBOC would still report to the State Council, the sources said.

Christopher J. Mitchell

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