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IMF, World Bank Publish China FSAP Update Reports
07-12-2017

The International Monetary Fund (IMF) and the World Bank published reports of China's Financial Sector Assessment Program (FSAP) update, including the Financial System Stability Assessment (FSSA), the Financial Sector Assessment (FSA), and the Detailed Assessment of Observance on IOSCO Objectives and Principles of Securities Regulation on December 7th, 2017. The publication marked the successful conclusion of China's FSAP update.


Fully noting the achievements of reform and development in China's economic and financial systems in the past few years, the reports objectively reflect the current stage of securities and futures market development, acknowledge that China's regulatory framework is largely compliant with the IOSCO Principles, and recognize the CSRC's efforts to mitigate risks, enhance regulation, deepen institutional reforms and promote market development since China's first FSAP between 2009 and 2011. In particular, the reports point out that China's leading practices in investor protection and risk monitoring could serve as a reference for other jurisdictions. In the meantime, the reports also identify some specific challenges faced by China's capital markets at the current stage.


The reports highlight some innovative approaches adopted by the CSRC to protect the vast number of retail investors in China's securities markets, including the creation of the China Securities Investor Services Center Corporation Limited (CSISC), which can represent investors in court and hold shares for the sole purpose of exercising shareholder rights on behalf of small investors. Other initiatives have also yielded fruits in investor protection, including the development of a multilayer mediation system, enhancement of intermediaries' suitability obligations and unification of client suitability requirements. Moreover, the CSRC has leveraged a "see-through" system for clients' accounts to set up the Capital Market Statistics and Monitoring Center Corporation Limited (CMSMC), develop a Central Regulatory Information Platform, an integrated system for the aggregation and sharing of information, and implement a universal identification number for investors across the securities and futures markets, making impressive progress in systemic risk identification and monitoring.


The reports provide recommendations for China's authorities to increase regulatory resources, strengthen regulatory coordination and information sharing, improve corporate governance of listed companies, strengthen the CSRC's investigation and enforcement powers, increase the intensity of supervision on capital market gatekeepers including audit firms, explore the creation of an independent authority for audit oversight, give full play to the risk management function of the futures market, and take a differentiated approach to the regulation of hedge funds. Such recommendations are very much in line with the CSRC's recent efforts to pursue law-based, comprehensive, and strict regulation, and will be of great value to improving the legal and regulatory framework of China's capital markets.


The CSRC has placed high importance on the FSAP exercise, viewing it as a good opportunity to fully examine and improve the regulation of capital markets in line with international standards. Since China's first FSAP, the CSRC has taken real actions on the recommendations made in the assessment and achieved significant progress in many areas identified for action. Going forward, the CSRC will comprehensively implement the spirit of the 19th CPC National Congress, pushing forward to accomplish the three important tasks of serving the real economy, preventing and mitigating financial risks, and deepening financial reforms set out at the National Financial Work Conference. The CSRC will continue to apply international standards to the particular circumstances in China and its capital markets, stick to the market-oriented and law-based reform path with a global vision, and accelerate the formation of multi-tiered capital markets that feature full range of financing functions, sound underlying structures, effective regulatory regime and adequate investor protection, thereby enabling the markets to better support China's real economy and become more resilient against financial risks.


The FSAP is an assessment program jointly launched by the IMF and the World Bank in 1999, with the World Bank participating in assessments of developing countries and emerging economies only. FSAPs mainly examine financial sectors in member economies in terms of the level of development, stability and soundness, quality of regulatory framework, and resilience towards financial crises. China had its first FSAP between 2009 and 2011. As the IMF made it mandatory for China and other jurisdictions with systemically important financial sectors to undergo FSAP assessments every five years, an update was launched in October 2015.
    



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