PBC sets standards on sci-tech ethics in financial sector, cautions against blurring of business boundaries
Published: Oct 25, 2022 01:24 PM Updated: Oct 25, 2022 02:20 PM
Fintech File photo: VCG

Fintech File photo: VCG

The People's Bank of China (PBC), the central bank, has recently announced standards to specify science and technology ethics in the financial sector, setting requirements for banks to fulfill the mission of serving the real economy, media reports revealed on Tuesday. 

Experts praised the new set of standards as necessary to support sustainable development of China's financial sector, which has encountered some problems as a few banks sought to bypass financial regulation in the name of fintech innovation in recent years.

A document issued by the PBC elaborates on seven aspects of values and codes of conduct that banks must abide by when they carry out scientific activities in the finance sector, including low-carbon, risk prevention and control, fair competition and data security, in order to guard against and address ethics risks in fintech innovation, a report of 21st Century Business Herald said.

The document defines fintech as "financial innovations driven by technologies," with its core being licensed financial institutions using modern scientific and technological achievements to transform or innovate financial products, business models, business processes and so forth, on the condition that they comply with laws and regulations.

In the document, the PBC clarifies the positioning and differentiation of banking businesses. According to the PBC, the essence of fintech is financing. Those involved in financial business must obtain the appropriate licenses and qualifications, and actions such as blurring business boundaries, exceeding business operation scope or implementing unlicensed operation in the name of technological innovation are forbidden.

The PBC noted that China will adhere to the principle of "finance being the foundation, and science/technology being the instrument," making it clear that financial institutions will directly provide financial services, while technology firms will provide technological support for financial institutions.

The PBC's rollout of the standards is seen as another reflection of China guarding against financial risks, after regulators tightened the management of chaotic financial activities such as peer-to-peer lending in recent years. 

Regulators have tightened management of internet companies that dabble in financial services, such as holding talks with Alibaba's Ant Group and requiring it to rectify its business.

According to experts, the PBC's emphasis on defining fintech is a move to clarify regulatory boundary, as only by differentiating fintech innovations that abide by the set rules, will financial institutions be motivated to develop real technological innovations. 

"The essence of digital payment is financing, so it should be under financial regulatory management instead of deviating from management in the name of fintech innovation. Also, moves like promoting illegal crypto tokens in the name of using blockchain technology violate the law and should be checked," Zhou Di, a senior engineer at the Shanghai Fangrong Technology Co, told the Global Times on Tuesday.

According to Zhou, emerging technologies like big data and cloud computing in the financial sector have generated some "gray areas" and some internet platforms and financial platforms have tried to make profits in the name of innovation.

Although it looks like such strict management would restrict the development space for fintech companies in China, experts stressed that it will actually help the industry to develop in a more sustainable way.

Zhang Yi, CEO of iiMedia Research Institute, said that it's necessary to step on the brakes of fintech sector' disorderly development from the perspective of maintaining financial security, so that the financial industry would develop in a more sustainable way.

"Financial stability is very important to support social development. This is the general principle and direction," he told the Global Times.

He also noted that by clarifying fintech's financial nature and specifying requirements that banks must obey, regulators are giving a "clear" environment to domestic financial institutions, and this will protect investors or financial employees from potential losses because of the absence of regulatory management.