PBOC Issues Draft Law to Set Up Financial Stability Fund

​The PBOC (People's Bank of China) has released a draft law on financial stability for consultation, including a proposal to set up a new guarantee fund.

China's State Council said last month that preparatory work to establish a new financial stability guarantee fund will be complete by end-September. Earlier in the month, Premier Li Keqiang said that fund would be established to "defuse risks" at financial institutions in "market-based and law-based ways".

Work to establish the fund is being led by the PBOC (People's Bank of China), with involvement from various other agencies including the CBIRC (China Banking and Insurance Regulatory Commission), MOF (Ministry of Finance), and CSRC (China Securities Regulatory Commission).

The draft Financial Stability Law is part of the effort to develop an efficient, authoritative, and well-coordinated working mechanism to support financial stability and prevent systemic risks in China, the PBOC said.

The draft law consolidates and assigns responsibilities to different agencies for financial risk prevention, mitigation, and disposal. It also provides a framework for the establishment of a disposal fund pool, while setting out the conditions under which the fund pool will be used.

The law will support the establishment of a guarantee fund for financial stability as a "market-based and law-based risk management system", while also strengthening accountability for violations of laws and regulations and improving protections for market entities, the PBOC said.

"Some of the small and medium-sized financial institutions have failed corporate governance and extensive business strategies, and some shareholders and actual controllers have abused their control powers and occupied funds from financial institutions in violation of laws and regulations. These are the most major causes of financial risks," a spokesman for the central bank said.

The financial stability guarantee fund will comprise funds raised from financial institutions, financial infrastructure institutions and other entities, as well as other funds specified by the State Council.

It will be subject to overall management by the State Council's Financial Stability and Development Committee, and be used as a backup fund for the disposal of major financial risks with systematic impact, the PBOC said.

Source: Regulation Asia