(Yicai) April 9 -- China’s National Financial Regulatory Administration has completed the formation of a four-tier supervisory framework with the establishment of county-level offices yesterday, which will help broaden the regulator’s supervision into financial practices at the grass-roots level.

The financial regulator now has a seamless hierarchical financial regulatory framework running from county-level supervision bureaus, to divisional bureaus, to provincial bureaus up to the NFRA itself, Dong Ximiao, chief researcher at Merchants Union Consumer Finance, told Yicai. This marks the completion of a new round of financial regulatory institutional reforms that were initiated last year.

A lack of grassroots regulatory capacity is one of the reasons why there are numerous small and medium-sized financial institutions at the county level in China.

"County-level regions are high-risk areas for financial risks. The NFRA’s supervision bureaus can have more oversight of county-level branches of banks and insurance companies, which will help reduce financial risk, maintain financial stability and protect the legitimate rights and interests of consumers," said Dong.

Before this, the central bank was the only financial regulatory institution with branches at the county level, which were responsible for implementing monetary policy, providing financial services and maintaining financial stability.

But with the widespread application of financial technology, improvement in county-level transport links and better streamlining, their function was reduced and in the latest round of reforms it was determined that they should be abolished and replaced by the NFRA’s supervision bureaus. Most of the staff from the PBOC county-level branches have been transferred to the NFRA’s supervision bureaus.

"After the dissolution of county-level branches of the PBOC, employees should be utilized to reinforce the grassroots regulatory teams of the NFRA and the China Securities Regulatory Commission, which will help increase frontline enforcement agencies and personnel, improving the weak regulatory capacity at the grassroots level," a source close to regulators previously told Yicai.

County-level bureaus should enhance communication and co-ordination with branches of the PBOC and CSRC to prevent and mitigate financial risks by strengthening regulatory measures, Dong said. They should focus on promoting high-quality development within local banks so as to better serve the real economy.

The NFRA was established in May last year to replace the China Banking and Insurance Regulatory Commission and take on some supervisory duties from the central bank and CSRC, such as regulation of financial groups as well as consumer and investor protection. It exercises unified supervision and management over the financial industry, excluding the securities sector.

Editors: Tang Shihua, Kim Taylor