(Yicai Global) June 22 -- "Technological development could magnify the fluctuation of China's financial system or lead to underrated risks and incorrect pricing," Deng Zhiyi, director of the China Banking Regulatory Commission said at yesterday's Lujiazui Forum during a plenary conference on "coordination and balance of financial regulation and innovation".
Deng believes fintech could make the nation's financial system more complex, and bring about a tremendous challenge to regulators.
China's internet-managed capital has reached over CNY2.7 trillion (USD400 billion), according to data from iResearch, with online credit balances tipping CNY1 trillion. Due to the internet's adaptability and power to offer fast transactions, forecasts suggest that the Chinese market could reach CNY12 trillion by 2020.
However, fintech isn't without its risks. The spillover risks into business are accelerated by financial technology with the continuous application of Big Data, cloud computing, artificial intelligence and mobile internet technology, Deng said. Online transactions, real-time foreign exchanges and virtual accounts can also lead to issues. As an example, the growth of multi-industry and trans-market financial services can lead to unrelated businesses connecting and complicating financial risks.
"At an institutional level, fintech mainly affects the profitability of traditional lenders," Deng said. "It also increases operational risks, such as data management. As financial technology hasn't been tested for a full cycle, and historical data isn't complete, it's likely to lead to an underestimation of financial risks and therefore ineffective pricing, which further increases the level of risk across the country."
"Technology's core contributions to financial innovation and development are improving efficiency, creating possibilities and achieving fairness," Wang He, chairman of PICC Property and Casualty Co.'s supervisory committee, said at the forum.
"Fintech is bound to steer toward technology-based regulation," he added. "This way, block-chain technology would be able to play a better role in strengthening supervision. It can coordinate the relationship between groups and individuals to prevent manipulation, and provide a technical means to strengthen technology-based regulation."
The rapid development of fintech has also birthed 'regtech,' or regulatory technology. Over the past decade, regulatory changes and the accelerated development of financial technology have profoundly changed the overall development of the finance sector. Regtech provides technical solutions for regulation, with cutting the costs of compliance a key driver for the industry, according to a recent report by Deloitte dubbed RegTech is the new FinTech.