China pushes anti-crypto agenda with new financial regulator

Chinese lawmakers have announced a new financial regulatory body, the National Financial Regulatory Administration (NFRA), which will replace the China Banking and Insurance Regulatory Commission.

The new proposal, which gives the financial regulatory body previously held by the People’s Bank of China, the CBIR and the China Securities Regulatory Commission, was presented at a meeting of the Chinese National People’s Congress on Tuesday.

NFRA will eliminate regulatory arbitrage

Under the new law, the People’s Bank of China will expand from nine branches to 36, focusing on monetary policy.

In addition, the new body’s oversight will be “pervasive” and “continuous” and will oversee financial activities and functions. It will look to police institutions that threaten financial stability by participating in regulatory arbitrage.

The CBIR currently serves the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

China banned cryptocurrency trading and mining last year due to concerns about the environmental impact of cryptocurrency mining. However, some informal traders accept crypto from buyers in Africa and Latin America.

New financial regulator reinforces earlier push

Although no explicit reference was made to cryptocurrencies being overseen by the new body, it will have some administration over the Chinese securities markets.

This inclusion may align with a broader Chinese strategy to push crypto away from the mainland through a “super regulator.” Companies wishing to operate on the mainland may find the regulatory burden too heavy.

Crypto firms in Hong Kong recently told Bloomberg that while Beijing was looking to tighten regulations on the mainland, officials see Hong Kong as a testing ground for cryptocurrencies.

Currently, the Hong Kong Monetary Authority and the Securities and Futures Commission regulate crypto in the region, designated as a Special Administrative Region of the People’s Republic of China.

Several officials from China’s Liaison Office were seen at crypto events in Hong Kong last month. At the same time, regulators announced plans to allow retail trade via a licensing regime to be launched on 1 June 2023.

The Chinese Communist Party may also use the new body to rein in the speculative mania for cryptocurrencies that is reminiscent of the nation’s cyclical boom-bust cycles.

Recovery in China is typically driven by investment from entities that are at least partially state-owned.

Officials motivated by political goals take advantage of relaxed credit policies to finance large investments that put upward pressure on prices. The government then imposes fiscal austerity until the shortage experienced during the boom stabilizes, after which the cycle starts again.

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